Teck Resources Limited (TSX: TCK.A and TCK.B, NYSE: TCK) ("Teck") reported first
quarter adjusted profit attributable to shareholders of $105 million, or $0.18
per share, compared with $328 million or $0.56 per share in 2013. Profit
attributable to shareholders was $69 million ($0.12 per share) compared with
$319 million ($0.55 per share) a year ago.
"We are pleased with our operating performance in the first quarter, with higher
production volumes for our major products," said Don Lindsay, President and CEO.
"However, prices for these commodities were weak, particularly coal, compared to
the first quarter of 2013 resulting in lower profits and cash flows than last
year. As a result, we are increasing our efforts to reduce our costs and capital
spending."
Highlights and Significant Items
-- Our operations performed well in the first quarter with coal production
up 8%, copper up 2% and zinc in concentrate up 11%, in each case over
the first quarter of 2013.
-- We started commissioning the mill optimization project at Highland
Valley Copper and exceeded design throughput rates in March with an
average of 139,000 tonnes per day.
-- The Fort Hills oil sands project, which was sanctioned in October 2013,
is progressing on schedule and on budget.
-- Profit attributable to shareholders was $69 million and EBITDA was $557
million in the first quarter.
-- Gross profit before depreciation and amortization was $732 million in
the first quarter compared with $994 million in the first quarter of
2013.
-- Cash flow from operations, before working capital changes, was $470
million in the first quarter of 2014 compared with $776 million a year
ago.
-- We have reached agreements with our quarterly contract customers to sell
5.5 million tonnes of coal in the second quarter of 2014 based on US$120
per tonne for the highest quality product and we expect total sales in
the second quarter, including spot sales, to be at or above 6.5 million
tonnes.
-- Our cash balance was $2.4 billion at March 31, 2014.
-- Our cost reduction program has exceeded our initial goals, with $345
million of annualized reductions realized to date. We are targeting a
further $200 million of annualized cost reductions and $150 million of
capital expenditure reductions.
-- We are deferring the restart of our Quintette coal mine until market
conditions for a restart are more favourable.
-- With a more favourable outlook for zinc prices, we are planning to
restart the Pend Oreille zinc mine in Washington State. The mine is
expected to produce 44,000 tonnes of zinc in concentrate per year for at
least five years.
All dollar amounts expressed in this news release are in Canadian dollars unless
otherwise noted.
This management's discussion and analysis is dated as at April 21, 2014 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 March 31, 2014 and with the audited consolidated financial
statements of Teck and the notes thereto for the year ended December 31, 2013.
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, 2013, 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".
Overview
Our operations performed well during the quarter, with a number of mines
achieving increases in throughput. However, profits are lower than last year as
a result of lower prices for most of our principal products, especially coal as
increased supply from Australian mines has affected markets. It is uncertain how
long the current low coal prices will prevail. Coal and copper prices in U.S.
dollar terms were lower by 19% and 11%, respectively, in the first quarter of
2014 compared with a year ago. Coal prices are currently at their lowest level
since 2007 and margins are at their lowest level in ten years. Lower prices were
offset by a strengthening of the U.S. dollar against the Canadian dollar. Sales
of our products are denominated in U.S. dollars and strengthening of the U.S.
dollar has a favourable effect on our operating margins.
Our cost reduction program that began in the second half of 2012 exceeded our
initial goals. We identified $380 million of ongoing annual operating cost
savings across the company and to date have implemented $366 million and
realized $345 million. However, in light of the current low commodity price
environment, we are increasing our efforts on reducing our costs and capital
spending in order to ensure we maintain our competitiveness and emerge stronger
from the current price cycle. As a result, we are taking the following actions:
-- We are targeting a 5% or approximately 600 position reduction in our
global workforce through attrition, hiring freezes and reductions in
contractors and employees at our operations and corporate offices. We
are also targeting a 5% reduction in our other costs for total savings
of approximately $200 million.
-- Our sustaining and development capital spending will be reduced by
approximately $150 million primarily through the deferral of equipment
purchases and a reduction of spending on our development projects,
except for Fort Hills, which is progressing as announced when we
sanctioned the project in October 2013.
-- The potential restart of our Quintette coal mine, which is expected to
produce between three and four million tonnes of steelmaking coal, has
been deferred and the project is being put on care and maintenance until
market conditions for a restart are favourable. With the Mines Act
Permit Amendment previously approved we will continue to work on
obtaining the two remaining permits that will enable us to restart the
mine as quickly as possible when coal market conditions improve.
