Teck Resources Limited (TSX: TCK.A and TCK.B, NYSE: TCK) ("Teck") reported third
quarter adjusted profit of $252 million, or $0.44 per share, compared with $425
million or $0.73 per share in 2012.
"We are pleased with our operating performance this quarter," said Don Lindsay,
President and CEO. "Our steelmaking coal sales of 7.6 million tonnes set a
quarterly record and demand from customers is strong. However, the current price
for steelmaking coal remains below what we believe is required to sustain
adequate production in the industry in the long term. With the current market
conditions, our near term efforts are focusing on our $330 million cost
reduction program, reducing our sustaining capital spending and reviewing the
timing of our various development projects."
Highlights and Significant Items
-- Coal sales in the third quarter were a record 7.6 million tonnes, up 36%
from a year ago.
-- Gross profit before depreciation and amortization was $919 million in
the third quarter compared with $1.1 billion the third quarter of 2012.
-- Cash flow from operations, before working capital changes, was $647
million in the third quarter compared with $885 million a year ago.
-- Profit attributable to shareholders was $267 million and EBITDA was $815
million in the third quarter.
-- Our cash balance was $2.3 billion at September 30, 2013.
-- We continue to implement our cost reduction program and to date our
existing operations have identified over $330 million of annual ongoing
potential cost savings at constant production levels and have
implemented $300 million of these initiatives.
-- To date we have reached agreements with our coal customers to sell 5.6
million tonnes of coal in the fourth quarter of 2013 at an average price
of US$145 per tonne and expect total sales in the fourth quarter,
including spot sales, to be at or above 6.3 million tonnes.
-- Coal cost of sales before transportation costs declined to $50 per tonne
in the third quarter compared with $58 per tonne a year ago.
-- We received the British Columbia Environmental Assessment Certificate
for our Line Creek Phase 2 project which will maintain production and
extend the mine life by 18 years.
-- We reached an agreement to purchase approximately 7,150 hectares of
private land in the Elk and Flathead valleys of British Columbia for $19
million, in order to protect key wildlife and fish habitat. These lands,
in combination with ongoing reclamation work at our operations, will
help us to achieve our sustainability goal of creating a net-positive
impact on biodiversity.
-- We were named to the Dow Jones Sustainability World Index ("DJSI") for
the fourth straight year, indicating that our sustainability practices
rank in the top ten percent of the world's 2,500 largest public
companies.
This management's discussion and analysis is dated as at October 24, 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 September 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 are lower than last year as a result of lower prices for all of our
principal products. Coal and copper prices in the third quarter declined by 28%
and 8%, respectively, compared with the same period a year ago. Based on sales
volumes, these lower prices resulted in our revenues being approximately $410
million lower than in the third quarter of last year.
Production and sales volumes were at or above last year's levels for our major
products other than copper. Coal production was up 6% over last year and up 12%
over last quarter and we set a new quarterly sales record of 7.6 million tonnes
of coal. For copper, reduced throughput at Quebrada Blanca, in addition to lower
grades at most of our mines, adversely affected production. We continued to
focus on operating costs as unit costs were significantly lower in coal and
total operating costs in copper were unchanged.
Our cost reduction program at all of our sites continues to make significant
progress. We have identified over $330 million of potential ongoing, annual
operating cost savings across the company, of which $300 million have been
implemented. An additional $130 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 settlement charges in 2012. We have also reduced our planned spending on
exploration by approximately 15% while maintaining our commitments to partners
and have reduced our corporate overhead.
We continue to delay the development of some of our internal growth projects and
have deferred capital spending. At Quintette, we delayed the final stage of
development for the mine and will not start the development until we see a
sustained improvement in demand for steelmaking coal. We have also slowed the
development of Quebrada Blanca Phase 2 in part as a result of market conditions.
We plan to update permits for our existing operations at Quebrada Blanca to
reflect the longer mine life before resubmission of the social and environmental
impact assessment ("SEIA") for Phase 2. We are also taking action to reduce
sustaining capital expenditures.
Profit and Adjusted Profit((i))
Adjusted profit, which excludes the effect of certain transactions as described
in the table below, was $252 million, or $0.44 per share, in the third quarter
of 2013 compared with $425 million, or $0.73 per share, in the same period a
year ago. The decline in adjusted profit was primarily due to significantly
lower coal prices, partially offset by record sales volumes for coal in the
quarter.
Profit attributable to shareholders was $267 million, or $0.46 per share, in the
third quarter compared with $256 million, or $0.44 per share, in the same period
last year. Profit last year was affected by a $196 million after-tax charge
related to the refinancing of a portion of our debt.
Three months ended Nine months ended
September 30, September 30,
($ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Profit attributable to shareholders
as reported $ 267 $ 256 $ 729 $ 868
Add (deduct):
Asset sales and provisions 5 (22) 27 (43)
Foreign exchange (gains) losses (9) 2 13 21
Derivative (gains) losses (1) (48) (2) (95)
Collective agreement charges - 9 - 59
Financing items - 196 - 525
Tax related items (10) 32 10 32
----------------------------------------
Adjusted profit $ 252 $ 425 $ 777 $1,367
----------------------------------------
Adjusted earnings per share $ 0.44 $ 0.73 $ 1.34 $ 2.34
----------------------------------------
(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 September 30
Gross profit before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Copper $ 714 $ 763 $ 318 $ 392 $ 226 $ 299
Coal 1,088 1,077 417 548 217 421
Zinc 721 664 183 135 154 107
Energy 1 1 1 1 - -
----------------------------------------------------------------------------
Total $ 2,524 $ 2,505 $ 919 $ 1,076 $ 597 $ 827
----------------------------------------------------------------------------
Gross profit before depreciation and amortization from our copper business unit
decreased by $74 million in the third quarter compared with a year ago primarily
as a result of lower copper prices, reduced sales volumes and lower molybdenum
revenues. Copper prices averaged US$3.21 per pound in the third quarter, a
decline of 8% compared with a year ago. Copper production was 91,000 tonnes in
the third quarter, up 7% from the second quarter, but lower than the record
production levels we achieved in the third and fourth quarters of 2012 when
significantly higher than normal grade sections were mined at Highland Valley.
Total tonnes mined in the third quarter were the same as a year ago and the cost
per tonne mined remained similar year-over-year. Total production costs in the
third quarter, before changes in inventory and the effect of translating our
costs denominated in U.S. dollars, remained the same as a year ago. Higher costs
at Highland Valley due to partial plant shutdowns related to the mill
optimization project and commissioning of the new pebble crushing facility, and
increased costs at Antamina were offset by substantially lower costs at Quebrada
Blanca. Cash unit costs in the third quarter of 2013, before and after
by-product credits, were US$2.09 and US$1.71 per pound, respectively, similar to
the second quarter of 2013 and 2012 annual unit costs. Cash unit costs, before
and after by-product credits, were lower in the third quarter of 2012 at US$1.98
and US$1.53 per pound, respectively, due to the record production, which reduced
unit costs and lower molybdenum by-product credits in the third quarter of 2013.
Gross profit before depreciation and amortization from our coal business unit
declined by $131 million in the third quarter compared with the same period a
year ago due to significantly lower coal prices. This was partially offset by
record sales of 7.6 million tonnes and reduced cash operating costs. Coal prices
were 28% lower than a year ago and averaged US$139 per tonne in the third
quarter of 2013. Sales of 7.6 million tonnes in the third quarter set a new
quarterly record, reflecting improving market sentiment through the quarter.
Strong demand from contract customers, sales to new customers, good spot sales,
and consistently strong performance of our logistics chain, including the
expanded capacity at our Neptune Terminals, contributed to maximizing sales in
the quarter. The cost of product sold in the third quarter, before
transportation and depreciation charges, significantly improved and was reduced
to $50 per tonne compared with $58 per tonne in the same period a year ago. Cost
reduction initiatives at the mines continue to drive down unit costs across the
business unit and many of them have been implemented and delivering savings for
over a year.
Gross profit from our zinc business unit, before depreciation and amortization,
rose by $48 million compared with a year ago, with both Red Dog and Trail
contributing higher gross profits.
