Teck Resources Limited (TSX: TCK.A and TCK.B, NYSE: TCK) ("Teck") reported
second quarter adjusted profit of $197 million, or $0.34 per share, compared
with $398 million or $0.68 per share in 2012.
"We are pleased with our operating performance this quarter and have made good
progress on our cost reduction program. However, prices for our products have
continued to weaken, particularly steelmaking coal. We continue to adapt to
changing market conditions and are taking steps to further reduce our capital
spending, slowing the start of our Quintette mine reopening and delaying the
development of Quebrada Blanca Phase 2. In addition, we are reducing our
sustaining capital expenditures and increasing the targets for our cost
reduction program," said Don Lindsay, President and CEO.
Highlights and Significant Items
-- Gross profit before depreciation and amortization was $871 million in
the second quarter compared with $1.1 billion the second quarter of
2012.
-- Cash flow from operations, before working capital changes, was $584
million in the second quarter compared with $874 million a year ago.
-- Profit attributable to shareholders was $143 million and EBITDA was $670
million in the second quarter.
-- Our cash balance was $2.8 billion at June 30, 2013.
-- Our cost reduction program has exceeded our initial goals, and to date
our existing operations have identified over $250 million of annual
ongoing potential cost savings at constant production levels and have
implemented $220 million of these initiatives. We have recently revised
our target savings to $300 million.
-- Our Quebrada Blanca operations returned to profitability in the second
quarter as a result of our initiatives to reduce workforce and operating
costs.
-- We are taking steps to reduce capital spending in light of market
conditions, slowing the start of the Quintette mine reopening and
delaying development of the Quebrada Blanca Phase 2 expansion project.
-- To date we have reached agreements with our coal customers to sell 6.4
million tonnes of coal in the third quarter of 2013 at an average price
of US$143 per tonne. We expect to conclude additional sales over the
course of the quarter.
-- We paid a $0.45 per share dividend on our Class A common shares and
Class B subordinate voting shares on July 2, 2013.
This management's discussion and analysis is dated as at July 25, 2013 and
should be read in conjunction with the unaudited consolidated financial
statements of Teck Resources Limited (Teck) and the notes thereto for the three
months ended June 30, 2013 and with the audited consolidated financial
statements of Teck and the notes thereto for the year ended December 31, 2012.
In this news release, unless the context otherwise dictates, a reference to "the
company" or "us," "we" or "our" refers to Teck and its subsidiaries. Additional
information, including our annual information form and management's discussion
and analysis for the year ended December 31, 2012, is available on SEDAR at
www.sedar.com.
This document contains forward-looking statements. Please refer to the
cautionary language under the heading "CAUTIONARY STATEMENT ON FORWARD-LOOKING
INFORMATION" below.
Overview
Profits have declined in comparison to last year as a result of lower prices for
all of our principal products. Coal and copper prices in the second quarter
declined by 23% and 9%, respectively, compared with the same period a year ago.
These lower prices have reduced our revenues by approximately $350 million in
the second quarter based on 2013 sales volumes.
As a result, we have focused on cost reduction at all of our sites and have made
significant progress. The cost reduction program has identified over $250
million of potential ongoing, annual operating cost savings across the company,
of which $220 million have been implemented. An additional $80 million of
one-time cost savings and deferrals have also been identified and implemented.
As a result, our site cash production costs this year are down by approximately
$65 million per quarter since the beginning of the program in the fourth quarter
of 2012, excluding the effect of labour settlements in 2012. We have recently
increased our target savings level to $300 million which we expect to achieve
without affecting either production or our performance in sustainability or
health and safety. We are also planning to reduce our spending on exploration by
approximately 15% while maintaining our commitments to partners.
Also as a result of market conditions and other factors, we have slowed the
development of certain internal growth projects and deferred capital spending.
At Quintette, we have delayed the final stage of development for the mine and
will not commence production until the steelmaking coal market recovers. We have
also slowed the development of Quebrada Blanca Phase 2 in part as a result of
market conditions but also because we have identified issues linked to
permitting for our existing operations which need to be reviewed in connection
with the resubmission of the social environmental impact assessment ("SEIA") for
Phase 2. While the timetable for resubmission of the Phase 2 SEIA is unclear, it
is not expected before the fourth quarter of 2014. On this basis, the earliest
construction could commence would be early 2016 with first production in 2019.
We are also taking action to reduce sustaining capital expenditures.
During the quarter we have made significant progress in improving the efficiency
of our mines and lowering our unit costs. However, our overall profitability has
been adversely affected by lower commodity prices. We note prices have remained
relatively steady for the past two months and that there are encouraging signs
from the world's developed economies. China's percentage growth rates have
slowed, but economic activity continues to increase in absolute terms.
Profit and Adjusted Profit(i)
Adjusted profit, which excludes the effect of certain transactions as described
in the table below, was $197 million, or $0.34 per share, in the second quarter
of 2013 compared with $398 million, or $0.68 per share, in the same period a
year ago. The decline in adjusted profit was primarily due to lower prices for
our principal products, especially for coal. Partly offsetting the price
declines were reduced operating costs resulting from our cost reduction program
and lower finance expenses.
Profit attributable to shareholders was $143 million, or $0.25 per share, in the
second quarter compared with $354 million or $0.60 per share in the same period
last year.
Three months Six months
ended June 30, ended June 30,
($ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Profit attributable to
shareholders as reported $ 143 $ 354 $ 462 $ 612
Add (deduct):
Asset sales and provisions 15 (19) 22 (21)
Foreign exchange losses 18 13 22 19
Derivative (gains) losses 1 12 (1) (47)
Collective agreement charges - 38 - 50
Financing items - - - 329
Tax items 20 - 20 -
------------------------------------------
Adjusted profit $ 197 $ 398 $ 525 $ 942
------------------------------------------
Adjusted earnings per share $ 0.34 $ 0.68 $ 0.90 $ 1.60
------------------------------------------
(i) Our financial results are prepared in accordance with International
Financial Reporting Standards ("IFRS"). This news release refers to
adjusted profit, adjusted earnings per share, EBITDA and gross profit
before depreciation and amortization, which are not measures recognized
under IFRS in Canada and do not have a standardized meaning prescribed
by IFRS or Generally Accepted Accounting Principles ("GAAP") in the
United States. For adjusted profit we adjust profit attributable to
shareholders as reported to remove the effect of certain kinds of
transactions in these measures. EBITDA is profit attributable to
shareholders before net finance expense, income taxes, depreciation and
amortization. Gross profit before depreciation and amortization is gross
profit with depreciation and amortization added back. These measures may
differ from those used by, and may not be comparable to such measures as
reported by, other issuers. We disclose these measures, which have been
derived from our financial statements and applied on a consistent basis,
because we believe they are of assistance in understanding the results
of our operations and financial position and are meant to provide
further information about our financial results to investors.
Business Unit Results
Our business unit results are presented in the tables below.
Three Months ended June 30
Gross profit before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Copper $ 693 $ 731 $ 338 $ 368 $ 240 $ 286
Coal 1,002 1,362 444 719 277 569
Zinc 455 467 87 50 63 25
Energy 2 1 2 - 2 -
----------------------------------------------------------------------------
Total $ 2,152 $ 2,561 $ 871 $ 1,137 $ 582 $ 880
----------------------------------------------------------------------------
Gross profit before depreciation and amortization from our copper business unit
decreased by $30 million in the second quarter compared with a year ago
primarily as a result of lower copper prices and reduced by-product revenues.
This was partially offset by lower unit operating costs and slightly higher
sales volumes in the period due to timing of shipments. The port that serves the
Quebrada Blanca mine experienced a strike in the first quarter of 2013 that
resulted in a portion of sales being shifted into the second quarter. Copper
production was 85,000 tonnes in the second quarter, or 6% lower than last year,
as a result of slightly lower ore grades and mill throughput at Highland Valley
Copper and a declining production base at Quebrada Blanca. Copper prices
averaged US$3.24 per pound in the second quarter of 2013 compared with US$3.57
per pound a year ago. Cash unit costs, before by-product credits, declined to
US$2.07 per pound compared with US$2.14 per pound in the second quarter of 2012.
Cash unit costs after by-product credits were US$1.70 per pound compared with
US$1.63 per pound in the second quarter of 2012 as a result of a reduction in
molybdenum and other by-product credits.
Gross profit before depreciation and amortization from our coal business unit
declined by $275 million in the second quarter compared with the same period a
year ago due to significantly lower coal prices, partly offset by lower unit
operating costs. The average coal price of US$156 per tonne in the second
quarter was 23% lower than the same quarter a year ago, due to weaker
steelmaking coal market conditions and a corresponding reduction in spot pricing
levels. Coal sales of 6.3 million tonnes in the second quarter were 6% lower
than the same period last year. Coal sales reached a new record high of 12.9
million tonnes, a 7% increase over the first half of 2012 and nearly half a
million tonnes above the previous record established in 2004. Our long-term
relationships and agreements provide a level of certainty on volumes, and
supported the record high deliveries to customers for the first half of 2013.
Production in the second quarter of 6.0 million tonnes was 5% higher than the
same period a year ago. The cost of product sold in the second quarter, before
transportation and depreciation charges, was $50 per tonne, or $9 per tonne
lower than in the same quarter in 2012. Cost reduction efforts at the mines,
which accompanied the reduction in production levels beginning in mid-August
2012, have been successful and are ongoing.
Gross profit from our zinc business unit, before depreciation and amortization
and Trail's one-time labour settlement charge of $51 million in 2012, decreased
by $14 million compared with a year ago. The decrease was primarily due to
substantially lower silver revenues from Trail and to a lesser extent, lower
zinc prices in the period. Red Dog's zinc production rose by 7% to 138,700
tonnes, primarily due to increased throughput, and sales volumes were 26% ahead
of last year due to the timing of sales. Production volumes and sales in the
second quarter at Trail remained similar to a year ago.
Revenues
Revenues from operations were $2.2 billion in the second quarter compared with
$2.6 billion a year ago. Revenues from our copper business unit declined by $38
million from a year ago as lower copper prices and molybdenum revenues were
partially offset by higher copper sales volumes. Coal revenues decreased by $360
million compared with the second quarter of 2012 as a result of substantially
lower coal prices and a 6% decline in sales volumes. Revenues from our zinc
business unit remained similar to a year ago as higher zinc sales from Red Dog
offset significantly lower silver revenues from Trail and a modest decline in
zinc prices in the period.
Average Prices and Exchange Rates(i)
Three months Six months
ended June 30, ended June 30,
2013 2012 % Change 2013 2012 % Change
----------------------------------------------------------------------------
Copper (LME Cash -
US$/pound) 3.24 3.57 -9% 3.42 3.67 -7%
Coal (realized -
US$/tonne) 156 202 -23% 159 212 -25%
Zinc (LME Cash -
US$/pound) 0.83 0.87 -5% 0.88 0.90 -2%
Silver (LME PM fix -
US$/ounce) 23 29 -21% 26 31 -16%
Molybdenum (published
price - US$/pound) 11 14 -21% 11 14 -21%
Lead (LME Cash -
US$/pound) 0.93 0.90 +3% 0.99 0.92 +8%
Cdn/U.S. exchange rate
(Bank of Canada) 1.02 1.01 +1% 1.02 1.01 +1%
(i) Except for coal prices, the average commodity prices disclosed above are
based on published benchmark prices and are provided for information
only. Our actual revenues are determined using commodity prices and
other terms and conditions specified in our various sales contracts with
our customers. The molybdenum price is the price published in Platts
Metals Week.