Production could commence within 14 months of a construction decision.
We believe the outlook for zinc is the most favourable of the base metals. With
recent and expected closures of a number of zinc mines, we believe that
approximately 1.5 million tonnes of current zinc mine production will be closed
by the end of 2016 in a 13 million tonne per year market. As a result, we are
planning to restart our Pend Oreille mine, which has been on care and
maintenance since early 2009. The Pend Oreille mine is an underground operation
and has the capacity to produce approximately 44,000 tonnes of zinc in
concentrate per year. It is expected to take approximately seven months to ready
the mine for operations and a further five months to achieve its full productive
capacity. The capital cost required to restart the mine is approximately US$41
million and the expected average cost of production is approximately US$0.80 per
pound of zinc produced over the estimated remaining life of the operation, which
is currently five years. All production from Pend Oreille will be processed at
our Trail metallurgical operations as concentrate characteristics in the ore and
lower transportation costs provide us with approximately $15 million of annual
benefits that cannot be obtained from other sources of concentrate.
Profit and Adjusted Profit(1)
Profit attributable to shareholders was $69 million, or $0.12 per share, in the
first quarter of 2014 compared with $319 million or $0.55 per share in the same
period last year.
Adjusted profit, as shown in the table on page 31, excluding the effect of tax
adjustments and asset provisions of $21 million and $8 million, respectively,
was $105 million, or $0.18 per share, in the first quarter of 2014 compared with
$328 million, or $0.56 per share, a year ago. The decline in adjusted profit was
primarily due to lower commodity prices, especially for coal. A decline in
copper prices late in the quarter also resulted in negative pricing adjustments
of $41 million on an after-tax basis, and we incurred a $20 million after-tax
charge for coal inventory write-downs. Partly offsetting the lower coal and
copper prices was the positive effect of the stronger U.S. dollar.
Notes:
1. Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures"
section for further information.
FINANCIAL OVERVIEW
Three months
ended March 31,
($ in millions, except per share data) 2014 2013
----------------------------------------------------------------------------
Revenue and profit
Revenue $ 2,084 $ 2,330
Gross profit $ 405 $ 701
Gross profit before depreciation and amortization
(1) $ 732 $ 994
EBITDA (1) $ 557 $ 902
Profit attributable to shareholders $ 69 $ 319
Cash flow
Cash flow from operations $ 545 $ 763
Property, plant and equipment expenditures $ 400 $ 388
Capitalized stripping costs $ 204 $ 210
Investments $ 8 $ 82
Balance Sheet
Cash balances $ 2,386 $ 2,772
Total assets $ 36,381 $ 36,183
Debt, including current portion $ 8,034 $ 7,723
Per share amounts attributable to shareholders
Profit $ 0.12 $ 0.55
----------------------------------------------------------------------------
PRODUCTION, SALES AND PRICES
Production (000's tonnes, except coal)
Coal (millions tonnes) 6.7 6.2
Copper (2) 85 83
Zinc in concentrate 163 147
Zinc - refined 62 74
Sales (000's tonnes, except coal)
Coal (millions tonnes) 6.2 6.6
Copper (2) 83 82
Zinc in concentrate 148 124
Zinc - refined 62 73
Average prices and exchange rates
Coal (realized US$/tonne) $ 131 $ 161
Copper (LME cash - US$/pound) $ 3.19 $ 3.60
Zinc (LME cash - US$/ pound) $ 0.92 $ 0.92
Average exchange rate (C$ per US$1.00) $ 1.10 $ 1.01
Gross profit margins
Coal 13% 33%
Copper 31% 37%
Zinc 17% 17%
----------------------------------------------------------------------------
Notes:
1. Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures"
section for further information.
2. 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.
BUSINESS UNIT RESULTS
Our revenue, gross profit before depreciation and amortization, and gross profit
by business unit are summarized in the table below.
Three months
ended March 31,
($ in millions) 2014 2013
----------------------------------------------------------------------------
Revenue
Coal $ 880 $ 1,060
Copper 652 684
Zinc 551 585
Energy 1 1
----------------------------------------------------------------------------
Total $ 2,084 $ 2,330
----------------------------------------------------------------------------
Gross profit, before depreciation and amortization (1)
Coal $ 292 $ 516
Copper 318 351
Zinc 121 126
Energy 1 1
----------------------------------------------------------------------------
Total $ 732 $ 994
----------------------------------------------------------------------------
Gross profit
Coal $ 114 $ 346
Copper 200 253
Zinc 91 102
Energy - -
----------------------------------------------------------------------------
Total $ 405 $ 701
----------------------------------------------------------------------------
Note:
1. Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures"
section for further information.