The increase was primarily due to higher sales volumes, especially from Red Dog,
and higher lead prices. Red Dog's sales volumes of zinc and lead were
approximately 25% higher than a year ago when poor weather delayed shipments.
Red Dog's zinc production was 11% higher than a year ago at 142,500 tonnes, as
third quarter 2012 production was impacted by fine grained/high silica ore,
which required a reduction in mill throughput to achieve acceptable recoveries.
Trail's refined zinc and lead production in the third quarter of 2013 rose 4%
and 10%, respectively, as a result of higher throughput and improved operating
efficiencies.
Revenues
Revenues from operations of $2.5 billion in the third quarter were the same as a
year ago. Revenues from our copper business unit declined by $49 million from a
year ago primarily due to lower copper prices and a reduction in molybdenum
revenues. Coal revenues in the third quarter remained similar to a year ago as
significantly lower coal prices were primarily offset by a 36%, or 2.0 million
tonne, increase in sales volumes. Revenues from our zinc business unit increased
by $57 million from a year ago primarily due to significantly higher zinc and
lead sales volumes from Red Dog. Partly offsetting the coal and metal price
declines was the effect of the stronger U.S. dollar in the third quarter
compared with a year ago.
Average Prices and Exchange Rates(i)
Three months ended Nine months ended
September 30, September 30,
2013 2012 % Change 2013 2012 % Change
----------------------------------------------------------------------------
Copper (LME Cash - US$/pound) 3.21 3.50 -8% 3.35 3.61 -7%
Coal (realized - US$/tonne) 139 193 -28% 151 206 -27%
Zinc (LME Cash - US$/pound) 0.84 0.86 -2% 0.87 0.88 -1%
Silver (LME PM fix - US$/ounce) 21 30 -30% 25 31 -19%
Molybdenum (published price -
US$/pound) 9 12 -25% 10 13 -23%
Lead (LME Cash - US$/pound) 0.95 0.90 6% 0.98 0.91 8%
Cdn/U.S. exchange rate (Bank of
Canada) 1.04 1.00 4% 1.02 1.00 2%
(i) Except for coal prices, the average commodity prices disclosed above are
based on published benchmark prices and are provided for information only.
Our actual revenues are determined using commodity prices and other terms
and conditions specified in our various sales contracts with our customers.
The molybdenum price is the price published in Platts Metals Week.
Our year-to-date business unit results are presented in the table below:
Nine Months ended September 30
Gross profit before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Copper $ 2,091 $ 2,247 $ 1,007 $ 1,138 $ 719 $ 885
Coal 3,150 3,637 1,377 1,970 840 1,588
Zinc 1,761 1,726 396 303 319 226
Energy 4 3 4 2 2 -
----------------------------------------------------------------------------
Total $ 7,006 $ 7,613 $ 2,784 $ 3,413 $ 1,880 $ 2,699
----------------------------------------------------------------------------
BUSINESS UNIT RESULTS
The table below shows our production and sales of our major products.
Units
(000's) Production Sales
----------------------------------------------------------------------------
Third Third
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 77 84 216 219 80 83 220 215
Cathode tonnes 14 15 43 51 15 15 44 51
----------------------------------------------------
91 99 259 270 95 98 264 266
----------------------------------------------------
Coal tonnes 6,707 6,322 18,955 18,294 7,568 5,546 20,431 17,567
Zinc
Contained in
concentrate tonnes 156 145 464 441 191 157 412 371
Refined tonnes 77 74 221 217 78 75 221 220
Other products
Lead
Contained in
concentrate tonnes 23 22 71 69 60 46 60 46
Refined tonnes 24 21 66 64 23 22 64 65
Molybdenum
Contained in
concentrate pounds 1,668 3,448 6,086 9,652 1,876 3,006 6,167 9,396
----------------------------------------------------------------------------
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 SEPTEMBER, 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 (loss)
----------------------------------------------------------------------------
2013 2012 2013 2012 2013 2012
----------------------------------------------------------------------------
Copper
Highland
Valley Copper $ 206 $ 251 $ 75 $ 135 $ 48 $ 102
Antamina 226 227 163 179 156 170
Quebrada
Blanca 102 107 25 10 - (14)
Carmen de
Andacollo 153 142 54 60 30 39
Duck Pond 27 31 3 5 (6) (1)
Other - 5 (2) 3 (2) 3
----------------------------------------------------------------------------
714 763 318 392 226 299
Coal (note 1) 1,088 1,077 417 548 217 421
Zinc
Trail 415 437 22 5 8 (8)
Red Dog 354 288 158 136 143 121
Other 8 2 3 (6) 3 (6)
Inter-segment
sales (56) (63) - - - -
----------------------------------------------------------------------------
721 664 183 135 154 107
Energy 1 1 1 1 - -
----------------------------------------------------------------------------
TOTAL $2,524 $2,505 $ 919 $1,076 $ 597 $ 827
----------------------------------------------------------------------------
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 NINE MONTHS ENDED SEPTEMBER 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 $ 662 $ 698 $ 298 $ 359 $ 211 $ 279
Antamina 572 640 416 491 381 470
Quebrada Blanca 311 380 85 106 11 33
Carmen de
Andacollo 466 423 185 155 117 94
Duck Pond 73 99 21 27 (3) 9
Other 7 7 2 - 2 -
----------------------------------------------------------------------------
2,091 2,247 1,007 1,138 719 885
Coal (note 1) 3,150 3,637 1,377 1,970 840 1,588
Zinc
Trail 1,323 1,366 79 34 41 (4)
Red Dog 594 516 309 270 270 231
Other 11 6 8 (1) 8 (1)
Inter-segment
sales (167) (162) - - - -
----------------------------------------------------------------------------
1,761 1,726 396 303 319 226
Energy 4 3 4 2 2 -
----------------------------------------------------------------------------
TOTAL $7,006 $7,613 $2,784 $3,413 $1,880 $2,699
----------------------------------------------------------------------------
1. Our coal business unit represents our interest in six operating mines.
We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal
River mines, have a 95% partnership interest in the Elkview mine and an
80% interest in the Greenhills mine.
COPPER
Highland Valley Copper (97.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Tonnes milled (000's) 10,295 10,955 33,111 33,723
Copper
Grade (%) 0.28 0.32 0.28 0.27
Recovery (%) 88.5 89.3 85.5 85.9
Production (000's tonnes) 25.5 31.5 79.5 78.9
Sales (000's tonnes) 27.1 31.5 83.2 80.2
Molybdenum
Production (million pounds) 1.0 2.7 4.4 7.5
Sales (million pounds) 1.3 2.2 4.6 6.9
Cost of sales ($ millions)
Operating costs $ 122 $ 107 $ 339 $ 314
Distribution costs $ 9 $ 9 $ 25 $ 25
Depreciation and amortization $ 27 $ 33 $ 87 $ 80
Gross profit summary ($ millions)
(note 1)
Before depreciation and
amortization $ 75 $ 135 $ 298 $ 359
Depreciation and amortization (27) (33) (87) (80)
----------------------------------------------------------------------------
After depreciation and
amortization $ 48 $ 102 $ 211 $ 279
----------------------------------------------------------------------------
1. Results do not include a provision for the 2.5% non-controlling interest
in Highland Valley Copper.
Highland Valley Copper's third quarter gross profit declined by $60 million
before depreciation and amortization, primarily due to lower copper prices and
lower production levels of both copper and molybdenum.
Copper ore grades mined in the quarter were close to reserve grades, whereas
higher than normal grades were mined in the comparable quarter last year. Grades
similar to this quarter are expected for the remainder of the year and into
2014. Mill throughput was also lower during the quarter as a result of shutdowns
to tie in the new flotation and pebble crushing facilities and other maintenance
activities. Molybdenum production declined to 1.0 million pounds from 2.7
million pounds a year ago primarily due to lower ore grades.
Operating costs in the third quarter, before changes in inventory, were $113
million compared with $105 million a year ago. The increase was due to higher
labour costs related to the shutdown work and an increase in routine tailings
dam costs as the facility expands. As sales exceeded production in the quarter,
cost of sales included a change in inventory charge of $9 million in the third
quarter compared with $2 million last year. Capitalized stripping costs in third
quarter of 2013 were $29 million compared with $26 million a year ago.