Our year-to-date business unit results are presented in the table below:
Six Months ended June 30
Gross profit before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Copper $ 1,377 $ 1,484 $ 689 $ 746 $ 493 $ 586
Coal 2,062 2,560 960 1,422 623 1,167
Zinc 1,040 1,062 213 168 165 119
Energy 3 2 3 1 2 -
----------------------------------------------------------------------------
Total $ 4,482 $ 5,108 $ 1,865 $ 2,337 $ 1,283 $ 1,872
----------------------------------------------------------------------------
BUSINESS UNIT RESULTS
The table below shows our production and sales of our major products.
Units
(000's) Production Sales
----------------------------------------------------------------------------
Second Second
Quarter Year-to-date Quarter Year-to-date
----------------------------------------------------
(note 1) 2013 2012 2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Principal
products
Copper
Contained in
concentrate tonnes 70 72 139 135 69 67 140 132
Cathode tonnes 15 18 29 36 18 18 29 36
----------------------------------------------------
85 90 168 171 87 85 169 168
----------------------------------------------------
Coal tonnes 6,014 5,707 12,248 11,972 6,285 6,716 12,863 12,021
Zinc
Contained in
concentrate tonnes 161 149 308 296 97 79 221 214
Refined tonnes 70 69 144 143 70 69 143 145
Other products
Lead
Contained in
concentrate tonnes 25 24 48 47 - - - -
Refined tonnes 21 22 42 43 21 21 41 43
Molybdenum
Contained in
concentrate pounds 2,042 3,234 4,418 6,204 1,823 3,280 4,291 6,390
----------------------------------------------------------------------------
(1) We include 100% of production and sales from our Highland Valley Copper,
Quebrada Blanca and Carmen de Andacollo mines in our production and
sales volumes, even though we own 97.5%, 76.5% and 90%, respectively, of
these operations, because we fully consolidate their results in our
financial statements. We include 22.5% of production and sales from
Antamina, representing our proportionate equity interest in Antamina.
REVENUES AND GROSS PROFIT
QUARTER ENDED JUNE 30
Our revenue, gross profit before depreciation and amortization, and gross profit
by business unit are summarized in the table below:
Gross profit
before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Copper
Highland Valley
Copper $ 205 $ 227 $ 89 $ 114 $ 62 $ 87
Antamina 189 207 143 159 128 153
Quebrada Blanca 127 137 42 49 16 25
Carmen de
Andacollo 140 126 52 37 31 18
Duck Pond 26 34 8 12 (1) 6
Other 6 - 4 (3) 4 (3)
----------------------------------------------------------------------------
693 731 338 368 240 286
Coal (note 1) 1,002 1,362 444 719 277 569
Zinc
Trail 408 434 16 (11) 4 (24)
Red Dog 96 75 68 58 56 46
Other 1 2 3 3 3 3
Inter-segment
sales (50) (44) - - - -
----------------------------------------------------------------------------
455 467 87 50 63 25
Energy 2 1 2 - 2 -
----------------------------------------------------------------------------
TOTAL $ 2,152 $ 2,561 $ 871 $ 1,137 $ 582 $ 880
----------------------------------------------------------------------------
(1) Our coal business unit represents our interest in six operating mines.
We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal
River mines, and have a 95% partnership interest in the Elkview mine and
an 80% interest in the Greenhills mine.
REVENUES AND GROSS PROFIT
SIX MONTHS ENDED JUNE 30
Our revenue, gross profit before depreciation and amortization, and gross profit
by business unit are summarized in the table below:
Gross profit
before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Copper
Highland Valley
Copper $ 456 $ 447 $ 223 $ 224 $ 163 $ 177
Antamina 346 413 253 312 225 300
Quebrada Blanca 209 273 60 96 11 47
Carmen de
Andacollo 313 281 131 95 87 55
Duck Pond 46 68 18 22 3 10
Other 7 2 4 (3) 4 (3)
----------------------------------------------------------------------------
1,377 1,484 689 746 493 586
Coal (note 1) 2,062 2,560 960 1,422 623 1,167
Zinc
Trail 908 929 57 29 33 4
Red Dog 240 228 151 134 127 110
Other 3 4 5 5 5 5
Inter-segment
sales (111) (99) - - - -
----------------------------------------------------------------------------
1,040 1,062 213 168 165 119
Energy 3 2 3 1 2 -
----------------------------------------------------------------------------
TOTAL $ 4,482 $ 5,108 $ 1,865 $ 2,337 $ 1,283 $ 1,872
----------------------------------------------------------------------------
(1) Our coal business unit represents our interest in six operating mines.
We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal
River mines, have a 95% partnership interest in the Elkview mine and an
80% interest in the Greenhills mine.
COPPER
Highland Valley Copper (97.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Tonnes milled (000's) 11,552 11,894 22,816 22,768
Copper
Grade (%) 0.27 0.28 0.28 0.25
Recovery (%) 82.3 82.9 84.6 83.9
Production (000's tonnes) 25.5 27.3 54.0 47.4
Sales (000's tonnes) 24.8 25.6 56.1 48.7
Molybdenum
Production (million
pounds) 1.5 2.6 3.4 4.8
Sales (million pounds) 1.4 2.4 3.3 4.7
Cost of sales ($ millions)
Operating $ 109 $ 105 $ 217 $ 207
Distribution $ 7 $ 8 $ 16 $ 16
Depreciation and
amortization $ 27 $ 27 $ 60 $ 47
Gross profit summary ($
millions) (note 1)
Before depreciation and
amortization $ 89 $ 114 $ 223 $ 224
Depreciation and
amortization (27) (27) (60) (47)
----------------------------------------------------------------------------
After depreciation and
amortization $ 62 $ 87 $ 163 $ 177
----------------------------------------------------------------------------
(1) Results do not include a provision for the 2.5% non-controlling interest
in Highland Valley Copper.
The decline in Highland Valley Copper's second quarter gross profit before
depreciation and amortization was primarily due to lower copper prices, reduced
molybdenum revenues and slightly lower sales volumes.
Copper production of 25,500 tonnes in the second quarter was 7% lower than a
year ago primarily as a result of lower mill throughput and lower ore grades.
Production in the quarter and year has been affected by scheduled downtime to
tie in components of the mill optimization project to the existing mill. This
has also lead to increased costs during these periods. Capitalized stripping
costs in the second quarter of 2013 were $25 million compared with $23 million a
year ago.
Molybdenum production declined by 1.1 million pounds, or 42%, compared with the
same period a year ago primarily due to lower ore grades.
The mill optimization project is progressing well with construction 52%
complete. The new pebble crushing circuit will be connected to the existing
grinding lines in the third quarter which will require a one month shutdown for
part of the mill with lower production anticipated. The project is on schedule
for completion by the end of 2013. While production will decline in the third
quarter as a result of the mill shutdown, we expect to meet our production
guidance for the year as the mill is expected to increase throughput and
production in the fourth quarter.
Exploration drilling activity in the Bethlehem and Valley pits increased during
the quarter with nine drill rigs currently active.
Antamina (22.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Tonnes milled (000's)
Copper-only ore 7,387 7,796 14,452 14,182
Copper-zinc ore 5,037 4,499 8,302 8,275
----------------------------------------------------------------------------
12,424 12,295 22,754 22,457
Copper (note 1)
Grade (%) 1.03 1.01 0.96 1.03
Recovery (%) 86.5 86.4 85.3 86.5
Production (000's tonnes) 106.9 106.9 184.2 201.7
Sales (000's tonnes) 98.2 100.6 172.4 194.9
Zinc (note 1)
Grade (%) 2.22 1.84 2.28 1.85
Recovery (%) 85.5 79.9 85.5 79.7
Production (000's tonnes) 90.2 64.2 157.5 123.5
Sales (000's tonnes) 79.1 64.1 135.6 111.6
Molybdenum
Production (million
pounds) 2.5 3.0 4.6 6.4
Sales (million pounds) 1.9 3.2 4.3 7.6
Cost of sales (US$ millions)
Operating $ 149 $ 142 $ 280 $ 293
Distribution $ 27 $ 27 $ 46 $ 51
Royalties and other (note
2) $ 22 $ 47 $ 51 $ 103
Depreciation and
amortization $ 64 $ 31 $ 120 $ 58
Gross profit summary (our
22.5% share) ($ millions)
Before depreciation and
amortization $ 143 $ 159 $ 253 $ 312
Depreciation and
amortization (15) (6) (28) (12)
----------------------------------------------------------------------------
After depreciation and
amortization $ 128 $ 153 $ 225 $ 300
----------------------------------------------------------------------------
(1) Copper ore grades and recoveries apply to all of the processed ores.
Zinc ore grades and recoveries apply to copper-zinc ores only.
(2) In addition to royalties paid by Antamina, we also pay a royalty in
connection with the acquisition of our interest in Antamina equivalent
to 7.4% of our share of cash flow distributed by the mine.
The decrease in our 22.5% share of Antamina's gross profit before depreciation
and amortization in the second quarter was primarily due to lower copper prices.
Zinc revenues increased as a result of higher sales volumes, offset by the
effect of lower molybdenum prices and sales volumes.
Mill throughput averaged 137,000 tonnes per day, a 19% increase compared to the
first quarter as maintenance problems were resolved. The mix of mill feed in the
second quarter was 59% copper-only ore and 41% copper-zinc ore, similar to the
same period a year ago. Copper production, on a 100% basis, remained constant
compared with a year ago at 106,900 tonnes. Production is measured only when
concentrate has been transported to the port so that the effects of high grade
throughput and recovery have resulted in higher work-in-progress inventories
stored at the mine site. Zinc production increased by 40% to 90,200 tonnes from
67,300 tonnes in the same period a year ago due to higher zinc grades and
recoveries. Molybdenum production decreased by 17% in the second quarter
compared with a year ago as a result of lower molybdenum grades.
Operating costs in the second quarter were similar to the same period a year
ago. Depreciation and amortization expense doubled from the same period last
year as a result of the commencement of amortization of Antamina's major mine
and mill expansion in the second half of 2012. Capitalized stripping costs were
US$86 million (100% basis) in the second quarter compared with US$58 million in
the second quarter of 2012. The increase is primarily a result of higher
stripping requirements to maintain increased production rates which follow from
the major mine and mill expansion.
Quebrada Blanca (76.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Tonnes placed (000's)
Heap leach ore 1,340 1,773 3,028 3,226
Dump leach ore 2,679 6,806 5,622 12,244
----------------------------------------------------------------------------
4,019 8,579 8,650 15,470
Grade (TCu%) (note 1)
Heap leach ore 0.81 0.91 0.86 0.89
Dump leach ore 0.35 0.43 0.38 0.44
Production (000's tonnes)
Heap leach ore 7.0 9.8 14.6 20.3
Dump leach ore 6.8 6.4 12.7 12.8
----------------------------------------------------------------------------
13.8 16.2 27.3 33.1
Sales (000's tonnes) 16.9 16.9 27.0 33.3
Cost of sales (US$ million)
Operating $ 81 $ 85 $ 143 $ 172
Distribution $ 3 $ 2 $ 4 $ 4
Depreciation and
amortization $ 26 $ 24 $ 49 $ 49
Gross profit summary ($
millions) (note 2)
Before depreciation and
amortization $ 42 $ 49 $ 60 $ 96
Depreciation and
amortization (26) (24) (49) (49)
----------------------------------------------------------------------------
After depreciation and
amortization $ 16 $ 25 $ 11 $ 47
----------------------------------------------------------------------------
(1) TCu% is the percent assayed total copper grade.