COAL BUSINESS UNIT
Three months
ended March 31,
($ in millions) 2014 2013
----------------------------------------------------------------------------
Coal price (realized Cdn$/tonne) $ 143 $ 161
Production (million tonnes) 6.7 6.2
Sales (million tonnes) 6.2 6.6
Gross profit, before depreciation and amortization $ 292 $ 516
Gross profit $ 114 $ 346
Property, plant and equipment expenditures $ 79 $ 101
Capitalized stripping costs $ 131 $ 140
----------------------------------------------------------------------------
Performance
Gross profit before depreciation and amortization from our coal business unit
declined by $224 million in the first quarter (see table below) compared with a
year ago primarily due to lower coal prices, higher unit costs and a $30 million
inventory write-down. These items were partly offset by the favourable effect of
a stronger U.S. dollar.
Production in the first quarter of 6.7 million tonnes rose by 8% compared with
the same period a year ago as a result of higher capacity utilization within the
business unit.
Coal sales of 6.2 million tonnes in the first quarter were 6% lower than the
same period last year. Demand for our products is healthy, however rail
performance negatively affected our logistics chain and some vessels experienced
delays at west coast ports resulting in lower sales for the quarter. The average
coal price of US$131 per tonne was 19% lower than the same period a year ago and
reflects the oversupplied steelmaking coal market conditions.
The table below summarizes the gross profit changes, before depreciation and
amortization, in our coal business unit for the quarter:
Three months
($ in millions) ended March 31,
----------------------------------------------------------------------------
As reported in previous period $ 516
Changes:
Coal price realized:
US$ price (182)
Foreign exchange 67
Sales volume (32)
Operating costs (53)
Coal inventory write-down (24)
----------------------------------------------------------------------------
Increase (decrease) (224)
----------------------------------------------------------------------------
As reported in current period $ 292
----------------------------------------------------------------------------
Property, plant and equipment expenditures totaled $79 million in the first
quarter and included $62 million for sustaining capital, $13 million for major
enhancement projects and $4 million for new mine development. Capitalized
stripping costs were $131 million in the first quarter compared with $140
million a year ago.
Markets
Increasing production and exports from Australia combined with lower imports
into China maintained the market in an oversupplied position, resulting in
downward pricing pressure throughout the first quarter.
Coal prices for the second quarter of 2014 have been agreed with the majority of
our quarterly contract customers based on US$120 per tonne for the highest
quality products, which is consistent with prices reportedly achieved by our
competitors. Additional sales priced on a spot basis will reflect market
conditions when sales are concluded.
Operations
Mining and coal processing performance in the first quarter was strong, with
record monthly coal production in January. Cost reduction efforts at the mines
have been successful and are ongoing. Labour costs per unit are lower than the
first quarter of last year as labour productivity has improved. In addition, we
continue to limit the use of high cost equipment and maintenance contractors and
have maintained restrictions on hiring while minimizing overtime. However,
pricing pressure on key inputs such as diesel and natural gas, partially as a
result of the strengthening of the U.S. dollar against the Canadian dollar,
combined with longer haul distances and additional maintenance activities
contemplated by our operating plan, has resulted in higher production costs this
quarter than a year ago.
Within the logistics chain, it was a disappointing quarter. Rail volumes moved
were less than expected, with CP moving 600,000 tonnes less than planned
westbound from southeast British Columbia. CP attributed under-performance to
the effect of cold weather east of the Rockies, equipment availability and
congestion within the rail network as a result of increased grain volumes. CN
moved planned quantities in the northern corridor.
Unit Costs
Cost of sales in the first quarter of 2014, before depreciation, transportation
and a write-down of coal inventories, were $52 per tonne, or $6 per tonne higher
than the same period a year ago. Over half of this increase resulted from
reduced capitalization of stripping costs as raw coal strip ratios decreased. In
addition and as described above, unit production costs at the mines increased as
a result of higher diesel and natural gas prices, partially as a result of the
strengthening of the U.S. dollar against the Canadian dollar, combined with
additional maintenance parts costs, partially offset by improved labour
productivity.
Transportation costs in the first quarter were $38 per tonne, $2 per tonne
higher compared with the same quarter a year ago, primarily due to higher fuel
surcharges on tonnes railed and higher unit loading costs. These increases were
partially offset by lower demurrage costs compared with a year ago. In the first
quarter of 2013, a large number of vessels were at anchor after a vessel
collided with a Westshore loading trestle in late 2012, delaying loading.