The mill optimization project is on schedule for substantial mechanical
completion by year end with commissioning of the new flotation facility in the
first quarter of 2014. The new pebble crushing facility and grinding line
upgrades were commissioned in the third quarter and are operating as designed,
but with some minor modifications required. As a result, higher mill throughput
rates are anticipated to start in the fourth quarter, with the full throughput
benefit in 2014.
Drilling activities are continuing in the Bethlehem area and engineering studies
have commenced on the Bethlehem Phase 1 project targeting an initial 100 million
tonnes of additional ore reserves.
Antamina (22.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Tonnes milled (000's)
Copper-only ore 9,569 9,359 24,021 23,541
Copper-zinc ore 2,195 2,915 10,497 11,190
----------------------------------------------------------------------------
11,764 12,274 34,518 34,731
Copper (note 1)
Grade (%) 1.21 1.15 1.05 1.07
Recovery (%) 89.6 89.4 87.0 87.6
Production (000's tonnes) 128.6 123.5 312.8 325.2
Sales (000's tonnes) 126.9 122.1 299.3 317.0
Zinc (note 1)
Grade (%) 2.12 1.97 2.25 1.88
Recovery (%) 83.6 81.9 85.1 80.3
Production (000's tonnes) 44.1 51.1 201.6 174.6
Sales (000's tonnes) 56.7 54.7 192.3 166.3
Molybdenum
Production (million pounds) 2.9 3.0 7.5 9.4
Sales (million pounds) 2.7 3.5 7.0 11.1
Cost of sales (US$ millions)
Operating costs $ 176 $ 138 $ 456 $ 431
Distribution costs $ 29 $ 29 $ 75 $ 80
Royalties and other costs (note 2) $ 44 $ 49 $ 95 $ 152
Depreciation and amortization $ 31 $ 35 $ 151 $ 93
Gross profit summary (our 22.5%
share) ($ millions)
Before depreciation and
amortization $ 163 $ 179 $ 416 $ 491
Depreciation and amortization (7) (9) (35) (21)
----------------------------------------------------------------------------
After depreciation and
amortization $ 156 $ 170 $ 381 $ 470
----------------------------------------------------------------------------
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.
Our 22.5% share of Antamina's gross profit decreased by $16 million before
depreciation and amortization in the third quarter, primarily due to lower
copper prices.
Mill throughput was slightly lower than the third quarter of 2012 at 128,000
tonnes per day due to downtime associated with a major component change on one
of the SAG mills, but record copper production was achieved as a result of
higher feed grades. The mix of mill feed in the third quarter was 81%
copper-only ore and 19% copper-zinc ore, compared with 76% and 24%,
respectively, in the same period a year ago. Copper production, on a 100% basis,
rose by 5,100 tonnes compared with a year ago to 128,600 tonnes. Zinc production
decreased by 7,000 tonnes to 44,100 tonnes from 51,100 tonnes in the same period
a year ago primarily due to a lower proportion of copper-zinc ore processed in
the quarter.
Operating costs, on a 100% basis, in the third quarter increased by US$38
million to US$176 million compared with the same period a year ago as a result
of increased fuel costs, higher consumable costs and higher labour costs with
the larger haulage fleet. Capitalized stripping costs were US$61 million (100%
basis) in the third quarter compared with US$67 million in the third quarter of
2012.
Quebrada Blanca (76.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Tonnes placed (000's)
Heap leach ore 1,462 1,904 4,490 5,130
Dump leach ore 2,913 7,449 8,535 19,693
----------------------------------------------------------------------------
4,375 9,353 13,025 24,823
Grade (TCu%) (note 1)
Heap leach ore 0.76 0.78 0.82 0.85
Dump leach ore 0.38 0.47 0.38 0.45
Production (000's tonnes)
Heap leach ore 7.2 9.9 21.8 30.2
Dump leach ore 5.6 5.1 18.3 17.9
----------------------------------------------------------------------------
12.8 15.0 40.1 48.1
Sales (000's tonnes) 13.7 13.8 40.7 47.1
Cost of sales (US$ million)
Operating costs $ 73 $ 97 $ 216 $ 269
Distribution costs $ 1 $ 1 $ 5 $ 5
Depreciation and amortization $ 24 $ 23 $ 73 $ 72
Gross profit (loss) summary ($
millions) (note 2)
Before depreciation and
amortization $ 25 $ 10 $ 85 $ 106
Depreciation and amortization (25) (24) (74) (73)
----------------------------------------------------------------------------
After depreciation and
amortization $ - $ (14) $ 11 $ 33
----------------------------------------------------------------------------
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 rose by $15
million in the third quarter compared with a year ago as a result of reduced
unit costs, partially offset by lower copper prices and production levels.
Copper production declined by 15% compared with the same period a year ago and
was slightly lower than the second quarter of 2013 due to unplanned maintenance
activities. Heap production was lower as a result of lower heap leach grades and
processing less heap leach ore. As planned, the amount of dump leach ore placed
and the associated grades continue to be significantly lower this year. Dump
leach production was similar to the comparable period last year as previously
placed material in inventory was irrigated to supplement production.
Cost of sales in the third quarter were reduced by US$24 million compared with a
year ago as a result of the initiatives to reduce the workforce and operating
costs that started in the fourth quarter of 2012. Some additional capital and
operating costs are expected in the fourth quarter of 2013 and in 2014
associated with infrastructure upgrades and permit update activities.
Capitalized stripping costs in the third quarter were US$11 million compared
with US$9 million in the third quarter of 2012.
Work is progressing on updating the permits for the existing facilities for the
supergene operation with an anticipated mine life that has cathode production
extending into early 2019.
Carmen de Andacollo (90%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Tonnes milled (000's) 4,723 4,529 13,211 12,490
Copper
Grade (%) 0.45 0.52 0.49 0.52
Recovery (%) 87.2 87.5 87.4 86.6
Production (000's tonnes) 18.6 20.8 56.2 56.1
Sales (000's tonnes) 20.4 19.4 60.3 52.8
Gold (note 1)
Production (000's ounces) 17.7 16.2 53.1 40.9
Sales (000's ounces) 18.3 14.7 54.3 38.9
Copper cathode
Production (000's tonnes) 0.9 0.8 3.0 3.2
Sales (000's tonnes) 1.0 0.6 3.0 3.3
Cost of sales (US$ million)
Operating costs $ 87 $ 74 $ 252 $ 247
Distribution costs $ 8 $ 7 $ 22 $ 19
Depreciation and amortization $ 23 $ 21 $ 67 $ 61
Gross profit summary ($ millions)
(note 2)
Before depreciation and
amortization $ 54 $ 60 $ 185 $ 155
Depreciation and amortization (24) (21) (68) (61)
----------------------------------------------------------------------------
After depreciation and
amortization $ 30 $ 39 $ 117 $ 94
----------------------------------------------------------------------------
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 decrease in Carmen de Andacollo's third quarter gross profit before
depreciation and amortization was primarily due to lower copper prices and
higher unit operating costs.
Despite an increase in mill throughput as a result of blasting and process
improvement initiatives, copper production in the third quarter declined by 11%
as a result of lower grades compared with the same period a year ago. Copper
grades were higher in the early years of operation and will continue to
gradually decline another 5-10% over the coming quarters. Further mill
throughput improvement initiatives are anticipated to offset further grade
declines to keep production similar to current levels.
Operating costs, before changes in inventory, were US$77 million in the third
quarter compared with US$81 million in the same period a year ago with the
reduction primarily due to lower power costs. Sales exceeded production in the
third quarter of 2013, which resulted in a US$10 million increase to cost of
sales for the drawdown of inventory. This compares to last year when there was a
US$7 million buildup of inventory. Capitalized stripping costs in the third
quarter and last year were minimal.