(2) Results do not include a provision for the 23.5% non-controlling
interest in Quebrada Blanca.
Quebrada Blanca's gross profit before depreciation and amortization declined in
the second quarter due to lower copper prices. Although gross profit was lower
than last year, Quebrada Blanca returned to profitability as a result of our
initiatives to reduce the workforce and operating costs that started in the
fourth quarter of 2012.
As planned, copper production in the second quarter declined by 15% compared
with the same period a year ago. Heap production decreased as a result of
processing lower amounts of heap leach ore and lower heap leach grades. As
anticipated in the mine plan, the amount of dump leach ore placed dropped
significantly during the quarter compared to the same period a year ago and dump
leach ore placement is expected to continue at lower rates. Dump production was
similar to the prior year as additional fresh material from previously placed
inventory was placed under irrigation. Additional fresh material available in
current dump leach inventory is expected to support similar dump leach
production until the end of the year.
As sales exceeded production in the quarter, cost of sales in the second quarter
included a charge for the drawdown of finished inventory. Production costs
before this charge decreased by US$14 million compared with the same period a
year ago as a result of cost reduction efforts as noted above. Capitalized
stripping costs in the second quarter were US$14 million compared with US$10
million in the second quarter of 2012.
Carmen de Andacollo (90%)
Operating results at the 100% level are summarized in the following table:
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Tonnes milled (000's) 4,291 4,063 8,488 7,961
Copper
Grade (%) 0.47 0.51 0.51 0.51
Recovery (%) 87.7 85.1 87.5 86.2
Production (000's tonnes) 17.9 17.7 37.6 35.3
Sales (000's tonnes) 18.5 15.9 39.9 33.4
Gold (note 1)
Production (000's ounces) 17.5 11.8 35.4 24.7
Sales (000's ounces) 16.8 11.1 36.0 24.2
Copper cathode
Production (000's tonnes) 1.2 0.8 2.1 2.4
Sales (000's tonnes) 1.2 0.7 2.0 2.7
Cost of sales (US$ million)
Operating $ 80 $ 83 $ 165 $ 173
Distribution $ 6 $ 6 $ 14 $ 12
Depreciation and
amortization $ 21 $ 19 $ 44 $ 40
Gross profit summary ($
millions) (note 2)
Before depreciation and
amortization $ 52 $ 37 $ 131 $ 95
Depreciation and
amortization (21) (19) (44) (40)
----------------------------------------------------------------------------
After depreciation and
amortization $ 31 $ 18 $ 87 $ 55
----------------------------------------------------------------------------
(1) Carmen de Andacollo processes 100% of gold mined, but 75% of the gold
produced is for the account of Royal Gold Inc.
(2) Results do not include a provision for the 10% non-controlling interest
in Andacollo.
The increase in Carmen de Andacollo's second quarter gross profit before
depreciation and amortization was due to higher sales volumes and reduced unit
operating costs, partly offset by lower copper prices.
Copper production in the second quarter rose slightly compared with a year ago
as a result of increased mill throughput and improved mill recoveries, partially
offset by lower grades.
Operating costs include a charge for the drawdown or buildup of final inventory.
Sales exceeded production in the second quarter of 2013 compared with a buildup
of inventory in the second quarter of 2012. Before the change in inventories,
production costs declined from US$85 million to US$76 million, a decrease of
US$9 million year-over-year, primarily due to lower power costs. On a per-unit
basis, operating costs in the second quarter decreased by 17% compared with a
year ago. Capitalized stripping costs in the current quarter and prior year were
minimal.
Duck Pond (100%)
Duck Pond's gross profit before depreciation and amortization was $8 million in
the second quarter compared with $12 million in the same period a year ago.
Copper and zinc production in the second quarter were 3,200 tonnes and 2,300
tonnes, respectively, compared with 3,800 tonnes and 5,500 tonnes, respectively,
last year. Copper and zinc sales in the second quarter were 3,500 tonnes and
3,800 tonnes, respectively, compared with 3,700 tonnes and 4,700 tonnes,
respectively, last year. The mill started processing ore from the Boundary open
pit during the quarter, which has lower zinc grades than the underground ores
previously processed.
Copper Development Projects
Quebrada Blanca Phase 2
During the second quarter, detailed design for the Quebrada Blanca Phase 2
project continued. Work also continues on the updated social environmental
impact assessment ("SEIA") for the Phase 2 project. As previously announced, we
have identified issues linked to permitting for existing facilities which need
to be reviewed in connection with the resubmission of the Phase 2 SEIA. We are
now planning to make separate regulatory submissions with respect to these
matters before resubmitting the Phase 2 SEIA. While the timing for resubmission
of the Phase 2 SEIA will depend to some extent on progress in these separate
regulatory submissions, our current expectation is that the Phase 2 SEIA will
not be resubmitted before the end of the fourth quarter of 2014. We are
reviewing our engineering and procurement activities on the project in light of
market conditions and the extended timetable for resubmission of the SEIA.
Relincho
The feasibility study for Relincho is progressing and it is expected to be
complete at the end of the fourth quarter of 2013. A new resource and reserve
estimate is expected at the completion of the feasibility study. Based on the
prefeasibility design, production would average 180,000 tonnes per year of
copper and 6,000 tonnes per year of molybdenum over a 22-year mine life, with
higher production in the first five years.
COAL
Teck Coal Partnership (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Production (000's tonnes) 6,014 5,707 12,248 11,972
Sales (000's tonnes) 6,285 6,716 12,863 12,021
Average sale price
US$/tonne $ 156 $ 202 $ 158 $ 212
C$/tonne $ 159 $ 203 $ 160 $ 213
Cost of sales (C$/tonne)
Operating $ 50 $ 59 $ 48 $ 59
Transportation $ 39 $ 37 $ 38 $ 36
Depreciation and
amortization $ 26 $ 22 $ 26 $ 21
Gross profit summary ($
millions)
Before depreciation and
amortization $ 444 $ 719 $ 960 $ 1,422
Depreciation and
amortization (167) (150) (337) (255)
----------------------------------------------------------------------------
After depreciation and
amortization $ 277 $ 569 $ 623 $ 1,167
----------------------------------------------------------------------------
Gross profit before depreciation and amortization in the second quarter declined
compared with last year due primarily to lower coal prices. Sales volumes were
lower than in the second quarter of 2012, although sales for the first half of
2013 were higher than in the first half of 2012.
Production in the second quarter was 5% higher than in the same period of 2012.
The mines effectively managed inventories and produced coal at a pace which
aligned production rates with demand.
Flooding in southeast BC in late June caused minor damage to mine access roads
and rail infrastructure in the area, which led to several days of lost
production. No key mine infrastructure was damaged and total annual production
will not be affected. Sales throughout the period were not impacted as vessels
were able to be loaded from existing port inventories. All critical rail and
mine access infrastructure was rapidly repaired and is operating normally.
Coal sales of 6.3 million tonnes in the second quarter were 6% lower than the
same period last year. The average coal price of US$156 per tonne in the second
quarter was 23% lower than the same period a year ago and reflects weaker
steelmaking coal market conditions, and a reduction in spot market pricing
levels through the quarter.
Coal prices for the third quarter have been agreed on with the majority of the
quarterly contract customers based on US$145 per tonne for the highest quality
products, which is consistent with prices reportedly achieved by our
competitors. We currently expect coal sales in the third quarter to be at least
6.4 million tonnes and we are continuing contract discussions with our customers
and anticipate selling additional tonnage on the spot market. Vessel nominations
for quarterly contract tonnage are determined by customers and final sales and
average prices for the quarter will depend on timely arrival of vessels and the
performance of our coal-loading facilities.
The cost of product sold in the second quarter, before transportation and
depreciation charges, was $50 per tonne compared with $59 per tonne in the same
period a year ago. Cost reduction efforts at the mines, which accompanied the
reduction in production levels beginning in mid-August 2012, have been
successful and are ongoing. Cash production costs in the second quarter were
over $16 per tonne lower than a year ago. This decrease resulted from reductions
in the consumption of repair parts and minimizing the use of maintenance
contractors and contract miners. In addition, costs were positively impacted by
reductions in overtime, a hiring freeze, shutdowns of higher cost equipment and
shutdowns on statutory holidays. These initiatives continue as part of a
coordinated cost reduction initiative across the coal business unit which
focuses on productivity improvement in mining, maintenance and processing
operations as well as the reduction of input and overhead costs. In the current
period capitalized stripping costs were $121 million compared to $161 million a
year ago. We expect our 2013 annual cost of product sold to be in the range of
$51 to $58 per tonne, based on our current production plans.
Transportation costs in the second quarter were $39 per tonne, $2 per tonne or
5% higher compared with the same quarter a year ago. This increase was primarily
due to higher port charges incurred throughout the quarter, resulting from an
outage at Neptune Bulk Terminals ("Neptune") while a new stacker reclaimer was
erected and some vessels were loaded at higher cost port facilities. The
installation of this piece of equipment was completed on schedule and
commissioning is expected to be completed by the end of July. The stacker
reclaimer upgrade increases the capacity of Neptune up to 12.5 million tonnes
per annum. Detailed engineering work supporting the next expansion phase at
Neptune is also underway. This expansion would further increase capacity from
12.5 million tonnes to 18.5 million tonnes. The proposed upgrades will include a
second railcar dumper and associated conveying system, a new rail track within
the existing rail loop, the replacement of a ship loader and foundation
reinforcement of the loading berth. The timetable for this project is dependent
on market conditions.
Depreciation and amortization increased by $4 per tonne to $26 per tonne
primarily due to the significant increase in capital assets to be depreciated
under the new capitalized stripping accounting standard. Also contributing to
the increase were investments in capital equipment made over the course of 2012
and first half of 2013, which are now commissioned and operating at our sites.
We expect depreciation and amortization expense to be in the range of $26 to $30
per tonne in 2013 as we continue to capitalize and amortize overburden stripping
costs.
As a result of a strong performance in the first half of 2013 and a strong sales
outlook for the second half, we now expect coal production to be in the range of
24.5 to 25.5 million tonnes in 2013, up from our previous guidance of 24.0 to
25.0 million tonnes.
After reviewing market conditions, we have decided to delay a final decision to
place Quintette into production. Our revised project plan will defer $300
million of previously contemplated capital expenditures in 2013 and an
additional $350 million in the first part of 2014. We are continuing to proceed
with detailed engineering work so that if a decision is made in early 2014 to
proceed with the reopening, the operation could be in commercial production in
mid-2015.
Elk Valley Water Management
On April 15, the Government of British Columbia issued an Area Based Management
Plan Order ("Order"), which calls for development of an Elk Valley Water Quality
Plan to address the impact of selenium and other substances released by mining
activities throughout the watershed, associated economic and social costs and
benefits and to establish concentration targets and time-frames required to
stabilize and reduce levels of these substances.