Three months
ended March 31,
(amounts reported in Cdn$ per tonne) 2014 2013
----------------------------------------------------------------------------
Site cost of sales $ 52 $ 46
Transportation costs 38 36
Inventory write-down 5 1
----------------------------------------------------------------------------
Unit costs (1) $ 95 $ 83
----------------------------------------------------------------------------
Note:
1. Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures"
section for further information.
Quintette
Work on the Quintette project has focused on examining options to reduce capital
costs while final permit applications are being reviewed by the authorities. We
expect to receive all required permits in the second quarter of 2014. As
previously noted, given current market conditions, the restart of Quintette has
been deferred and the project is being put on care and maintenance. Production
could commence within 14 months of a construction decision.
Elk Valley Water Management
Our Elk Valley water management program to date has focused in two main areas:
development of the Elk Valley Water Quality Plan under an Area Based Management
Plan Order from the Government of British Columbia, and construction of the West
Line Creek water treatment plant at our Line Creek operations.
The Elk Valley Water Quality Plan is intended to address the management of
selenium as well as other substances released by mining activities throughout
the watershed in the short, medium and long term. The plan will establish water
quality targets which are protective of the environment and human health, while
considering social and economic factors. The plan is being informed by
scientific advice received from a Technical Advisory Committee chaired by the
B.C. Ministry of Environment and including representatives from Teck, the U.S.
Environmental Protection Agency, State of Montana, Ktunaxa Nation, other
provincial and federal agencies and an independent scientist, as well as public
consultation. The development of the plan is progressing satisfactorily and it
is expected to be complete and submitted to the B.C. Ministry of Environment in
the third quarter of 2014.
A previous draft valley-wide selenium management action plan contemplated total
capital spending of up to $600 million over a five year period, including the
$120 million spent to date on the West Line Creek plant, for the installation of
water diversion and treatment facilities. The estimated capital and operating
costs of implementing the new Elk Valley Water Quality Plan are not yet known
but are expected to vary from those outlined in the previous draft. The final
costs will depend on the water quality targets established in the plan, as well
as the technologies applied to manage selenium and other substances. The initial
cost estimate in the previous plan assumed the application of biological
treatment technology, which is currently being installed in the West Line Creek
plant. This facility is progressing satisfactorily towards the start of
commissioning in the second quarter of 2014.
Our work on the new Elk Valley Water Quality Plan is expected to result in
revised cost estimates by the end of 2014. We expect that, in order to maintain
water quality, water treatment will need to continue for an indefinite period
after mining operations end. Our ongoing work could reveal technical issues or
advances associated with potential treatment technologies which could
substantially increase or decrease both capital and operating costs associated
with water quality management. Delays in obtaining approval of the plan could
result in consequential delays in permitting new mining areas, which would limit
our ability to maintain or increase coal production in accordance with our long
term plans. If this were to occur, the potential shortfall in future production
could be material.
Outlook
We are expecting coal sales in the second quarter of 2014 to be at, or above,
6.5 million tonnes. Vessel nominations for quarterly contract shipments are
determined by customers and final sales and average prices for the quarter will
depend on product mix, market direction for spot priced sales, timely arrival of
vessels, as well as the performance of the rail transportation network and
coal-loading facilities.
We continue to expect our 2014 coal production to be in the range of 26 to 27
million tonnes. We continue to expect our 2014 annual cost of product sold,
including transportation costs, to be in the range of $93 to $102 per tonne
(US$85 to US$93) based on current exchange rates and current production plans.
COPPER BUSINESS UNIT
Three months
ended March 31,
($ in millions) 2014 2013
----------------------------------------------------------------------------
Copper price (realized - US$/pound) $ 3.25 $ 3.55
Production (000's tonnes) 85 83
Sales (000's tonnes) 83 82
Gross profit, before depreciation and amortization $ 318 $ 351
Gross profit $ 200 $ 253
Property, plant and equipment expenditures $ 112 $ 200
Capitalized stripping costs $ 62 $ 59
----------------------------------------------------------------------------
Performance
Gross profit before depreciation and amortization from our copper business unit
decreased by $33 million in the first quarter (see table below) compared with a
year ago. This was primarily the result of lower copper prices and reduced
by-product revenues from molybdenum, gold and zinc and increased smelter
processing rate charges. These items were partially offset by the positive
effect of the stronger U.S. dollar, reduced unit costs at Quebrada Blanca and
increased copper production from Antamina.