Duck Pond (100%)
Duck Pond's gross profit before depreciation and amortization was $3 million in
the third quarter compared with $5 million in the same period a year ago. Copper
and zinc production in the third quarter were 3,800 tonnes and 3,700 tonnes,
respectively, compared with 3,100 tonnes and 4,600 tonnes, respectively, last
year. Copper and zinc sales in the third quarter were both 3,800 tonnes,
respectively, compared with 4,100 tonnes and 3,700 tonnes, respectively, last
year. Processing of boundary open pit ores, which have lower zinc content, is
progressing well.
Copper Development Projects
Quebrada Blanca Phase 2
During the third quarter, detailed design for the Quebrada Blanca Phase 2
project continued, although at a slower pace. Fabrication activities for some
long-lead equipment orders have been halted and further equipment orders are on
hold. The level of future engineering activities and associated costs are under
review, with a further slowdown in activities anticipated going into 2014.
As previously announced, the permits for our existing facilities need to be
updated before resubmission of 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.
Relincho
The feasibility study for Relincho is progressing and it is expected to be
completed at the end of the fourth quarter of 2013. A new resource and reserve
estimate is expected at the completion of the feasibility study. Results of the
study will be reviewed in the first quarter of 2014 before making a decision on
next steps to further optimize or advance the project.
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 Nine months ended
September 30, September 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Production (000's tonnes) 6,707 6,322 18,955 18,294
Sales (000's tonnes) 7,568 5,546 20,431 17,567
Average sale price
US$/tonne $ 139 $ 193 $ 151 $ 206
C$/tonne $ 144 $ 194 $ 154 $ 207
Cost of sales (C$/tonne)
Operating costs $ 50 $ 58 $ 49 $ 59
Transportation costs $ 38 $ 37 $ 38 $ 36
Depreciation and amortization $ 27 $ 23 $ 26 $ 22
Gross profit summary ($ millions)
Before depreciation and
amortization $ 417 $ 548 $ 1,377 $ 1,970
Depreciation and amortization (200) (127) (537) (382)
----------------------------------------------------------------------------
After depreciation and
amortization $ 217 $ 421 $ 840 $ 1,588
----------------------------------------------------------------------------
Gross profit before depreciation and amortization in the third quarter declined
by $131 million compared with last year due primarily to significantly lower
coal prices. The lower coal prices were partially offset by the effect of a
stronger U.S. dollar and significantly increased sales volumes that were two
million tonnes higher than the same period in 2012. Year to date sales volumes
in 2013 of 20.4 million tonnes represent an all-time record for the nine month
period.
Production in the third quarter was 6.7 million tonnes, or 6% higher than in the
same period a year ago. The mines effectively managed inventories and as a
result of the strong demand for our products, we have been increasing production
rates to ensure sufficient coal is available to fulfill customer requirements.
Sales of 7.6 million tonnes in the third quarter set a new quarterly record,
reflecting improving market sentiment through the quarter. Strong demand from
contract customers, sales to new customers, good spot sales, and consistently
strong performance of our logistics chain including the expanded capacity at our
Neptune Terminals, contributed to maximizing sales in the quarter. Additionally,
consistent and strong performance was delivered by port and rail service
providers.
Coal prices have been agreed with the majority of the quarterly contract
customers for the fourth quarter of 2013 based on pricing of US$152 per tonne
for the highest quality products, which is consistent with prices reportedly
achieved by our competitors. As of the date of this release, we have reached
agreements with our coal customers to sell 5.6 million tonnes of coal in the
fourth quarter of 2013 at an average price of US$145 per tonne and expect total
sales in the fourth quarter, including spot sales, to be at or above 6.3 million
tonnes. We are continuing contract discussions with our customers and are
anticipating selling additional tonnage on the spot market, including to
customers who have traditionally purchased the majority of their coal
requirements on a quarterly pricing basis. 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. In addition, fourth quarter sales levels can be
affected by weather conditions on the west coast that affect the loading of
vessels, and the lower number of operating days in the quarter.
The cost of product sold in the third quarter, before transportation and
depreciation charges, was $50 per tonne compared with $58 per tonne in the same
period a year ago. Cost reduction initiatives at the mines continue to drive
down unit costs across the business unit. The additional improvement over last
year's levels result primarily from productivity improvements in the areas of
mining, maintenance and processing, in conjunction with further reductions in
the consumption of key inputs including repair parts and minimizing the use of
maintenance contractors and contract miners. These initiatives continue to
expand as part of a coordinated cost reduction initiative across the 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 $98 million compared with
$114 million last year. We expect our 2013 annual cost of product sold near the
bottom of our $51 to $58 per tonne guidance range, based on our current
production plans.
Transportation costs in the quarter were $38 per tonne, $1 per tonne or 3%
higher compared with the same quarter a year ago, primarily as a result of
slightly higher rail transportation costs.
Depreciation and amortization increased by $4 per tonne to $27 per tonne
primarily due to the accumulation of 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 the first
nine months 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 defer and amortize overburden removal costs.
As a result of the strong performance in the first nine months of 2013 and
strong sales outlook for the rest of the year, we expect coal production to be
near the top end of our 24.5 to 25.5 million tonne guidance range.
We are continuing to proceed with detailed engineering work at the Quintette
project so that if market conditions are favorable, we will be in a position in
early 2014 to decide to proceed with the reopening, that could result in
commercial production in mid-2015. We are also going to execute a bulk sample
program at the site over the next nine months to produce saleable coal for trial
by potential customers.
Neptune Bulk Terminals achieved substantial completion on commissioning of its
new stacker reclaimer in the third quarter. The new stacker reclaimer increases
Neptune's operating capacity from 8.5 to 12.5 million tonnes per year.
On October 7, 2013 we received the B.C. Environmental Assessment Certificate for
our Line Creek Phase 2 project, which represents the next phase of mining for
our Line Creek Operation. This certificate is a significant regulatory
requirement for the project, and work is ongoing to secure a new Effluent Permit
and Mines Act Permit that will allow the development of Phase 2. The Line Creek
Phase 2 project is expected to extend the mine life by 18 years.
Elk Valley Water Management
Advances were made on the Elk Valley Water Quality Plan which we are executing
under an Area Based Management Plan Order issued by the Government of British
Columbia. Terms of Reference for the plan were submitted on schedule and
approved by the province, so that the development of the plan is now in progress
with expected completion in the third quarter of 2014. The construction of the
first water treatment plant at Line Creek to reduce selenium levels in mine
discharge water progressed satisfactorily towards expected commissioning in the
second quarter of 2014.
ZINC
Trail (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Metal production
Zinc (000's tonnes) 76.4 73.5 221.2 217.0
Lead (000's tonnes) 23.9 21.7 65.5 64.4
Silver (million ounces) 5.7 5.6 16.5 16.2
Metal sales
Zinc (000's tonnes) 77.8 75.6 221.0 220.3
Lead (000's tonnes) 23.0 22.2 63.6 64.9
Silver (million ounces) 5.8 5.6 16.3 16.2
Cost of sales ($ millions)
Concentrates $ 270 $ 304 $ 871 $ 893
Operating costs $ 97 $ 100 $ 291 $ 358
Distribution costs $ 26 $ 28 $ 82 $ 81
Depreciation and amortization $ 14 $ 13 $ 38 $ 38
Gross profit (loss) summary ($
millions)
Before depreciation and
amortization $ 22 $ 5 $ 79 $ 34
Depreciation and amortization (14) (13) (38) (38)
----------------------------------------------------------------------------
After depreciation and amortization $ 8 $ (8) $ 41 $ (4)
----------------------------------------------------------------------------
Gross profit at Trail, before depreciation and amortization, increased by $17
million due to higher sales volumes, higher lead prices and the effect of the
stronger U.S. dollar, partially offset by lower silver prices.
Zinc production was higher in the third quarter due to better roaster throughput
and improved operating efficiencies. Kivcet throughput improved in the current
quarter and resulted in higher production of lead.
The cost of concentrate purchases in the third quarter was lower than a year ago
due to significantly lower silver prices, partially offset by higher lead prices
and higher production levels.
Construction continued on the new acid plant, which is replacing an aging
facility and is expected to lower emissions. Third quarter spending was $26
million bringing the total spending on the project to $84 million. The project
is on budget with an expected start-up date in the second quarter of 2014.