The Order establishes a long-term selenium concentration target for Lake
Koocanusa, which is currently being met, and which we expect can continue to be
achieved using water treatment technologies described in our draft Valley-wide
Selenium Management Action Plan submitted to regulators in January 2013.
Terms of Reference, which take into account a range of stakeholder views, are
with the Province for approval. Once these are approved, the development of a
water management plan is expected to take 12 months. Permitting activities on
Line Creek Phase 2 and other projects are continuing and alternative mine plans
have been developed to mitigate any potential impacts of permitting delays.
Considerable progress has been achieved on the first water treatment plant at
Line Creek, a $105 million investment using proven selenium-removal technology,
and the plant is expected to be operating, reducing selenium load into the Elk
River system, by mid-2014.
ZINC
Trail (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Metal production
Zinc (000's tonnes) 70.4 69.5 144.8 143.5
Lead (000's tonnes) 21.0 21.7 41.6 42.7
Silver (million ounces) 4.7 5.2 10.8 10.6
Metal sales
Zinc (000's tonnes) 70.3 68.5 143.2 144.7
Lead (000's tonnes) 20.5 21.0 40.6 42.7
Silver (million ounces) 4.7 5.1 10.5 10.6
Cost of sales ($ millions)
Concentrates $ 263 $ 261 $ 601 $ 589
Operating $ 100 $ 158 $ 194 $ 258
Distribution $ 29 $ 26 $ 56 $ 53
Depreciation and
amortization $ 12 $ 13 $ 24 $ 25
Gross profit (loss) summary
($ millions)
Before depreciation and
amortization $ 16 $ (11) $ 57 $ 29
Depreciation and
amortization (12) (13) (24) (25)
----------------------------------------------------------------------------
After depreciation and
amortization $ 4 $ (24) $ 33 $ 4
----------------------------------------------------------------------------
Gross profit at Trail, before depreciation and amortization and a one-time
labour settlement charge of $51 million in 2012, decreased by $24 million due to
lower zinc prices and substantially lower silver prices and sales volumes.
Operating costs in the second quarter of 2012 included a one-time charge of $51
million related to a new labour agreement. After adjusting for this, operating
costs in the current period were $7 million lower compared with a year ago due
to cost reductions for discretionary maintenance and demolition work.
Similar to last year, the annual maintenance shutdowns for both the Kivcet
furnace and zinc roasters were completed in the quarter, affecting production
levels and operating costs. A longer Kivcet shutdown in April of the current
year, combined with accretions in the furnace, resulted in lower production of
lead and silver. Silver production in the quarter was further impacted by lower
levels of silver in feed materials. Higher zinc production in the current
quarter compared to a year ago reflects improved operating efficiencies.
Second quarter capital spending was $23 million on continued construction of the
new acid plant project, bringing the total spending on the project to $68
million with an expected start-up in the second quarter of 2014.
Red Dog (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Six months ended
June 30, June 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Tonnes milled (000's) 965 836 1,838 1,695
Zinc
Grade (%) 16.9 18.8 17.3 18.3
Recovery (%) 85.0 82.5 83.7 83.1
Production (000's tonnes) 138.7 129.6 266.9 257.9
Sales (000's tonnes) 75.1 59.4 182.5 179.9
Lead
Grade (%) 3.9 4.9 3.9 4.8
Recovery (%) 66.2 56.5 66.5 57.0
Production (000's tonnes) 24.9 23.4 47.9 46.8
Sales (000's tonnes) - - - -
Cost of sales (US$ millions)
Operating $ 15 $ 11 $ 43 $ 47
Distribution $ 13 $ 11 $ 32 $ 34
Royalties (NANA) $ (1) $ (6) $ 13 $ 12
Depreciation and
amortization $ 12 $ 12 $ 24 $ 24
Gross profit summary ($
millions)
Before depreciation and
amortization $ 68 $ 58 $ 151 $ 134
Depreciation and
amortization (12) (12) (24) (24)
----------------------------------------------------------------------------
After depreciation and
amortization $ 56 $ 46 $ 127 $ 110
----------------------------------------------------------------------------
Red Dog's gross profit in the second quarter before depreciation and
amortization rose slightly compared with the same period a year ago primarily as
a result of higher zinc sales volumes.
Zinc production in the second quarter rose by 7% compared with a year ago as a
result of increased mill throughput and improved mill recoveries though
partially offset by lower ore grades.
The 2013 shipping season commenced on July 2, 2013 with planned shipments of
1,039,000 tonnes of zinc concentrate and 174,000 tonnes of lead concentrate
compared with 1,043,000 tonnes and 190,000 tonnes respectively, for the 2012
season. Sales volumes of contained zinc metal are estimated at approximately
180,000 tonnes in the third quarter.
ENERGY
Fort Hills Project
Engineering studies are ongoing to update the design basis for the project and
improve the accuracy of cost estimates to facilitate a project sanction decision
by the partners in 2013. Suncor, operator of Fort Hills, has indicated that it
is developing a cost-driven construction schedule and as a result, should the
partners approve the sanction of Phase 1 of the Fort Hills project in 2013,
production would not be expected to start before 2017.
Our share of Fort Hills spending in the first half of 2013, including our
ongoing earn-in commitments, was $143 million.
Frontier Energy Project
The Frontier project has been designed for up to four production lines with a
total capacity of approximately 277,000 barrels per day of bitumen. The first
two production lines are planned to have a production capacity of 159,000
barrels per day. Permitting is ongoing and our current expectation is that the
environmental assessment process will extend to 2015 at the earliest.
In June we announced the exchange of certain oil sands leases relating to the
Frontier project with Shell Canada Energy ("Shell"). The asset exchange
significantly reduces the lease boundary interfaces between the Frontier project
and Shell's Pierre River Mine project and is anticipated to benefit the economic
recovery of oil sands for the parties' respective projects. The leases we
acquired in the exchange generally lie east of the Frontier project area and
form a continuous series of leases with the Frontier leases. Although the
resource estimate for the Frontier project has not yet been updated, we expect
that the asset exchange will have a net positive effect on project resources.
In connection with the asset exchange, we and Shell have entered into a projects
agreement with respect to future activities on the Frontier and Pierre River
projects. Under the projects agreement, among other matters, Teck and Shell will
work to minimize certain impacts of their respective projects on the other's
project and on the environment, while maximizing the economic recovery of oil
sands along common boundaries and improving the efficiency of both projects.
OTHER COST AND EXPENSES
Financing expenses were $87 million in the second quarter compared with $134
million a year ago. The debt interest component of our finance expense decreased
to $91 million from $105 million in the quarter due to the lower interest rates
on the new notes issued pursuant to our debt refinancing in 2012. In addition,
we capitalized more interest on our development projects, reducing our net
interest expense to $61 million compared to $101 million a year ago.
Other operating expense, net of other income, was $82 million in the second
quarter compared with $107 million in the second quarter of 2012. Included in
other operating expense was $74 million of negative pricing adjustments compared
with $84 million in the same period a year ago primarily due to declining copper
prices in each period.
The table below outlines our outstanding receivable positions, which were
provisionally valued at March 31, 2013, and our receivable positions
provisionally valued at, June 30, 2013.
Outstanding at Outstanding at
March 31, 2013 June 30, 2013
----------------------------------------------------
(pounds in millions) Pounds US$/lb Pounds US$/lb
----------------------------------------------------------------------------
Copper 141 3.45 103 3.07
Zinc 104 0.85 98 0.83
----------------------------------------------------------------------------
We recorded $37 million of other non-operating losses which included $17 million
of losses on investments in marketable securities primarily related to market
value declines and $19 million for foreign exchange losses. In the second
quarter of 2012, we recorded $8 million of non-operating losses.
Income and resource taxes for the second quarter were $152 million, or 48% of
pre-tax profits, which is higher than the Canadian statutory income tax rate of
26%. The effective higher rate is due to the impact of the recently enacted 1%
increase to British Columbia income taxes resulting in a $70 million charge to
profits in the quarter. This was partially offset by a reduction in our
provision for second stage withholding taxes in Chile as we continue to reinvest
there. The tax rate on our adjusted profit was 39% in the second quarter of
2013. We are currently shielded from cash income taxes, but not resource taxes
in Canada. We remain subject to cash taxes in foreign jurisdictions.
OPERATING CASH FLOW, FINANCIAL POSITION AND LIQUIDITY
Cash flow from operations, before changes in non-cash working capital items, was
$584 million in the second quarter compared with $874 million a year ago with
the reduction primarily due to significantly lower coal prices in the quarter.
Changes in non-cash working capital items provided $106 million in cash in the
second quarter compared with $91 million in the same period a year ago.
Expenditures on property, plant and equipment were $443 million in the second
quarter and included $137 million on sustaining capital and $306 million on
major development projects. The largest components of sustaining expenditures
were at our coal operations which totalled $51 million. Major development
expenditures included $108 million for Highland Valley Copper's mill
optimization project, $97 million on Quebrada Blanca Phase 2 and $50 million at
our coal operations, primarily Quintette.
Expenditures on investments and other assets totalled $111 million in the second
quarter, the primary component of which was our $72 million share of spending on
the Fort Hills oil sands project.
Capitalized stripping costs, excluding capitalized depreciation, were $189
million in the second quarter compared with $219 million a year ago. We expect
to capitalize similar amounts each quarter for the remainder of the year.
We have committed and unused bank credit facilities aggregating $2.0 billion
maturing in 2018.
OUTLOOK
We continue to experience volatile markets for our products. Commodity markets
have historically been volatile, prices can change rapidly and customers can
alter shipment plans. This can have a substantial impact on our business.
Ongoing economic uncertainties in Europe and the United States and less robust
growth rates in China, India and other emerging markets have impacted both
demand and prices for some of our products. While we believe that the longer
term fundamentals for steelmaking coal, copper and zinc are favorable, the
recent weakness in these markets may well persist for some time. In the
meantime, the Company's financial position is strong. We are taking further
steps to manage our capital spending profile and we continuously monitor all
aspects of our cost reduction program and key markets as conditions evolve in
order to be in a position to take whatever actions may be appropriate.
In the light of short-term price volatility, we have considered whether any of
our assets are impaired. Our review did not identify any such assets. Our assets
are generally long-lived and valuation is more subject to changes in long-term
rather than short term prices. We have not made substantial asset acquisitions
in the past five years and assets acquired in 2007 were partially impaired in
2008. Since that time prices for our products have risen substantially and we
have continued to depreciate these assets while, in many cases, adding to their
reserve base. We will continue to review our assets for impairment as conditions
demand and in particular our short-lived assets. Notwithstanding the above, we
note that at any time changes in the scope, cost or schedule of our development
projects as well as changes in long-term prices or costs could result in asset
impairment at our projects or operations.
Capital Expenditures
We are in the process of reviewing capital expenditures for 2013 and 2014 in
light of current market conditions with the goal of deferring a substantial
portion of both our sustaining and development capital expenditures including
reductions approved to date. Our forecast of capital expenditures for 2013 is
now approximately $1.85 billion, and could be further reduced as we continue to
review these items. This is lower than our previous guidance of $2.0 billion and
is summarized in the following table. Reductions to sustaining capital will have
a greater effect in 2014 than in 2013 due to lead times and existing
commitments. We are currently targeting sustaining capital expenditures of $500
million in 2014.