Copper production in the first quarter rose by 2% compared with a year ago.
Antamina's production increased substantially as a result of increased mill
throughput and higher grades compared with a year ago when the operation
experienced difficulties with unplanned downtime on the primary crusher. This
partially offset lower production at Highland Valley Copper as mill throughput
and recoveries were lower as a result of final tie-ins and commissioning of the
new flotation facility. Zinc production from Antamina and Duck Pond decreased by
a total of 38% compared with a year ago primarily due to the mix of ore types
processed at Antamina.
The table below summarizes the changes in gross profit, before depreciation and
amortization, in our copper business unit for the quarter:
Three months
($ in millions) ended March 31,
----------------------------------------------------------------------------
As reported in previous period $ 351
Changes:
Copper price:
US$ price (53)
Foreign exchange 56
Sales volume 2
By-product revenues (27)
Smelter processing charges (9)
Operating costs (2)
----------------------------------------------------------------------------
Increase (decrease) (33)
----------------------------------------------------------------------------
As reported in current period $ 318
----------------------------------------------------------------------------
Capital expenditures consisted of $35 million for sustaining capital and $51
million for major enhancement projects, primarily for Highland Valley's mill
optimization project and $30 million for new mine development, primarily at the
Quebrada Blanca Phase 2 project. Capitalized deferred stripping costs were $62
million in the first quarter compared with $59 million a year ago.
Markets
LME copper prices averaged US$3.19 per pound in the first quarter of 2014
compared with US$3.60 per pound in the same period a year ago. Copper prices
were stable during the first quarter of 2014 before softening at the end of the
quarter. LME, Comex & SHFE stocks were down 30,300 tonnes in the first quarter.
Consumption in China continues to show good growth based on investment plans by
the State Grid. In Europe, consumption continues to show strong growth with
metal premiums holding strong while in the U.S. consumption in the first quarter
was soft as a result of the extreme winter. Mining companies have been giving
lower production guidance for 2014 which is translating into a lower expected
metal surplus.
Operations
Highland Valley Copper
Copper production of 26,900 tonnes in the first quarter was 6% lower than a year
ago primarily as a result of reduced mill throughput and lower recoveries.
Production in the quarter was affected by the scheduled downtime to tie in
components of the mill optimization project and commissioning of the new
flotation facility. Molybdenum production declined by 47% to 1.0 million pounds
compared with the same period a year ago primarily due to lower ore grades.
Operating costs in the first quarter, before changes in inventory, rose by $10
million as a result of higher labour costs associated with the commissioning of
the new flotation facility and increased diesel and energy costs. Capitalized
stripping costs in the first quarter of 2014 were $37 million compared with $27
million a year ago.
Commissioning of the new flotation plant is progressing on schedule. Design
throughput rates were exceeded in March with an average of 139,000 tonnes per
day during the month, compared to a design rate of 130,000 tonnes per day. The
focus is now shifting to maximizing recovery at these expanded rates by fine
tuning the process control technology and addressing minor deficiencies at the
back end of the processing circuit.
Antamina
Copper production in the first quarter of 2014 increased by 31% as a result of
significantly higher throughput rates and copper grades. The mix of mill feed in
the first quarter was 77% copper-only ore and 23% copper-zinc ore, compared with
68% and 32%, respectively, in the same period a year ago. Grades are expected to
decline in the second quarter and for the remainder of the year due to mine
sequencing and processing of lower grade stockpiles. Zinc production declined to
32,900 tonnes from 67,300 tonnes in the same period a year ago primarily due to
lower zinc grades and a lower amount of copper-zinc ore processed in the period.
A gradual return to higher production is expected after 2014 as grades improve.
Operating costs in the first quarter, before changes in inventory, remained
similar to a year ago despite the significantly higher sales volumes compared
with a year ago. Capitalized stripping costs were US$62 million (100% basis) in
the first quarter compared with US$79 million in the same period of 2013.
Quebrada Blanca
Copper production in the first quarter increased by 3% compared with the same
period a year ago. Heap leach production increased as a result of processing
higher heap leach grades and improved recoveries from previously placed
inventory, offset by lower dump leach production. As anticipated in the mine
plan, the amount of dump leach ore placed declined significantly during the
quarter compared to the same period a year ago and dump leach ore placement is
expected to continue at lower rates, although previously placed material
continues to be irrigated to supplement production.