Red Dog (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Tonnes milled (000's) 1,030 880 2,868 2,575
Zinc
Grade (%) 16.3 18.1 17.0 18.2
Recovery (%) 84.9 80.8 84.1 82.3
Production (000's tonnes) 142.5 128.9 409.4 386.8
Sales (000's tonnes) 174.3 141.2 356.8 321.1
Lead
Grade (%) 3.8 4.3 3.9 4.7
Recovery (%) 60.3 59.4 64.3 57.7
Production (000's tonnes) 23.4 22.3 71.3 69.1
Sales (000's tonnes) 59.8 46.4 59.8 46.4
Cost of sales (US$ millions)
Operating costs $ 94 $ 71 $ 137 $ 118
Distribution costs $ 39 $ 32 $ 71 $ 66
Royalties (NANA) $ 56 $ 52 $ 69 $ 64
Depreciation and amortization $ 15 $ 16 $ 39 $ 40
Gross profit summary ($ millions)
Before depreciation and
amortization $ 158 $ 136 $ 309 $ 270
Depreciation and amortization (15) (15) (39) (39)
----------------------------------------------------------------------------
After depreciation and
amortization $ 143 $ 121 $ 270 $ 231
----------------------------------------------------------------------------
Red Dog's gross profit in the third quarter, before depreciation and
amortization, increased compared with the same period a year ago primarily due
to higher zinc and lead sales volumes. Sales volumes were approximately 25%
higher than a year ago when poor weather delayed shipments.
Zinc production in the third quarter increased by 11% compared with a year ago,
as third quarter 2012 production was impacted by fine grained/high silica ore,
which required a reduction in mill throughput to achieve acceptable recoveries.
Operating costs, before changes in inventory, were US$62 million in the third
quarter and unit costs were similar to a year ago. As sales exceeded production,
costs of sales included a US$32 million charge for the drawdown of inventory
compared with US$16 million a year ago. Capitalized deferred stripping costs
were US$5 million in the third quarter of 2013 compared with US$9 million in the
third quarter of 2012.
The 2013 shipping season was completed on October 23, 2013 following the
shipment of 1,120,000 tonnes of zinc concentrate and 200,000 tonnes of lead
concentrate compared with 1,043,000 tonnes and 190,000 tonnes respectively, for
the 2012 season. This represents all of Red Dog's concentrates available to be
shipped from the operation. Sales volumes of contained zinc are estimated at
approximately 160,000 tonnes in the fourth quarter of 2013.
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 the fourth quarter of 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 the Fort Hills project in
2013, production would not be expected to start before 2017.
Our share of Fort Hills spending in the first three quarters of 2013, including
our ongoing earn-in commitments, was $215 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.
Provincial and federal regulatory agencies completed their review of our first
round of Supplementary Information Requests ("SIRs") responses and provided a
second round of SIRs in June 2013. We are preparing responses to these
information requests and plan to file these responses and provide a project
update in the fourth quarter of 2013.
OTHER COST AND EXPENSES
Financing expenses were $83 million in the third quarter compared with $126
million a year ago. The debt interest component of our finance expense decreased
to $90 million from $106 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 $59 million compared to $101 million a year ago.
Other operating expense, net of other income, was $36 million in the third
quarter compared with other operating income of $57 million in the third quarter
of 2012. Stock-based compensation expense was $19 million in the third quarter
compared with $4 million in the same period a year ago due to the rise in our
stock price during the period. Positive pricing adjustments were $24 million in
the third quarter compared with $55 million a year ago, primarily due to
increasing copper prices in both periods.
The table below outlines our outstanding receivable positions, which were
provisionally valued at June 30, 2013, and our receivable positions
provisionally valued at, September 30, 2013.
Outstanding at Outstanding at
June 30, 2013 September 30, 2013
--------------------------------------------
(pounds in millions) Pounds US$/lb Pounds US$/lb
----------------------------------------------------------------------------
Copper 103 3.07 138 3.31
Zinc 98 0.83 224 0.86
----------------------------------------------------------------------------
We recorded $4 million of other non-operating gains which included $10 million
of foreign exchange gains partially offset by $6 million of losses on
investments in marketable securities primarily related to market value declines.
In the third quarter of 2012, we recorded $179 million of non-operating losses,
which consisted primarily of a charge on the redemption of a portion of our
high-yield notes that were issued in 2009.
Income and resources taxes for the third quarter were $144 million, or 34% of
pre-tax profits, which is higher than the Canadian statutory income tax rate of
26%. The effective higher rate is due mainly to the effect of resource taxes and
higher tax rates in foreign jurisdictions. We are currently shielded from cash
income taxes, but not resource taxes in Canada. We remain subject to cash taxes
in foreign jurisdictions.
Subsequent to the end of the quarter, the Canada Revenue Agency issued a
proposed adjustment to our 2006 taxable income that would deny a deduction of
$346 million claimed in relation to a premium paid on the redemption of our
Cominco exchangeable debentures. The proposed adjustment would reduce the loss
carryforward pools available to us to reduce taxes payable in the future rather
than have an immediate cash effect. In light of the uncertainty raised by the
proposed adjustment and as the original amount was credited directly to Equity,
we recognized a provision of $124 million which has also been charged directly
to Equity.
OPERATING CASH FLOW, FINANCIAL POSITION AND LIQUIDITY
Cash flow from operations, before changes in non-cash working capital items, was
$647 million in the third quarter compared with $885 million a year ago with the
reduction primarily due to significantly lower coal prices in the quarter.
Changes in non-cash working capital items were minimal in the third quarter
compared with $156 million use of cash in the same period a year ago when there
was a build-up of coal inventories and higher receivables balances.
Expenditures on property, plant and equipment were $486 million in the third
quarter and included $145 million on sustaining capital and $341 million on
major development projects. The largest components of sustaining expenditures
were at our coal operations which totalled $42 million. Major development
expenditures included $128 million for Highland Valley Copper's mill
optimization project, $55 million on Quebrada Blanca Phase 2 and $79 million for
Quintette.
Expenditures on investments and other assets totalled $85 million in the third
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 $160
million in the third quarter compared with $173 million a year ago. We expect to
capitalize similar amounts in the fourth quarter of 2013.
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 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
Our forecast of capital expenditures for 2013 continues to be approximately
$1.85 billion and is summarized in the table below.
----------------------------------------------------------------------------
Major New Mine
($ in millions) Sustaining Enhancement Development Total
----------------------------------------------------------------------------
Copper $ 220 $ 435 $ 370 $ 1,025
Coal 310 60 150 520
Zinc 185 10 - 195
Energy - - 80 80
Corporate 25 - - 25
----------------------------------------------------------------------------
$ 740 $ 505 $ 600 $ 1,845
----------------------------------------------------------------------------
The amounts shown above exclude an expected $725 million of 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 $320 million in 2013 for our share of
costs for the Fort Hills oil sands project, which is accounted for as an
investment.
Our 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, $150 million for Quintette and $80 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 September 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 2011
data) 2013 2012 (note 2)
----------------------------------------------------------------------------
Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4
Revenues $2,524 $2,152 $2,330 $2,730 $2,505 $2,561 $2,547 $2,972
Gross profit 597 582 701 825 827 880 992 1,212
EBITDA 815 670 902 654 861 933 848 1,304
Profit (note 1) 267 143 319 200 256 354 258 637
Earnings per share $ 0.46 $ 0.25 $ 0.55 $ 0.34 $ 0.44 $ 0.60 $ 0.44 $ 1.08
Cash flow from
operations 656 690 763 912 729 965 813 1,199
----------------------------------------------------------------------------
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)) to our unaudited consolidated financial
statements.
OUTSTANDING SHARE DATA
As at October 23, 2013 there were 566.9 million Class B subordinate voting
shares and 9.4 million Class A common shares outstanding. In addition, there
were 8.4 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.