----------------------------------------------------------------------------
Major New Mine
($ in millions) Sustaining Enhancement Development Total
----------------------------------------------------------------------------
Copper $ 220 $ 435 $ 370 $ 1,025
Coal 310 60 130 500
Zinc 190 20 - 210
Energy - - 90 90
Corporate 20 - - 20
----------------------------------------------------------------------------
$ 740 $ 515 $ 590 $ 1,845
----------------------------------------------------------------------------
We do not expect to approve any additional mine development projects in the
remainder of the year. The amounts shown above exclude capitalized overburden
removal work at operating mines under the provisions of new accounting standards
(IFRIC 20) which came into effect in 2013.
We also expect to invest approximately $300 million in 2013 for our share of
costs for the Fort Hills oil sands project, which is accounted for as an
investment.
Our revised forecasts for major enhancement projects in 2013 include: $360
million for Highland Valley's mill optimization project, $40 million for the
completion of the Antamina mill expansion; and $60 million at our coal
operations, which includes $40 million for the Neptune Terminals expansion. New
mine development in 2013 includes $270 million for Quebrada Blanca Phase 2, $65
million for Relincho, $130 million for Quintette and $90 million for our
Frontier oil sands project.
The amount and timing of actual capital expenditures is also dependent upon
being able to secure permits, equipment, supplies, materials and labour on a
timely basis and at expected costs to enable the projects to be completed as
currently anticipated. We may change capital spending plans for the balance of
this year and next, depending on commodity markets, our financial position,
results of feasibility studies and other factors.
Foreign Exchange, Debt Revaluation and Interest Expense
The sales of our products are denominated in U.S. dollars, while a significant
portion of our expenses are incurred in local currencies, particularly the
Canadian dollar. Foreign exchange fluctuations can have a significant effect on
our operating margins, unless such fluctuations are offset by related changes to
commodity prices.
Our U.S. dollar denominated debt is subject to revaluation based on changes in
the Canadian/U.S. dollar exchange rate. As at June 30, 2013, all of our U.S.
dollar denominated debt is designated as a hedge against our U.S. dollar
denominated foreign operations. As a result, any foreign exchange gains or
losses arising on our designated U.S. dollar debt are recorded in other
comprehensive income.
FINANCIAL INSTRUMENTS AND DERIVATIVES
We hold a number of financial instruments and derivatives, which are recorded on
our balance sheet at fair value with gains and losses in each period included in
other comprehensive income and profit for the period as appropriate. The most
significant of these instruments are marketable securities, foreign exchange
forward sales contracts, metal-related forward contracts and settlements
receivable and payable. Some of our gains and losses on metal-related financial
instruments are affected by smelter price participation and are taken into
account in determining royalties and other expenses. All are subject to varying
rates of taxation depending on their nature and jurisdiction.
QUARTERLY EARNINGS AND CASH FLOW
(in
millions,
except for
share data) 2013 2012 2011
----------------------------------------------------------------------------
Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3
Revenues $ 2,152 $ 2,330 $ 2,730 $ 2,505 $ 2,561 $ 2,547 $ 2,972 $ 3,380
Gross profit 582 701 825 827 880 992 1,212 1,571
EBITDA 670 902 653 862 933 848 1,304 1,660
Profit (note
1) 143 319 199 257 354 258 637 814
Earnings per
share $ 0.25 $ 0.55 $ 0.34 $ 0.44 $ 0.60 $ 0.44 $ 1.08 $ 1.38
Cash flow
from
operations 690 763 912 729 965 813 1,199 1,383
----------------------------------------------------------------------------
(1) Attributable to shareholders of the company.
(2) Information for 2011 has not been restated for IFRIC 20, Production
Stripping Costs (see Note 11(c)).
OUTSTANDING SHARE DATA
As at July 24, 2013 there were 566.9 million Class B subordinate voting shares
and 9.4 million Class A common shares outstanding. In addition, there were 8.5
million director and employee stock options outstanding with exercise prices
ranging between $4.15 and $58.80 per share. More information on these
instruments and the terms of their conversion is set out in Note 21 of our 2012
year end financial statements.
The Toronto Stock Exchange ("TSX") has accepted our notice of intention to make
a normal course issuer bid to purchase our Class B subordinate voting shares.
Under the normal course issuer bid, we may purchase up to 20 million Class B
subordinate voting shares during the period starting June 28, 2013 and ending on
June 27, 2014, representing approximately 3.53% of the outstanding Class B
subordinate voting shares, or 4.39% of the public float, as of June 19, 2013.
We will make any purchases through the facilities of the TSX, the New York Stock
Exchange or any other exchanges or alternative trading systems in both Canada
and the United States, if eligible, or by such other means as may be permitted
under the TSX's regulations, including private agreements under an issuer bid
exemption order or block purchases in accordance with the applicable
regulations. Purchases made by way of private agreements under an issuer bid
exemption order issued by a securities regulatory authority will be at a
discount to the prevailing market price as provided in the exemption order.
Daily purchases will be limited to 526,427 Class B subordinate voting shares in
accordance with the TSX's rules, except pursuant to permitted exceptions. The
actual number of Class B subordinate voting shares to be purchased and the
timing of any such purchases will be determined by us from time to time as
market conditions warrant. All repurchased shares will be cancelled. Security
holders may obtain a copy of the notice of intention, without charge, by request
directed to the attention of our Corporate Secretary, at our offices located at
Suite 3300-550 Burrard Street, Vancouver, British Columbia, V6C 0B3.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting. Any system of internal control over financial
reporting, no matter how well designed, has inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.
There have been no changes in our internal control over financial reporting
during the quarter ended June 30, 2013 that have materially affected, or are
reasonably likely to materially affect, internal control over financial
reporting.
ADOPTION OF NEW AND AMENDED IFRS PRONOUNCEMENTS
Effective January 1, 2013, we have adopted several new and amended IFRS
pronouncements and have applied them to our results in accordance with the
transitional provisions outlined in the respective standards. The new
pronouncements were described in detail in our 2013 first quarter news release.
The new pronouncements that affected our previously reported financial
statements are outlined below and in Note 11 to our condensed interim
consolidated financial statements for the three months ended June 30, 2013.
Pronouncements Affecting Our Financial Results
The adoption of the following new and amended IFRS pronouncements has resulted
in adjustments to how we determine our current and previously reported figures
as described below.
Production stripping costs
IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine ("IFRIC 20")
provides guidance on how to account for overburden waste stripping costs in the
production phase of a surface mine. Stripping activities that improve access to
ore are considered to be an addition or enhancement of an existing asset and
accordingly these costs should be capitalized.
The adoption of IFRIC 20 resulted in an increase in the capitalization of
stripping activity assets on our consolidated balance sheet and an increase in
our profit and earnings per share as costs that would have been expensed under
our previous accounting policy are now being capitalized and amortized on a
units-of-production basis in the subsequent periods. Inventories were adjusted
to capitalize production stripping costs and the depreciation of stripping
activity assets is included in the cost of inventories.
The adoption of IFRIC 20 has significantly increased our capitalization of
production stripping costs compared to our previous accounting policy. During
the three and six months ended June 30, 2013, we capitalized $203 million and
$426 million of stripping activity assets, respectively, primarily at our coal
operations. We recorded depreciation expense on stripping activity assets of $70
million and $139 million, respectively, during the three and six months ended
June 30, 2013. We have described the effect of IFRIC 20 on our profit and
business unit results throughout this management's discussion and analysis.
This new pronouncement has no effect on our cash balance, our total cash flow
(other than the presentation in our cash flow statement) or how we operate our
mines.
Post-employment benefits
IAS 19, Employee Benefits ("IAS 19"), has amendments related to defined benefit
pension plans that eliminate the option to defer certain actuarial gains and
losses on the balance sheet. The amendments also require any remeasurement gains
or losses, including actuarial gains and losses, to be recognized immediately
and presented in other comprehensive income, eliminating the option to recognize
and present these amounts through the income statement. The amendments to IAS 19
also require one discount rate be applied to the net defined benefit asset or
liability for the purposes of determining the interest element of the defined
benefit cost and require the recognition of unvested past service cost awards
into profit immediately. There is also a requirement to change the presentation
of finance income and finance expense to present both as a net finance expense
(income) amount in the consolidated financial statements. Additional disclosures
are required to present more information about the characteristics, amounts
recognized and risks related to defined benefit plans.
The adoption of the amendments to IAS 19 did not have a significant effect on
our results for the three and six months ended June 30, 2013 and we will
incorporate the amended disclosure requirements for IAS 19 in our annual
consolidated financial statements as at December 31, 2013.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This news release contains certain forward-looking information and
forward-looking statements as defined in applicable securities laws. All
statements other than statements of historical fact are forward-looking
statements. These forward-looking statements, principally under the heading
"Outlook," but also elsewhere in this document, include estimates, forecasts,
and statements as to management's expectations with respect to, among other
things, anticipated costs and production at our business units and individual
operations and expectation that we will meet our production guidance, sales
volume and selling prices for our products (including settlement of coal
contracts with customers), plans and expectations for our development projects,
including resulting increases in forecast operating costs and costs of product
sold, expected production, expected progress, costs and outcomes of our various
projects and investments, including but not limited to those described in the
discussions of our operations, the potential savings that may be realized under
our cost reduction program and the identification of further savings, the
sensitivity of our profit to changes in commodity prices and exchange rates, the
impact of potential production disruptions, the impact of currency exchange
rates, future trends for the company, progress in development of mineral
properties, timing of completion, and results of our mill optimization project
program at Highland Valley Copper, statements under the heading "Copper
Development Projects," including the expected timing of re-filing the SEIA, and
commercial production, for Quebrada Blanca Phase 2, the timing of the
feasibility study for Relincho, statements under the heading "Coal" regarding
expected sales levels, cost of product sold, annual transportation costs and
depreciation and amortization expense, the timing of final approval and
production from the Quintette coal mine, proposed upgrades at Neptune and the
expected results of those upgrades, our expectation that we can continue to
achieve long-term selenium concentration targets, the timing of operation of our
water treatment plant at Line Creek, timing of expected start-up of the acid
plant at Trail, the statements under the heading "Energy" regarding timing of
project sanction and approval decisions, statements under the heading "Outlook"
regarding anticipated capital expenditures and demand and market outlook for
commodities and the lives of our assets and the sensitivity of their valuation
to changes in commodity prices. These forward-looking statements involve
numerous assumptions, risks and uncertainties and actual results may vary
materially.
These statements are based on a number of assumptions, including, but not
limited to, assumptions regarding general business and economic conditions, the
supply and demand for, deliveries of, and the level and volatility of prices of,
zinc, copper and coal and other primary metals and minerals as well as oil, and
related products, the timing of the receipt of regulatory and governmental
approvals for our development projects and other operations, our costs of
production and production and productivity levels, as well as those of our
competitors, power prices, continuing availability of water and power resources
for our operations, market competition, the accuracy of our reserve estimates
(including with respect to size, grade and recoverability) and the geological,
operational and price assumptions on which these are based, conditions in
financial markets, the future financial performance of the company, assumptions
regarding the impact of our cost reduction program on our operations, our
ability to attract and retain skilled staff, our ability to procure equipment
and operating supplies, positive results from the studies on our expansion
projects, our coal and other product inventories, our ability to secure adequate
transportation for our products, our ability to obtain permits for our
operations and expansions, our ongoing relations with our employees and business
partners and joint venturers. The foregoing list of assumptions is not
exhaustive. Events or circumstances could cause actual results to vary
materially.