Operating costs, before changes in inventories, decreased by US$12 million
compared with the same period a year ago as a result of cost reduction efforts.
Capitalized stripping costs in the first quarter were US$8 million compared with
US$14 million in the first quarter of 2013. Depreciation and amortization costs
increased by US$14 million compared with a year ago as a result of depreciation
of accumulated capitalized stripping costs.
We continued to progress updating the permits for the existing facilities for
the supergene operation. We still expect to submit the social and environmental
impact assessment in respect of cathode production to 2020 in the second quarter
of 2014.
Carmen de Andacollo
Copper production in the first quarter declined by 11% compared with a year ago
as a result of lower ore grades consistent with the mine plan, partially offset
by a 10% increase in mill throughput in the period.
Production costs, before changes in inventories, decreased by US$4 million
compared with a year ago primarily due to lower power costs. Capitalized
stripping costs in the first quarter and prior year were minimal.
Duck Pond
Copper and zinc production in the first quarter was 3,200 tonnes and 4,100
tonnes, respectively, compared with 3,300 tonnes and 3,500 tonnes, respectively,
last year.
As announced previously, the Duck Pond operation is expected to close in the
first half of 2015.
Unit Costs
Unit costs of product sold, before cash margins for by-products, in the first
quarter of 2014 decreased primarily due to reduced operating costs at Quebrada
Blanca and the favourable effect of increased copper production from Antamina.
These items were partially offset by additional costs associated with
commissioning the new flotation facility at Highland Valley Copper. Cash unit
costs after by-product margins increased as a result of lower molybdenum, zinc
and other by-product prices and volumes.
Three months
ended March 31,
(amounts reported in US$ per pound) 2014 2013
----------------------------------------------------------------------------
Adjusted cash cost of sales (1) $ 1.67 $ 1.81
Smelter processing charges 0.20 0.17
----------------------------------------------------------------------------
Total cash unit costs before by-product margins (1) $ 1.87 $ 1.98
Cash margin for by-products (2) (0.25) (0.43)
----------------------------------------------------------------------------
Total cash unit costs after by-product margins (1) $ 1.62 $ 1.55
----------------------------------------------------------------------------
Note:
1. Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures"
section for further information.
2. By-products includes both by-products and co-products.
Copper Development Projects
Quebrada Blanca Phase 2
During the first quarter of 2014, we continued to slow detailed design
activities for the Quebrada Blanca Phase 2 project to better align engineering
progress with permitting activities. Some of the engineering resources remaining
on the project were redirected towards optimization studies focused on capital
reduction opportunities.
As previously announced, the permits for our existing facilities need to be
updated before resubmission of the Phase 2 SEIA. Timing for resubmission of the
Phase 2 SEIA will depend to some extent on progress on updating permits for the
existing facilities and project optimization activities.
Other Copper Projects
At Relincho, work continues on optimization studies that are focused on capital
and operating reductions and other value enhancing initiatives.
Focused engineering studies also continue for our Galore Creek, Schaft Creek and
Mesaba projects as we further explore ways to enhance the value of these
projects. No significant field work is planned on these projects in 2014.
ZINC BUSINESS UNIT
Three months
ended March 31,
($ in millions) 2014 2013
----------------------------------------------------------------------------
Zinc price (realized - US$/lb) $ 0.91 $ 0.93
Production (000's tonnes)
Refined zinc 62 74
Zinc in concentrate (1) 152 128
Sales (000's tonnes)
Refined zinc 62 73
Zinc in concentrate (1) 139 107
Gross profit before depreciation and amortization $ 121 $ 126
Gross profit $ 91 $ 102
Property, plant and equipment expenditures $ 36 $ 35
Capitalized stripping costs $ 11 $ 11
----------------------------------------------------------------------------
Note:
1. Represents production from Red Dog only and excludes co-product zinc
production from our Copper Business Unit.
Performance
Gross profit before depreciation and amortization from our zinc business unit
decreased by $5 million (see table below) compared with a year ago.
Significantly higher sales volumes from Red Dog, due to timing, and the
favourable effect of the stronger U.S. dollar were primarily offset by reduced
volumes from Trail.
Production of zinc in concentrate from Red Dog rose by 19% as a result of
increased mill throughput. Refined zinc production and resulting sales volumes
in the first quarter at Trail were negatively affected by reliability problems
with the aging acid plants, which affected the processing of concentrates in the
quarter. Completion of the replacement acid plant is expected in the second
quarter.