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 September 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 and nine months ended September
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 nine months ended September 30, 2013, we capitalized $175 million
and $601 million of stripping activity assets, respectively, primarily at our
coal operations. We recorded depreciation expense on stripping activity assets
of $85 million and $224 million, respectively, during the three and nine months
ended September 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 nine months ended September 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 impact
of potential production disruptions, future trends for the company, timing of
completion, and results of, our mill optimization project program at Highland
Valley Copper, effect of our expectations regarding the mine life of our Line
Creek Phase 2 project, statements under the heading "Copper Development
Projects," including the expected timing of re-filing the Quebrada Blanca Phase
2 SEIA, 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
operation of our water treatment plant at Line Creek and extended mine life of
Line Creek, 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. 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 Q3/2013 financial
results at 11:00 AM Eastern time, 8:00 AM Pacific time, on Thursday, October 24,
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)
----------------------------------------------------------------------------
(Cdn$ in millions, except for share Three months ended Nine months ended
data) September 30, September 30,
2013 2012 2013 2012
----------------------------------------------------------------------------
Revenues $ 2,524 $ 2,505 $ 7,006 $ 7,613
Cost of sales (1,927) (1,678) (5,126) (4,914)
----------------------------------------------------------------------------
Gross profit 597 827 1,880 2,699
Other operating expenses
General and administration (30) (33) (98) (95)
Exploration (27) (36) (66) (94)
Research and development (4) (5) (10) (14)
Other operating income (expense)
(Note 2) (36) 57 (136) 30
----------------------------------------------------------------------------
Profit from operations 500 810 1,570 2,526
Finance income 1 2 3 14
Finance expense (Note 3) (83) (126) (258) (408)
Non-operating income (expense) (Note
4) 4 (179) (46) (534)
Share of losses of associates (2) (5) (3) (9)
----------------------------------------------------------------------------
Profit before tax 420 502 1,266 1,589
Provision for income and resource
taxes (144) (232) (499) (666)
----------------------------------------------------------------------------
Profit for the period $ 276 $ 270 $ 767 $ 923
----------------------------------------------------------------------------
Profit attributable to:
Shareholders of the company $ 267 $ 256 $ 729 $ 868
Non-controlling interests 9 14 38 55
----------------------------------------------------------------------------
Profit for the period $ 276 $ 270 $ 767 $ 923
----------------------------------------------------------------------------
Earnings per share
Basic $ 0.46 $ 0.44 $ 1.26 $ 1.48
Diluted $ 0.46 $ 0.44 $ 1.26 $ 1.48
Weighted average shares outstanding
(millions) 576.2 586.0 579.0 586.0
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 Nine months ended
September 30, September 30,
(Cdn$ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Profit $ 276 $ 270 $ 767 $ 923
Other comprehensive income (loss) in
the period
Items that may be reclassified to
profit
Currency translation differences
(net of taxes of $(20), $(30),
$33 and $(31)) (46) (97) 82 (76)
Available-for-sale financial
instruments (net of taxes of
$(20), $16, $2 and $14) 143 (111) (18) (101)
Cash flow hedges (net of taxes of
$(3), $nil, $(1) and $nil) 7 1 1 -
----------------------------------------------------------------------------
104 (207) 65 (177)
Items that will not be
reclassified to profit
Remeasurements for retirement
benefit plans (net of taxes of
$(12), $19, $(87) and $40) 24 (42) 185 (87)
----------------------------------------------------------------------------
Total other comprehensive income
(loss) for the period 128 (249) 250 (264)
----------------------------------------------------------------------------
Total comprehensive income for the
period $ 404 $ 21 $1,017 $ 659
----------------------------------------------------------------------------
Total other comprehensive income
(loss) attributable to:
Shareholders of the company 130 (248) 247 (262)
Non-controlling interests (2) (1) 3 (2)
----------------------------------------------------------------------------
$ 128 $ (249) $ 250 $ (264)
----------------------------------------------------------------------------
Total comprehensive income
attributable to:
Shareholders of the company 397 8 976 606
Non-controlling interests 7 13 41 53
----------------------------------------------------------------------------
$ 404 $ 21 $1,017 $ 659
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Cash Flows
(Unaudited)
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Cdn$ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Operating activities
Profit $ 276 $ 270 $ 767 $ 923
Items not affecting cash
Depreciation and amortization 322 249 904 714
Provision for deferred income and
resource taxes (18) 79 97 242
Share of loss of associates 2 5 3 9
Gain on sale of investments and
assets - (25) - (51)
Unrealized gain on derivatives - (60) - (113)
Foreign exchange (gains) loss (10) 2 14 25
Loss on debt repurchase - 238 - 652
Finance expense 83 126 258 408
Other (8) 1 (36) 14
----------------------------------------------------------------------------
647 885 2,007 2,823
Net change in non-cash working
capital items 9 (156) 102 (316)
----------------------------------------------------------------------------
656 729 2,109 2,507
Investing activities
Purchase of property, plant and
equipment (486) (447) (1,317) (1,128)
Mine development (160) (173) (559) (581)
Expenditures on financial
investments and other assets (85) (50) (278) (259)
Acquisition of SilverBirch Energy
Corporation - - - (432)
Proceeds from the sale of
investments and other assets - 31 4 37
----------------------------------------------------------------------------
(731) (639) (2,150) (2,363)
Financing activities
Issuance of debt - 1,747 - 2,730
Repayment of debt (6) (1,032) (24) (2,334)
Debt interest paid (150) (138) (324) (369)
Issuance of Class B subordinate
voting shares 1 - 1 1
Purchase and cancellation of Class
B subordinate voting shares - - (176) (6)
Dividends paid (259) (234) (521) (469)
Distributions to non-controlling
interests (9) (22) (34) (39)
----------------------------------------------------------------------------
(423) 321 (1,078) (486)
Effect of exchange rate changes on
cash and cash equivalents (51) (122) 102 (133)
----------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents (549) 289 (1,017) (475)
Cash and cash equivalents at
beginning of period 2,799 3,641 3,267 4,405
----------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 2,250 $ 3,930 $ 2,250 $ 3,930
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Balance Sheets
(Unaudited)
----------------------------------------------------------------------------
September 30, December 31,
(Cdn$ in millions) 2013 2012
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 2,250 $ 3,267
Current income and resource taxes receivable 47 141
Trade accounts receivable 1,167 1,285
Inventories 1,756 1,783
----------------------------------------------------------------------------
5,220 6,476
Financial and other assets 1,092 973
Investments in associates 1,043 828
Property, plant and equipment 25,840 24,937
Deferred income and resource tax assets 71 204
Goodwill 1,653 1,637
----------------------------------------------------------------------------
$34,919 $35,055
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities
Trade accounts payable and other liabilities $ 1,279 $ 1,468
Dividends payable (Note 6(d)) - 262
Current income and resource taxes payable 59 55
Debt (Note 5) 46 35
----------------------------------------------------------------------------
1,384 1,820
Debt (Note 5) 7,423 7,160
Deferred income and resource tax liabilities 5,772 5,581
Retirement benefit liabilities 547 760
Other liabilities and provisions 1,087 1,470
Equity
Attributable to shareholders of the company 18,506 18,075
Attributable to non-controlling interests 200 189
----------------------------------------------------------------------------
18,706 18,264
----------------------------------------------------------------------------
$34,919 $35,055
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Changes in Equity
(Unaudited)
----------------------------------------------------------------------------
Nine months ended
September 30,
(Cdn$ in millions) 2013 2012
----------------------------------------------------------------------------
Class A common shares $ 7 $ 7
Class B subordinate voting shares
Beginning of period 6,699 6,743
Share repurchases (73) (2)
Issued on exercise of options 1 2
Provision for tax benefit (Note 6(f)) (124) -
----------------------------------------------------------------------------
End of period 6,503 6,743
Retained earnings
Beginning of period 11,291 10,850
Profit for the period attributable to shareholders
of the company 729 868
Dividends declared (259) (234)
Share repurchases (102) (4)
Remeasurements for retirement benefit plans 185 (87)
----------------------------------------------------------------------------
End of period 11,844 11,393
Contributed surplus
Beginning of period 113 97
Share-based payment expense 13 13
Transfer to Class B subordinate voting shares on
exercise of options (1) (1)
----------------------------------------------------------------------------
End of period 125 109
Accumulated other comprehensive income (loss)
attributable to shareholders of the company(Note
6(b))
Beginning of period (35) 16
Other comprehensive income (loss) 247 (262)
Less remeasurements for retirement benefit plans
recorded in retained earnings (185) 87
----------------------------------------------------------------------------
End of period 27 (159)
Non-controlling interests
Beginning of period 189 172
Profit for the period attributed to non-controlling
interests 38 55
Other comprehensive income (loss) 3 (2)
Other 4 (6)
Dividends or distributions (34) (39)
----------------------------------------------------------------------------
End of period 200 180
----------------------------------------------------------------------------
Total equity $18,706 $18,273
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Teck Resources Limited
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PREPARATION
We prepare our consolidated financial statements in accordance with
International Financial Reporting Standards ("IFRS") as issued by the
International Accounting Standards Board ("IASB"). These condensed interim
consolidated financial statements have been prepared in accordance with IAS 34,
Interim Financial Reporting ("IAS 34").