Factors that may cause actual results to vary materially include, but are not
limited to, changes in commodity and power prices, changes in market demand for
our products, changes in interest and currency exchange rates, acts of foreign
governments and the outcome of legal proceedings, inaccurate geological and
metallurgical assumptions (including with respect to the size, grade and
recoverability of mineral reserves and resources), unanticipated operational
difficulties (including failure of plant, equipment or processes to operate in
accordance with specifications or expectations, cost escalation, unavailability
of materials and equipment, government action or delays in the receipt of
government approvals, industrial disturbances or other job action, adverse
weather conditions and unanticipated events related to health, safety and
environmental matters), union labour disputes, political risk, social unrest,
failure of customers or counterparties to perform their contractual obligations,
changes in our credit ratings, unanticipated increases in costs to construct our
development projects, difficulty in obtaining permits, inability to address
concerns regarding permits of environmental impact assessments, and changes or
further deterioration in general economic conditions. Our Fort Hills project is
not controlled by us and construction, sanction and production schedules may be
adjusted by our partner.
Statements concerning future production costs or volumes, and the sensitivity of
the company's profit to changes in commodity prices and exchange rates are based
on numerous assumptions of management regarding operating matters and on
assumptions that demand for products develops as anticipated, that customers and
other counterparties perform their contractual obligations, that operating and
capital plans will not be disrupted by issues such as mechanical failure,
unavailability of parts and supplies, labour disturbances, interruption in
transportation or utilities, adverse weather conditions, and that there are no
material unanticipated variations in the cost of energy or supplies. Statements
regarding anticipated coal sales volumes and average coal prices for the quarter
depend on timely arrival of vessels and performance of our coal-loading
facilities, as well as the level of spot pricing sales.
We assume no obligation to update forward-looking statements except as required
under securities laws. Further information concerning risks and uncertainties
associated with these forward-looking statements and our business can be found
in our Annual Information Form for the year ended December 31, 2012, filed under
our profile on SEDAR (www.sedar.com) and on EDGAR (www.sec.gov) under cover of
Form 40-F.
WEBCAST
Teck will host an Investor Conference Call to discuss its Q2/2013 financial
results at 11:00 AM Eastern time, 8:00 AM Pacific time, on Thursday, July 25,
2013. A live audio webcast of the conference call, together with supporting
presentation slides, will be available at our website at www.teck.com. The
webcast is also available at www.earnings.com. The webcast will be archived at
www.teck.com.
Teck Resources Limited
Consolidated Statements of Income
(Unaudited)
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Cdn$ in millions, except
for share data) 2013 2012 2013 2012
----------------------------------------------------------------------------
Revenues $ 2,152 $ 2,561 $ 4,482 $ 5,108
Cost of sales (1,570) (1,681) (3,199) (3,236)
----------------------------------------------------------------------------
Gross profit 582 880 1,283 1,872
Other operating expenses
General and administration (34) (34) (68) (62)
Exploration (25) (34) (39) (58)
Research and development (4) (4) (6) (9)
Other operating income
(expense) (Note 2) (82) (107) (100) (27)
----------------------------------------------------------------------------
Profit from operations 437 701 1,070 1,716
Finance income 1 7 2 12
Finance expense (Note 3) (87) (134) (175) (282)
Non-operating income
(expense) (Note 4) (37) (8) (50) (355)
Share of profit (losses) of
associates - (1) (1) (4)
---------------------------------------------------------------------------
Profit before tax 314 565 846 1,087
Provision for income and
resource taxes (152) (195) (355) (434)
----------------------------------------------------------------------------
Profit for the period $ 162 $ 370 $ 491 $ 653
----------------------------------------------------------------------------
Profit attributable to:
Shareholders of the
company $ 143 $ 354 $ 462 $ 612
Non-controlling interests 19 16 29 41
----------------------------------------------------------------------------
Profit for the period $ 162 $ 370 $ 491 $ 653
----------------------------------------------------------------------------
Earnings per share
Basic $ 0.25 $ 0.60 $ 0.80 $ 1.04
Diluted $ 0.25 $ 0.60 $ 0.79 $ 1.04
Weighted average shares
outstanding (millions) 578.7 585.9 580.4 586.0
Shares outstanding at end of
period (millions) 576.2 586.0 576.2 586.0
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Comprehensive Income
(Unaudited)
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Cdn$ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Profit $ 162 $ 370 $ 491 $ 653
Other comprehensive income
(loss) in the period
Items that may be reclassified
to profit
Currency translation
differences
(net of taxes of $34, $15,
$53 and $(1)) 80 67 128 21
Available-for-sale financial
instruments
(net of taxes of $14, $17,
$22 and $(2)) (102) (132) (161) 10
Cash flow hedges
(net of taxes of $2, $nil,
$2, and $nil) (6) - (6) (1)
----------------------------------------------------------------------------
(28) (65) (39) 30
Items that will not be
reclassified to profit
Remeasurements for
retirement benefit plans
(net of taxes of $(43),
$17, $(75) and $21) 87 (38) 161 (45)
----------------------------------------------------------------------------
Total other comprehensive income
(loss) for the period 59 (103) 122 (15)
----------------------------------------------------------------------------
Total comprehensive income for
the period $ 221 $ 267 $ 613 $ 638
----------------------------------------------------------------------------
Other comprehensive income
(loss) attributable to:
Shareholders of the company 56 (105) 117 (14)
Non-controlling interests 3 2 5 (1)
----------------------------------------------------------------------------
$ 59 $ (103) $ 122 $ (15)
----------------------------------------------------------------------------
Comprehensive income
attributable to:
Shareholders of the company $ 199 $ 249 $ 579 $ 598
Non-controlling interests 22 18 34 40
----------------------------------------------------------------------------
$ 221 $ 267 $ 613 $ 638
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Cash Flows
(Unaudited)
----------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
(Cdn$ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Operating activities
Profit $ 162 $ 370 $ 491 $ 653
Items not affecting cash
Depreciation and
amortization 289 257 582 465
Provision for deferred
income and resource taxes 46 70 115 163
Share of loss of associates - 1 1 4
Gain on sale of investments
and assets - (23) - (26)
Unrealized loss (gain) on
derivatives - 13 - (53)
Foreign exchange loss 19 16 24 23
Loss on debt repurchase - - - 414
Finance expense 87 134 175 282
Other (19) 36 (28) 13
----------------------------------------------------------------------------
584 874 1,360 1,938
Net change in non-cash working
capital items 106 91 93 (160)
----------------------------------------------------------------------------
690 965 1,453 1,778
Investing activities
Purchase of property, plant
and equipment (443) (382) (831) (681)
Mine development (189) (219) (399) (408)
Expenditures on financial
investments and other assets (111) (41) (193) (209)
Acquisition of SilverBirch
Energy Corporation - (432) - (432)
Proceeds from the sale of
investments and other assets 2 1 4 6
----------------------------------------------------------------------------
(741) (1,073) (1,419) (1,724)
Financing activities
Issuance of debt - - - 983
Repayment of debt (6) (14) (18) (1,302)
Debt interest paid (31) (93) (174) (231)
Issuance of Class B
subordinate voting shares - 1 - 1
Purchase and cancellation of
Class B subordinate voting
shares (141) - (176) (6)
Dividends paid - - (262) (235)
Distributions to non-
controlling interests (16) (11) (25) (17)
----------------------------------------------------------------------------
(194) (117) (655) (807)
Effect of exchange rate changes
on cash and cash equivalents 94 66 153 (11)
----------------------------------------------------------------------------
Decrease in cash and cash
equivalents (151) (159) (468) (764)
Cash and cash equivalents at
beginning of period 2,950 3,800 3,267 4,405
----------------------------------------------------------------------------
Cash and cash equivalents at end
of period $ 2,799 $ 3,641 $ 2,799 $ 3,641
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Balance Sheets
(Unaudited)
----------------------------------------------------------------------------
June 30, December 31,
(Cdn$ in millions) 2013 2012
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 2,799 $ 3,267
Current income and resource taxes
receivable 96 141
Trade accounts receivable 1,015 1,285
Inventories 1,788 1,783
----------------------------------------------------------------------------
5,698 6,476
Financial and other assets 883 973
Investments in associates 973 828
Property, plant and equipment 25,579 24,937
Deferred income and resource tax assets 176 204
Goodwill 1,662 1,637
----------------------------------------------------------------------------
$ 34,971 $ 35,055
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities
Trade accounts payable and other
liabilities $ 1,216 $ 1,468
Dividends payable (Note 6 (d)) 259 262
Current income and resource taxes payable 61 55
Debt (Note 5) 39 35
----------------------------------------------------------------------------
1,575 1,820
Debt (Note 5) 7,569 7,160
Deferred income and resource tax liabilities 5,736 5,581
Retirement benefit liabilities 568 760
Other liabilities and provisions 1,091 1,470
Equity
Attributable to shareholders of the
company 18,228 18,075
Attributable to non-controlling interests 204 189
----------------------------------------------------------------------------
18,432 18,264
----------------------------------------------------------------------------
$ 34,971 $ 35,055
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Changes in Equity
(Unaudited)
----------------------------------------------------------------------------
Six months ended
June 30,
(Cdn$ in millions) 2013 2012
----------------------------------------------------------------------------
Class A common shares $ 7 $ 7
Class B subordinate voting shares
Beginning of period 6,699 6,743
Share repurchase (73) (2)
Issued on exercise of options 1 2
----------------------------------------------------------------------------
End of period 6,627 6,743
Retained earnings
Beginning of period 11,291 10,850
Profit for the period attributable to
shareholders of the company 462 612
Dividends declared (259) (234)
Share repurchase (102) (4)
Remeasurements for retirement benefit plans 161 (45)
----------------------------------------------------------------------------
End of period 11,553 11,179
Contributed surplus
Beginning of period 113 97
Share-based payment expense 7 7
Transfer to Class B subordinate voting shares
on exercise of options - (1)
----------------------------------------------------------------------------
End of period 120 103
Accumulated other comprehensive income (loss)
attributable to shareholders of the
company(Note 6(b))
Beginning of period (35) 16
Other comprehensive income (loss) 117 (14)
Less remeasurements for retirement benefit
plans recorded in retained earnings (161) 45
----------------------------------------------------------------------------
End of period (79) 47
Non-controlling interests
Beginning of period 189 172
Profit for the period attributed to non-
controlling interests 29 41
Other comprehensive income (loss) 5 (1)
Other 6 -
Dividends or distributions (25) (17)
----------------------------------------------------------------------------
End of period 204 195
----------------------------------------------------------------------------
Total equity $ 18,432 $ 18,274
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Teck Resources Limited
Notes to Consolidated Financial Statements
(Unaudited)
----------------------------------------------------------------------------
1. BASIS OF PREPARATION
We prepare our consolidated financial statements in accordance with
International Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board ("IASB"). These condensed interim
consolidated financial statements have been prepared in accordance with IAS 34,
Interim Financial Reporting ("IAS 34").