The table below summarizes the gross profit change, before depreciation and
amortization, in our zinc business unit for the quarter.
Three months
($ in millions) ended March 31,
----------------------------------------------------------------------------
As reported in previous period $ 126
Changes
Zinc price:
US$ price (4)
Foreign exchange 32
Sales volume 18
By-product revenues (21)
Operating costs (12)
Royalties (18)
----------------------------------------------------------------------------
Increase (decrease) (5)
----------------------------------------------------------------------------
As reported in current period $ 121
----------------------------------------------------------------------------
Capital expenditures totaled $36 million, including $25 million on the Trail
acid plant that is nearing completion, all of which were primarily sustaining
expenditures.
Markets
LME zinc prices decreased by 0.2% from a year ago and averaged US$0.92 per pound
in the first quarter of 2014. Lead prices decreased 8% from a year ago and
averaged US$0.96 per pound in the first quarter. In the first quarter, combined
LME & SHFE zinc metal inventories fell by 122,700 tonnes, or 8%. Zinc metal
demand in the U.S. continues to be strong, driven by good auto production. Auto
production is also strong in China and Japan. Residential and non-residential
construction in Europe posted greater than 8% year-over-year growth to January
2014. Mine closures that started to occur in 2013 will continue through this
year and into 2015, which is expected to move the global zinc market from
surplus in prior years to deficit in 2015. The global lead metal market is
expected to move into deficit from 2014 onwards. Combined LME & SHFE lead
inventories have fallen 23,900 tonnes or 8% in the first quarter.
Operations
Red Dog
Zinc and lead production in the first quarter increased 19% and 28%,
respectively, due to the processing of softer ores, which substantially
increased tonnes milled in the period. These items were partially offset by
lower zinc ore grades.
Zinc sales volumes were 30% higher than a year ago due to higher opening market
inventories in 2014, as certain customers that drew from consignment inventories
deferred delivery of zinc from the fourth quarter of 2013 to the first quarter
of 2014.
Operating costs in the first quarter rose primarily in relation to increased
sales volumes in the period. Royalty costs increased by US$15 million to US$29
million primarily due to the increased sales volumes.
Trail
Zinc production was lower in the first quarter of 2014 due to reliability issues
with the aging acid plants, which limited front end throughput on the zinc
circuit. Similarly, Kivcet throughput was negatively affected by a series of
production interruptions, which resulted in lower lead and silver production in
the quarter compared with a year ago. Construction continued on the new acid
plant, which is replacing the aging facility and is expected to lower emissions.
The project is expected to be completed in the second quarter of 2014.
Cost of concentrate purchases in the first quarter was lower than a year ago due
to lower commodity prices, particularly silver prices, and to lower zinc and
silver production levels. Operating costs remained unchanged compared with a
year ago as increased repair activity and higher energy prices were offset by
cost reduction initiatives and lower costs associated with the lower production
levels.
Pend Oreille
As previously mentioned, we are planning to restart the Pend Oreille zinc mine,
which has been on care and maintenance since early 2009. The Pend Oreille mine
has an annual capacity of approximately 44,000 tonnes of zinc in concentrate,
all of which will be sent to our Trail metallurgical operations for processing.
It is expected to take approximately seven months to ready the mine for
operations and a further five months for the mine to achieve its full productive
capacity.
ENERGY BUSINESS UNIT
Fort Hills Project
Construction of the Fort Hills Project is progressing substantially in
accordance with the project schedule and spending to date is consistent with the
project budget. Our share of Fort Hills cash spend in the first quarter was $114
million, including our earn-in commitments. Suncor has indicated 2014 planned
incurred project spending of $3.16 billion, of which our share would be $850
million, including our earn-in commitment.
Frontier Energy Project
In November 2011, the Frontier project application was submitted to regulators.
We have subsequently responded to two rounds of supplemental information
requests and review of the application continues. In March, we received a third
round of information requests from the regulators, which we plan to respond to
in the second half of 2014. The cumulative federal review period is estimated to
be approximately two years, making 2015 the earliest an approval decision and
receipt of required permits is expected.
An exploration program was completed at Frontier in the winter of 2014 to
provide additional data to support the regulatory review process and ongoing
engineering work.
Wintering Hills Wind Power Facility
During the first quarter of 2014, our share of the power generation from
Wintering Hills was 24 GWhs. Expected power generation in 2014 is dependent on
weather conditions and the anticipated 85 GWhs of power generated will result in
approximately 55,000 tonnes of CO2 equivalent offsets.