The condensed interim consolidated financial statements should be read in
conjunction with our most recent annual financial statements. These condensed
interim consolidated financial statements follow the same accounting policies
and methods of application as our most recent annual financial statements,
except for those policies which have changed as a result of the adoption of new
and amended IFRS pronouncements effective January 1, 2013. Note 11 discloses the
effects of the adoption of new and amended IFRS pronouncements on each financial
statement line and on earnings per share for all prior periods presented,
including the nature and effect of significant changes in accounting policies
from those used in our consolidated financial statements for the year ended
December 31, 2012.
The Board of Directors authorized these financial statements on October 23, 2013.
2. OTHER OPERATING INCOME (EXPENSE)
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Cdn$ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Gain (loss) on operating assets $ (13) $ 22 $ (13) $ 26
Commodity derivatives 2 - 3 (4)
Pricing adjustments 24 55 (72) 65
Share-based compensation (Note 6(a)) (19) (4) (13) (11)
Provision for closed properties
restoration 3 (7) 24 (15)
Other (33) (9) (65) (31)
----------------------------------------------------------------------------
$ (36) $ 57 $ (136) $ 30
----------------------------------------------------------------------------
3. FINANCE EXPENSE
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Cdn$ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Debt interest $ 90 $ 106 $ 266 $ 332
Discount and financing fee
amortization 2 3 4 12
Less capitalized borrowing costs (33) (8) (89) (17)
----------------------------------------------------------------------------
59 101 181 327
Interest cost on retirement benefit
plans 7 8 21 23
Decommissioning and restoration
provision accretion 14 14 50 51
Other 3 3 6 7
----------------------------------------------------------------------------
$ 83 $ 126 $ 258 $ 408
----------------------------------------------------------------------------
4. NON-OPERATING INCOME (EXPENSE)
----------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Cdn$ in millions) 2013 2012 2013 2012
----------------------------------------------------------------------------
Foreign exchange gains (losses) $ 10 $ (2) $ (14) $ (25)
Other derivative gains - 59 - 119
Debt repurchase and financing costs - (238) - (652)
Provision for marketable securities (6) - (31) -
Gain on sale of investments - 2 - 24
Other - - (1) -
----------------------------------------------------------------------------
$ 4 $ (179) $ (46) $ (534)
----------------------------------------------------------------------------
5. DEBT
----------------------------------------------------------------------------
(Cdn$ in millions) September 30, 2013 December 31, 2012
----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------------------------------------------------------------------------
5.375% notes due October 2015
(US$300 million) $ 308 $ 334 $ 297 $ 330
3.15% notes due January 2017 (US$300
million) 308 318 297 313
3.85% notes due August 2017 (US$300
million) 305 325 294 322
2.5% notes due February 2018 (US$500
million) 511 510 493 510
3.0% notes due March 2019 (US$500
million) 511 510 493 515
4.5% notes due January 2021 (US$500
million) 511 517 493 545
4.75% notes due January 2022 (US$700
million) 716 723 691 774
3.75% notes due February 2023
(US$750 million) 762 712 735 770
6.125% notes due October 2035
(US$700 million) 706 700 681 786
6.0% notes due August 2040 (US$650
million) 666 628 644 747
6.25% notes due July 2041 (US$1,000
million) 1,018 998 983 1,182
5.2% notes due March 2042 (US$500
million) 508 440 490 517
5.4% notes due February 2043 (US$500
million) 509 452 492 535
Antamina senior revolving credit
facility due April 2015 23 23 22 22
Other 107 107 90 90
----------------------------------------------------------------------------
7,469 7,297 7,195 7,958
Less current portion of long-term
debt (46) (46) (35) (35)
----------------------------------------------------------------------------
$7,423 $7,251 $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 three quarters of 2013, we granted 2,170,862 Class B
subordinate voting share options to employees. These options have a weighted
average exercise price of $33.02, 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 $9.77 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 three quarters of 2013, we issued 779,527 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 September 30, 2013 was 2,888,251.
A share-based compensation expense of $13 million (2012 - $11 million) was
recorded for the nine months ended September 30, 2013 in respect of all
outstanding share options and units.
b) Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) are:
----------------------------------------------------------------------------
September 30, September 30, December 31,
(Cdn$ in millions) 2013 2012 2012
----------------------------------------------------------------------------
Currency translation adjustment $ 43 $ (66) $ (39)
Unrealized loss on available-for-
sale financial assets (net of tax
of $2, $12 and $nil) (18) (98) -
Unrealized loss on cash flow hedges
(net of tax of $(1), $nil and
$nil) 1 1 -
----------------------------------------------------------------------------
$ 26 $ (163) $ (39)
----------------------------------------------------------------------------
Accumulated other comprehensive
income (loss) attributable to:
Shareholders of the company $ 27 $ (159) $ (35)
Non-controlling interests (1) (4) (4)
----------------------------------------------------------------------------
$ 26 $ (163) $ (39)
----------------------------------------------------------------------------
c) Normal Course Issuer Bid
Our normal course issuer bid, which commenced on June 28, 2013, allows us to
purchase up to 20 million Class B subordinate voting shares until June 27, 2014
or an earlier date if we complete such purchases. To date, no shares have been
purchased under this bid.
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 third quarter, the revaluation of our defined benefit plans generated
a $35 million pre-tax gain through other comprehensive income. Approximately $60
million of this gain was generated by a 20 basis points increase in the discount
rate used to value obligations and a $16 million gain on our pension assets'
performance, which was above actuarial assumptions for the period. These gains
were partially offset by a $19 million loss resulting from changes in valuation
assumptions and a $22 million loss due to an increase in reserves on plan
assets.
In determining our retirement benefit liabilities, the following rates have been
used:
----------------------------------------------------------------------------
September 30, June 30, December 31,
2013 2013 2012
----------------------------------------------------------------------------
Discount rate for defined benefit
plans 4.60% 4.40% 3.90%
----------------------------------------------------------------------------
f) Provision For Tax Benefit
Subsequent to the end of the quarter, the Canada Revenue Agency issued a
proposed adjustment to our 2006 taxable income that would deny a deduction of
$346 million claimed in relation to a premium paid on the redemption of our
Cominco exchangeable debentures. The proposed adjustment would reduce the loss
carryforward pools available to us to reduce taxes payable in the future rather
than have an immediate cash effect. In light of the uncertainty raised by the
proposed adjustment and as the original amount was credited directly to Equity,
we recognized a provision of $124 million which has also been charged directly
to Equity.
7. SEGMENTED INFORMATION
Based on the principal products we produce and our development projects, we have
five reportable segments - copper, coal, zinc, energy and corporate - which is
the way we report information to our Chief Executive Officer. The corporate
segment includes all of our initiatives in other commodities, our corporate
growth activities and groups that provide administrative, technical, financial
and other support to all of our business units. Other operating expenses include
general and administration costs, exploration, research and development, and
other operating income (expense). Sales between segments are carried out at
arm's length.