The condensed interim consolidated financial statements should be read in
conjunction with our most recent annual financial statements. These condensed
interim consolidated financial statements follow the same accounting policies
and methods of application as our most recent annual financial statements,
except for those policies which have changed as a result of the adoption of new
and amended IFRS pronouncements effective January 1, 2013. Note 11 discloses the
effects of the adoption of new and amended IFRS pronouncements on each financial
statement line and on earnings per share for all prior periods presented,
including the nature and effect of significant changes in accounting policies
from those used in our consolidated financial statements for the year ended
December 31, 2012.
The Board of Directors authorized these financial statements on July 24, 2013.
2. OTHER OPERATING INCOME (EXPENSE)
----------------------------------------------------------------------------
Three months Six months
ended June 30, ended June 30,
(Cdn$ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Gain on sale of operating
assets $ - $ 3 $ - $ 4
Commodity derivatives (2) (2) 1 (4)
Pricing adjustments (74) (84) (96) 10
Share-based compensation
(Note 6(a)) 2 (1) 6 (7)
Provision for closed
properties restoration 12 (9) 21 (8)
Other (20) (14) (32) (22)
----------------------------------------------------------------------------
$ (82) $ (107) $ (100) $ (27)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
3. FINANCE EXPENSE
----------------------------------------------------------------------------
Three months Six months
ended June 30, ended June 30,
(Cdn$ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Debt interest $ 91 $ 105 $ 176 $ 226
Discount and financing fee
amortization 1 4 2 9
Less capitalized borrowing
costs (30) (4) (56) (9)
----------------------------------------------------------------------------
62 105 122 226
Interest cost on retirement
benefit plans 7 7 14 15
Decommissioning and
restoration provision
accretion 18 20 36 37
Other - 2 3 4
----------------------------------------------------------------------------
$ 87 $ 134 $ 175 $ 282
----------------------------------------------------------------------------
----------------------------------------------------------------------------
4. NON-OPERATING INCOME (EXPENSE)
----------------------------------------------------------------------------
Three months Six months
ended June 30, ended June 30,
(Cdn$ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Foreign exchange losses $ (19) $ (16) $ (24) $ (23)
Other derivative gains
(losses) - (12) - 60
Debt repurchase and
financing costs - - - (414)
Provision for marketable
securities (17) - (25) -
Gain on sale of investments - 20 - 22
Other (1) - (1) -
----------------------------------------------------------------------------
$ (37) $ (8) $ (50) $ (355)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. DEBT
----------------------------------------------------------------------------
(Cdn$ in millions) June 30, 2013 December 31, 2012
----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------------------------------------------------------------------------
5.375% notes due October
2015 (US$300 million) $ 315 $ 343 $ 297 $ 330
3.15% notes due January 2017
(US$300 million) 314 324 297 313
3.85% notes due August 2017
(US$300 million) 311 332 294 322
2.5% notes due February 2018
(US$500 million) 521 513 493 510
3.0% notes due March 2019
(US$500 million) 521 512 493 515
4.5% notes due January 2021
(US$500 million) 522 531 493 545
4.75% notes due January 2022
(US$700 million) 731 745 691 774
3.75% notes due February
2023 (US$750 million) 777 723 735 770
6.125% notes due October
2035 (US$700 million) 721 738 681 786
6.0% notes due August 2040
(US$650 million) 680 647 644 747
6.25% notes due July 2041
(US$1,000 million) 1,039 1,014 983 1,182
5.2% notes due March 2042
(US$500 million) 518 446 490 517
5.4% notes due February 2043
(US$500 million) 520 467 492 535
Antamina senior revolving
credit facility due April
2015 24 24 22 22
Other 94 94 90 90
----------------------------------------------------------------------------
7,608 7,453 7,195 7,958
Less current portion of
long-term debt (39) (39) (35) (35)
----------------------------------------------------------------------------
$ 7,569 $ 7,414 $ 7,160 $ 7,923
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The fair values of debt are determined using market values where available and
cash flows based on our cost of borrowing for other items.
6. EQUITY
a) Share-Based Compensation
During the first and second quarters of 2013, we granted 2,143,862 Class B
subordinate voting share options to employees. These options have a weighted
average exercise price of $33.08, a term of 10 years and vest in equal amounts
over three years. The weighted average fair value of Class B subordinate voting
share options issued was estimated at $9.80 per share option at the grant date
using the Black-Scholes option-pricing model. The option valuations were based
on an average expected option life of 4 years, a risk-free interest rate of
1.44%, a dividend yield of 2.89% and an expected volatility of 43%.
During the first and second quarters of 2013, we issued 770,777 deferred and
restricted share units to employees and directors. Deferred and restricted share
units issued vest immediately for directors and vest in three years for
employees. The total number of deferred and restricted share units outstanding
at June 30, 2013 was 2,835,041.
A share-based compensation recovery of $6 million (2012 - $7 million expense)
was recorded for the six months ended June 30, 2013 in respect of all
outstanding share options and units.
b) Accumulated Other Comprehensive Loss
The components of accumulated other comprehensive loss are:
----------------------------------------------------------------------------
June 30, June 30, December 31,
(Cdn$ in millions) 2013 2012 2012
----------------------------------------------------------------------------
Currency translation adjustment $ 89 $ 31 $ (39)
Unrealized loss on available-
for-sale financial assets (net
of tax of $22 and $nil) (161) 13 -
Unrealized loss on cash flow
hedges (net of tax of $2 and
$nil) (6) - -
----------------------------------------------------------------------------
$ (78) $ 44 $ (39)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other comprehensive
loss attributable to:
Shareholders of the company $ (79) $ 47 $ (35)
Non-controlling interests 1 (3) (4)
----------------------------------------------------------------------------
$ (78) $ 44 $ (39)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
c) Normal Course Issuer Bid
Under our previous normal course issuer bid, during the 12 month period
commencing on June 27, 2012, we purchased an aggregate of 10 million Class B
subordinate voting shares of which 5 million were purchased in the second
quarter of 2013. In June 2013, we renewed our normal course issuer bid, under
which we may purchase up to 20 million Class B subordinate voting shares during
the period starting June 28, 2013 and ending on June 27, 2014.
d) Dividends
Dividends of $0.45 per share were declared on our Class A common shares and
Class B subordinate voting shares with a record date of June 14, 2013 and were
paid on July 2, 2013.
e) Remeasurements for Retirement Benefit Programs
During the second quarter, the revaluation of our defined benefit plans
generated a $130 million pre-tax gain through other comprehensive income.
Approximately $146 million of this gain was generated by a 40 basis points
increase in the discount rate used to value obligations offset by a loss of $16
million due to our pension assets' performance, which was below actuarial
assumptions for the period.
In determining our retirement benefit liabilities, the following rates have been
used:
----------------------------------------------------------------------------
June 30, March 31, December 31,
2013 2013 2012
----------------------------------------------------------------------------
Discount rate for defined
benefit plans 4.40% 4.00% 3.90%
----------------------------------------------------------------------------
----------------------------------------------------------------------------
7. SEGMENT INFORMATION
Based on the principal products we produce and our development projects, we have
five reportable segments - copper, coal, zinc, energy and corporate - which is
the way we report information to our Chief Executive Officer. The corporate
segment includes all of our initiatives in other commodities, our corporate
growth activities and groups that provide administrative, technical, financial
and other support to all of our business units. Other operating expenses include
general and administration costs, exploration, research and development, and
other operating income (expense). Sales between segments are carried out at
arm's length.
----------------------------------------------------------------------------
Three months ended June 30, 2013
(Cdn$ in millions) Copper Coal Zinc Energy Corporate Total
----------------------------------------------------------------------------
Segment revenues 693 1,002 505 2 - 2,202
Less: Inter-segment
revenues - - (50) - - (50)
----------------------------------------------------------------------------
Revenues 693 1,002 455 2 - 2,152
----------------------------------------------------------------------------
Gross profit 240 277 63 2 - 582
Other operating
income (expenses) (97) - (5) - (43) (145)
----------------------------------------------------------------------------
Profit from
operations 143 277 58 2 (43) 437
Net finance expense (4) (13) (9) - (60) (86)
Non-operating income
(expenses) - - - (2) (35) (37)
Share of profit
(loss) from
associates - - - - - -
----------------------------------------------------------------------------
Profit before tax 139 264 49 - (138) 314
----------------------------------------------------------------------------
Capital expenditures 349 222 54 - 7 632
----------------------------------------------------------------------------
----------------------------------------------------------------------------
---------------------------------------------------------------------------
Three months ended June 30, 2012
(Cdn$ in millions) Copper Coal Zinc Energy Corporate Total
---------------------------------------------------------------------------
Segment revenues 731 1,362 511 1 - 2,605
Less: Inter-segment
revenues - - (44) - - (44)
---------------------------------------------------------------------------
Revenues 731 1,362 467 1 - 2,561
---------------------------------------------------------------------------
Gross profit 286 569 25 - - 880
Other operating
income (expenses) (88) - (19) - (72) (179)
---------------------------------------------------------------------------
Profit from
operations 198 569 6 - (72) 701
Net finance expense (4) (14) (5) - (104) (127)
Non-operating income
(expenses) - - - - (8) (8)
Share of losses of
associates - - - - (1) (1)
---------------------------------------------------------------------------
Profit before tax 194 555 1 - (185) 565
---------------------------------------------------------------------------
Capital expenditures 238 288 62 5 8 601
---------------------------------------------------------------------------
---------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30, 2013
(Cdn$ in millions) Copper Coal Zinc Energy Corporate Total
----------------------------------------------------------------------------
Segment revenues 1,377 2,062 1,151 3 - 4,593
Less: Inter-segment
revenues - - (111) - - (111)
----------------------------------------------------------------------------
Revenues 1,377 2,062 1,040 3 - 4,482
----------------------------------------------------------------------------
Gross profit 493 623 165 2 - 1,283
Other operating
income (expenses) (131) - (4) - (78) (213)
----------------------------------------------------------------------------
Profit from
operations 362 623 161 2 (78) 1,070
Net finance expense (8) (25) (18) - (122) (173)
Non-operating income
(expenses) - - - (2) (48) (50)
Share of profit
(loss) from
associates - - - - (1) (1)
----------------------------------------------------------------------------
Profit before tax 354 598 143 - (249) 846
----------------------------------------------------------------------------
Capital expenditures 608 463 100 46 13 1,230
----------------------------------------------------------------------------
Goodwill 459 1,203 - - - 1,662
----------------------------------------------------------------------------
Total assets 8,762 17,492 4,115 2,015 2,587 34,971
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Six months ended June 30, 2012
(Cdn$ in millions) Copper Coal Zinc Energy Corporate Total
----------------------------------------------------------------------------
Segment revenues 1,484 2,560 1,161 2 - 5,207
Less: Inter-segment
revenues - - (99) - - (99)
----------------------------------------------------------------------------
Revenues 1,484 2,560 1,062 2 - 5,108
----------------------------------------------------------------------------
Gross profit 586 1,167 119 - - 1,872
Other operating
income (expenses) (30) (5) (10) - (111) (156)
----------------------------------------------------------------------------
Profit from
operations 556 1,162 109 - (111) 1,716
Net finance expense (6) (22) (11) - (231) (270)
Non-operating income
(expenses) - - - - (355) (355)
Share of profit
(loss) from
associates - - - (2) (2) (4)
----------------------------------------------------------------------------
Profit before tax 550 1,140 98 (2) (699) 1,087
----------------------------------------------------------------------------
Capital expenditures 377 567 95 37 13 1,089
----------------------------------------------------------------------------
Goodwill 445 1,203 - - - 1,648
----------------------------------------------------------------------------
Total assets 7,855 17,355 5,052 1,699 2,596 34,557
----------------------------------------------------------------------------
----------------------------------------------------------------------------
8. CONTINGENCIES
We consider provisions for all our outstanding and pending legal claims to be
adequate. The final outcome with respect to actions outstanding or pending as at
June 30, 2013, or with respect to future claims, cannot be predicted with
certainty. Significant contingencies not disclosed elsewhere in the notes to our
financial statements are as follows:
Upper Columbia River Basin
Teck American Inc. ("TAI") continues studies under the 2006 settlement agreement
with the U.S. EPA to conduct a remedial investigation on the Upper Columbia
River in Washington State.
The Lake Roosevelt litigation involving Teck Metals Ltd. ("TML") in the Federal
District Court for the Eastern District of Washington continues.
In September 2012, TML entered into an agreement with the plaintiffs, agreeing
that certain facts were established for purposes of the litigation. The
agreement stipulates that some portion of the slag discharged from our Trail
Operations into the Columbia River between 1896 and 1995, and some portion of
the effluent discharged from Trail Operations, have been transported to and are
present in the Upper Columbia River in the United States, and that some
hazardous substances from the slag and effluent have been released into the
environment within the United States. In October, the Federal District Court for
the Eastern District of Washington heard argument with respect to personal
jurisdiction and certain legal issues with respect to the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"). In December
the court found in favour of the plaintiffs in phase one of the case, issuing a
declaratory judgement that TML is liable under CERCLA for response costs, the
amount of which will be determined in a subsequent phase of the case.
A hearing with respect to past response costs is now expected to take place in
late 2014 and a subsequent hearing, with respect to claims for natural resource
damages and assessment costs, is expected to be deferred while the remedial
investigation and feasibility study being undertaken by TAI are completed, which
is currently expected to occur in 2015.
There is no assurance that we will ultimately be successful in our defence of
the litigation or that we or our affiliates will not be faced with further
liability in relation to this matter. Until the studies contemplated by the EPA
settlement agreement and additional damage assessments are completed, it is not
possible to estimate the extent and cost, if any, of remediation or restoration
that may be required or to assess our potential liability for damages. The
studies may conclude, on the basis of risk, cost, technical feasibility or other
grounds, that no remediation should be undertaken. If remediation is required
and damage to resources found, the cost of remediation may be material.
9. SEASONALITY OF SALES
Due to ice conditions, the port serving our Red Dog mine is normally only able
to ship concentrates from July to October each year. As a result, zinc and lead
concentrate sales volumes are generally higher in the third and fourth quarter
of each year than in the first and second quarter.
10. FAIR VALUE MEASUREMENTS
Certain of our financial assets and liabilities are measured at fair value on a
recurring basis and classified in their entirety based on the lowest level of
input that is significant to the fair value measurement. Certain non-financial
assets and liabilities may also be measured at fair value on a non-recurring
basis. There are three levels of the fair value hierarchy that prioritize the
inputs to valuation techniques used to measure fair value, with Level 1 inputs
having the highest priority. The levels and the valuation techniques used to
value our financial assets and liabilities are described below:
Level 1 - Quoted Prices in Active Markets for Identical Assets
Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.
Marketable equity securities are valued using quoted market prices in active
markets. Accordingly, these items are included in Level 1 of the fair value
hierarchy.
Level 2 - Significant Other Observable Inputs
Quoted prices in markets that are not active, quoted prices for similar assets
or liabilities in active markets, or inputs that are observable, either directly
or indirectly, for substantially the full term of the asset or liability.
Derivative instruments are included in Level 2 of the fair value hierarchy as
they are valued using pricing models or discounted cash flow models. These
models require a variety of inputs, including, but not limited to, contractual
terms, market prices, forward price curves, yield curves, and credit spreads.
These inputs are obtained from or corroborated with the market where possible.
Also included in Level 2 are settlements receivable and settlements payable from
provisional pricing on concentrate sales and purchases because they are valued
using quoted market prices for forward curves for copper, zinc and lead.
Level 3 - Significant Unobservable Inputs
Unobservable (supported by little or no market activity) prices.
We include investments in debt securities in Level 3 of the fair value hierarchy
because they trade infrequently and have little price transparency. We review
the fair value of these instruments periodically and estimate an impairment
charge based on management's best estimates, which are unobservable inputs.
The fair values of our financial assets and liabilities measured at fair value
on a recurring basis at June 30, 2013 and December 31, 2012 are summarized in
the following table:
----------------------------------------------------------------------------
(Cdn$ in millions) June 30, 2013
Level 1 Level 2 Level 3 Total
----------------------------------------------------------------------------
Financial assets
Marketable equity securities $ 513 $ - $ - $ 513
Marketable debt securities - - 16 16
Settlements receivable - 480 - 480
Derivative instruments - 2 - 2
----------------------------------------------------------------------------
$ 513 $ 482 $ 16 $ 1,011
----------------------------------------------------------------------------
Financial liabilities
Derivative instruments $ - $ 19 $ - $ 19
Settlements payable - 39 - 39
----------------------------------------------------------------------------
$ - $ 58 $ - $ 58
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(Cdn$ in millions) December 31, 2012
Level 1 Level 2 Level 3 Total
----------------------------------------------------------------------------
Financial assets
Marketable equity securities $ 671 $ - $ - $ 671
Marketable debt securities - - 16 16
Settlements receivable - 705 - 705
Derivative instruments - 3 - 3
----------------------------------------------------------------------------
$ 671 $ 708 $ 16 $ 1,395
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Financial liabilities
Derivative instruments $ - $ 11 $ - $ 11
Settlements payable - 68 - 68
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$ - $ 79 $ - $ 79
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For our non-financial assets and liabilities measured at fair value on a
non-recurring basis, no fair value measurements were made as at June 30, 2013 or
December 31, 2012.
11. ADOPTION OF NEW AND AMENDED IFRS PRONOUNCEMENTS
We adopted new and amended IFRS pronouncements as at January 1, 2013, in
accordance with the transitional provisions outlined in the respective
standards. The new and amended IFRS pronouncements adopted were outlined in
detail in our condensed interim consolidated financial statements for the
quarter ended March 31, 2013. Only the pronouncements affecting our previously
reported financial results as at June 30, 2012 have been outlined in these
condensed interim consolidated financial statements.
The adoption of the following new and amended IFRS pronouncements has resulted
in adjustments to previously reported figures as outlined below.
a) Post-employment benefits
We adopted the amended version of IAS 19, Employee Benefits ("IAS 19") on
January 1, 2013 with retrospective application. IAS 19 does not require an
entity to present comparative information for the disclosure requirements in the
amended standard.
We have analyzed the amendments to IAS 19 and calculated the effect of the
amendments on our comparative consolidated financial statements for 2012. On the
date of our earliest period presented, January 1, 2012, we expensed unamortized
past service costs through equity. For comparative periods presented, we
reversed the amortization of past service costs and applied one discount rate to
the net defined benefit asset or liability to determine the interest element of
the defined benefit cost. The tables in Note 11(c) below outline the adjustments
to our consolidated financial statements for all comparative periods presented.
We continue to immediately recognize in retained earnings all defined benefit
adjustments recognized in other comprehensive income.
The adoption of the amendments to IAS 19 did not have a significant effect on
our condensed interim consolidated financial statements for the period ended
June 30, 2013.
b) Production stripping costs
We adopted IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine
("IFRIC 20") and have applied the requirements to production stripping costs
incurred on or after January 1, 2012, in accordance with the transitional
provisions of IFRIC 20. We have also analyzed predecessor stripping assets
recorded as of January 1, 2012, the date of our earliest period presented, in
accordance with the transitional provisions of IFRIC 20.
The adoption of IFRIC 20 resulted in an increase in the capitalization of
stripping activity assets on our consolidated balance sheet and an increase in
our profit and earnings per share. These items were partially offset by the
amortization of stripping activity assets on a units-of-production basis in the
respective periods. Inventories were adjusted to capitalize production stripping
costs. The depreciation of stripping activity assets is included in the cost of
inventories. The tables in Note 11(c) below outline the adjustments to our
financial statements for all comparative periods presented.
The adoption of IFRIC 20 has significantly increased our capitalization of
production stripping costs as compared to our previous accounting policy. During
the three and six months ended June 30, 2013, we capitalized $203 million and
$426 million, respectively, of stripping activity assets, primarily at our coal
operations. We recorded depreciation expense on stripping activity assets of $70
million and $139 million during the three and six months ended June 30, 2013,
respectively.
c) Adjustments to Consolidated Financial Statements
i) Adjustments to condensed consolidated balance sheets
----------------------------------------------------------------------------
(Cdn$ in millions) June 30, 2012
----------------------------------------------------------------------------
Equity before accounting changes $ 18,140
Adjustments to:
Inventories (b) (147)
Property, plant and equipment (b) 364
Deferred income and resource tax assets (14)
Deferred income and resource tax liabilities (60)
Retirement benefit obligations (a) (9)
----------------------------------------------------------------------------
Equity after accounting changes $ 18,274
----------------------------------------------------------------------------
Equity under accounting changes attributable to:
Shareholders of the company $ 18,079
Non-controlling interests $ 195
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----------------------------------------------------------------------------
ii) Adjustments to condensed consolidated statements of income
----------------------------------------------------------------------------
Three months ended Six months ended
(Cdn$ in millions) June 30, 2012 June 30, 2012
----------------------------------------------------------------------------
Profit before accounting
changes $ 282 $ 523
Adjustments to:
Cost of sales 145 219
Finance expense, net (9) (18)
Provision for income and
resource taxes (48) (71)
----------------------------------------------------------------------------
Profit after accounting
changes $ 370 $ 653
----------------------------------------------------------------------------
Profit after accounting
changes attributable to:
Shareholders of the company $ 354 $ 612
Non-controlling interests $ 16 $ 41
----------------------------------------------------------------------------
Earnings per share after
accounting changes
Basic $ 0.60 $ 1.04
Diluted $ 0.60 $ 1.04
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The adjustments to profit relating to the new and amended IFRS pronouncements in
Note 11(a) and (b) increased basic and diluted earnings per share by $0.14 and
$0.21, respectively, for the three and six months ended June 30, 2013.
iii) Adjustments to condensed consolidated statements of comprehensive income
----------------------------------------------------------------------------
Three months ended Six months ended
(Cdn$ in millions) June 30, 2012 June 30, 2012
----------------------------------------------------------------------------
Comprehensive income before
accounting changes $ 173 $ 496
Adjustments to:
Profit 88 130
Other comprehensive income:
Remeasurements for
retirement benefit plans 9 18
Income and resource taxes
on remeasurements for
retirement benefit plans (3) (6)
----------------------------------------------------------------------------
Comprehensive income after
accounting changes $ 267 $ 638
----------------------------------------------------------------------------
Comprehensive income after
accounting changes
attributable to:
Shareholders of the company $ 249 $ 598
Non-controlling interests $ 18 $ 40
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FOR FURTHER INFORMATION PLEASE CONTACT:
Teck Resources Limited
Greg Waller
VP Investor Relations & Strategic Analysis
604.699.4014
Teck Resources Limited
Marcia Smith
SVP Sustainability and External Affairs
604.699.4616
www.teck.com
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