----------------------------------------------------------------------------
Three months ended September 30, 2013
(Cdn$ in millions) Copper Coal Zinc Energy Corporate Total
----------------------------------------------------------------------------
Segment revenues 714 1,088 777 1 - 2,580
Less: Inter-segment
revenues - - (56) - - (56)
----------------------------------------------------------------------------
Revenues 714 1,088 721 1 - 2,524
----------------------------------------------------------------------------
Gross profit 226 217 154 - - 597
Other operating income
(expenses) 15 (26) (21) - (65) (97)
----------------------------------------------------------------------------
Profit from operations 241 191 133 - (65) 500
Net finance expense (6) (9) (8) - (59) (82)
Non-operating income
(expenses) - - - - 4 4
Share of losses of
associates - - - - (2) (2)
----------------------------------------------------------------------------
Profit before tax 235 182 125 - (122) 420
----------------------------------------------------------------------------
Capital expenditures 337 232 61 9 7 646
----------------------------------------------------------------------------
Three months ended September 30, 2012
(Cdn$ in millions) Copper Coal Zinc Energy Corporate Total
----------------------------------------------------------------------------
Segment revenues 763 1,077 727 1 - 2,568
Less: Inter-segment
revenues - - (63) - - (63)
----------------------------------------------------------------------------
Revenues 763 1,077 664 1 - 2,505
----------------------------------------------------------------------------
Gross profit 299 421 107 - - 827
Other operating income
(expenses) 34 3 (23) - (31) (17)
----------------------------------------------------------------------------
Profit from operations 333 424 84 - (31) 810
Net finance expense (4) (9) (6) - (105) (124)
Non-operating income
(expenses) - - - - (179) (179)
Share of losses of
associates - - - (4) (1) (5)
----------------------------------------------------------------------------
Profit before tax 329 415 78 (4) (316) 502
----------------------------------------------------------------------------
Capital expenditures 233 302 72 7 6 620
----------------------------------------------------------------------------
Nine months ended September 30, 2013
(Cdn$ in millions) Copper Coal Zinc Energy Corporate Total
----------------------------------------------------------------------------
Segment revenues 2,091 3,150 1,928 4 - 7,173
Less: Inter-segment
revenues - - (167) - - (167)
----------------------------------------------------------------------------
Revenues 2,091 3,150 1,761 4 - 7,006
----------------------------------------------------------------------------
Gross profit 719 840 319 2 - 1,880
Other operating income
(expenses) (116) (26) (25) - (143) (310)
----------------------------------------------------------------------------
Profit from operations 603 814 294 2 (143) 1,570
Net finance expense (14) (34) (26) - (181) (255)
Non-operating income
(expenses) - - - (2) (44) (46)
Share of profit (loss)
from associates - - - - (3) (3)
----------------------------------------------------------------------------
Profit before tax 589 780 268 - (371) 1,266
----------------------------------------------------------------------------
Capital expenditures 945 695 161 55 20 1,876
----------------------------------------------------------------------------
Goodwill 450 1,203 - - - 1,653
----------------------------------------------------------------------------
Total assets 8,953 17,608 4,179 2,099 2,080 34,919
----------------------------------------------------------------------------
Nine months ended September 30, 2012
(Cdn$ in millions) Copper Coal Zinc Energy Corporate Total
----------------------------------------------------------------------------
Segment revenues 2,247 3,637 1,888 3 - 7,775
Less: Inter-segment
revenues - - (162) - - (162)
----------------------------------------------------------------------------
Revenues 2,247 3,637 1,726 3 - 7,613
----------------------------------------------------------------------------
Gross profit 885 1,588 226 - - 2,699
Other operating income
(expenses) 4 (2) (33) - (142) (173)
----------------------------------------------------------------------------
Profit from operations 889 1,586 193 - (142) 2,526
Net finance expense (10) (31) (17) - (336) (394)
Non-operating income
(expenses) - - - - (534) (534)
Share of profit (loss)
from associates - - - (6) (3) (9)
----------------------------------------------------------------------------
Profit before tax 879 1,555 176 (6) (1,015) 1,589
----------------------------------------------------------------------------
Capital expenditures 610 869 167 44 19 1,709
----------------------------------------------------------------------------
Goodwill 429 1,203 - - - 1,632
----------------------------------------------------------------------------
Total assets 7,784 17,583 5,158 1,745 2,820 35,090
----------------------------------------------------------------------------
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
September 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 judgment 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. On October 11, 2013, the Confederated
Tribes of the Colville Reservation filed an omnibus motion with the District
Court seeking an order stating that they are permitted to seek recovery from TML
for environmental response costs, and, in a subsequent proceeding, natural
resource damages and assessment costs, arising from the alleged deposition of
hazardous substances in the United States from aerial emissions from TML's Trail
Operations. Prior allegations by the Tribes related solely to solid and liquid
materials discharged to the Columbia River. The motion does not state the amount
of response costs allegedly attributable to aerial emissions, nor does it
attempt to define the extent of natural resource damages, if any, attributable
to past smelter operations. TML intends to vigorously oppose this motion, the
outcome of which may affect the timing of subsequent phases of the case.
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 September 30, 2013 and December 31, 2012 are summarized
in the following table:
----------------------------------------------------------------------------
(Cdn$ in millions) September 30, 2013 December 31, 2012
----------------------------------------------------------------------------
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
----------------------------------------------------------------------------
Financial assets
Marketable equity
securities $ 683 $ - $ - $ 683 $ 671 $ - $ - $ 671
Marketable debt
securities - - 16 16 - - 16 16
Settlements receivable - 555 - 555 - 705 - 705
Derivative instruments - 3 - 3 - 3 - 3
----------------------------------------------------------------------------
$ 683 $ 558 $ 16 $1,257 $ 671 $ 708 $ 16 $1,395
----------------------------------------------------------------------------
Financial liabilities
Derivative instruments $ - $ 3 $ - $ 3 $ - $ 11 $ - $ 11
Settlements payable - 75 - 75 - 68 - 68
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$ - $ 78 $ - $ 78 $ - $ 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 September 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 September 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
September 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 nine months ended September 30, 2013, we capitalized $175 million
and $601 million, respectively, of stripping activity assets, primarily at our
coal operations. We recorded depreciation expense on stripping activity assets
of $85 million and $224 million during the three and nine months ended September
30, 2013, respectively.
c) Adjustments to Consolidated Financial Statements
i) Adjustments to condensed consolidated balance sheets
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September 30,
(Cdn$ in millions) 2012
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Equity before accounting changes $ 18,053
Adjustments to:
Inventories (b) (134)
Property, plant and equipment (b) 484
Deferred income and resource tax assets (21)
Deferred income and resource tax liabilities (100)
Retirement benefit obligations (a) (9)
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Equity after accounting changes $ 18,273
----------------------------------------------------------------------------
Equity under accounting changes attributable to:
Shareholders of the company $ 18,093
Non-controlling interests $ 180
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ii) Adjustments to condensed consolidated statements of income
----------------------------------------------------------------------------
(Cdn$ in millions) Three months ended Nine months ended
September 30, 2012 September 30, 2012
----------------------------------------------------------------------------
Profit before accounting changes $ 191 $ 714
Adjustments to:
Cost of sales 133 352
Finance expense, net (8) (26)
Provision for income and resource
taxes (46) (117)
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Profit after accounting changes $ 270 $ 923
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Profit after accounting changes
attributable to:
Shareholders of the company $ 256 $ 868
Non-controlling interests $ 14 $ 55
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Earnings per share after accounting
changes
Basic $ 0.44 $ 1.48
Diluted $ 0.44 $ 1.48
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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 $0.13 and
$0.34, respectively, for the three and nine months ended September 30, 2012.
iii) Adjustments to condensed consolidated statements of comprehensive income
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Three months ended Nine months ended
(Cdn$ in millions) September 30, 2012 September 30, 2012
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Comprehensive income (loss) before
accounting changes $ (65) $ 431
Adjustments to:
Profit 79 209
Other comprehensive income:
Remeasurements for retirement
benefit plans 9 27
Income and resource taxes on
remeasurements forretirement
benefit plans (2) (8)
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Comprehensive income after
accounting changes $ 21 $ 659
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Comprehensive income after
accounting changes attributable to:
Shareholders of the company $ 8 $ 606
Non-controlling interests $ 13 $ 53
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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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