OTHER OPERATING COST AND EXPENSES
Other operating expenses, net of other income, were $104 million in the first
quarter compared with $18 million a year ago. This was primarily due to
declining copper prices at the end of the quarter, as we incurred negative
pricing adjustments in the first quarter of $63 million compared with $22
million in the first quarter of 2013. We also wrote down our Duck Pond operating
assets by $12 million, reflecting the expected closure of the mine in the first
half of 2015, and the decline in expected cash flow due to the fall in copper
prices.
The table below outlines our outstanding receivable positions, provisionally
valued at December 31, 2013, and March 31, 2014.
Outstanding at Outstanding at
December 31, 2013 March 31, 2014
------------------------------------------------
(pounds in millions) Pounds US$/lb Pounds US$/lb
----------------------------------------------------------------------------
Copper 135 3.35 158 3.01
Zinc 109 0.94 133 0.90
----------------------------------------------------------------------------
Financing expense was $69 million in the first quarter compared with $88 million
a year ago. Changes in the Fort Hills project agreements in the fourth quarter
of 2013 changed the basis of accounting for the project and as a result we now
capitalize interest relating to our investment in the Fort Hills project.
We recorded $13 million of other non-operating losses, the same as a year ago.
Amounts in 2014 are primarily foreign exchange losses.
Income and resource taxes for the first quarter were $93 million, or 55% of
pre-tax profits, including a deferred tax charge of $21 million arising from a
settlement with the Canada Revenue Agency regarding the treatment of gains
realized in 2008 on the sale of our interest in Fording Canadian Coal Trust.
Excluding this one-time item, the effective tax rate would have been 42%, which
is higher than the Canadian statutory income tax rate of 26%. The higher
effective rate is due in part to higher tax rates in foreign jurisdictions and
the effect of resource taxes. Resources taxes are typically based on gross
profits before administrative, overhead and financial expenses. As such, they
have the effect of increasing our overall tax rate, particularly in periods of
lower income. Due to available tax pools, we are currently shielded from cash
income taxes, but not resource taxes in Canada. We remain subject to cash taxes
in foreign jurisdictions.
On April 1, 2014, the Chilean Government introduced a comprehensive tax reform
bill, which proposes to phase in over the next four years an increase to the
first stage corporate tax rate from 20% to 25% and from 2017, the elimination of
the deferral of the second stage corporate tax such that the corporate tax rate
will effectively become, between the first stage and second stage, 35% as
earned. If enacted, this would result in a non-cash charge to profit in respect
of our existing deferred tax liabilities.
FINANCIAL POSITION AND LIQUIDITY
Our financial position and liquidity remains strong. Our debt positions and
credit ratios are summarized in the table below:
----------------------------------------------------------------------------
March 31, December 31,
($ in millions) 2014 2013
----------------------------------------------------------------------------
Fixed-rate term notes $ 7,127 $ 7,124
Other 140 137
----------------------------------------------------------------------------
Total debt (US$ in millions) $ 7,267 $ 7,261
----------------------------------------------------------------------------
Canadian $ equivalent (1) 8,034 7,723
Less cash balances (2,386) (2,772)
----------------------------------------------------------------------------
Net debt $ 5,648 $ 4,951
----------------------------------------------------------------------------
Debt to debt-plus-equity ratio (2) 30% 29%
Net-debt to net-debt-plus-equity ratio (2) 23% 21%
Average interest rate 4.8% 4.8%
----------------------------------------------------------------------------
Note:
1. Translated at period end exchange rates.
2. Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures"
section for further information.
Operating Cash Flow
Cash flow from operations, before changes in non-cash working capital items, was
$470 million in the first quarter compared with $776 million a year ago with the
reduction primarily due to significantly lower coal prices in the quarter.
Changes in non-cash working capital items provided $75 million in cash in the
first quarter as receivable balances declined due to lower commodity prices.
Changes to non-cash working capital in the same period a year ago were not
substantial.
Investing Activities
Expenditures on property, plant and equipment were $400 million in the first
quarter and included $137 million on sustaining capital, $64 million on major
enhancement projects and $199 million on new mine development. The largest
components of sustaining expenditures were $62 million at our coal operations
and $25 million for the new acid plant at Trail. Major enhancement expenditures
included $49 million for Highland Valley Copper's mill optimization project and
$13 million at our coal operations. New mine development expenditures included
$114 million for our share of Fort Hills spending, $49 million at Frontier and
$20 million for Quebrada Blanca Phase 2.
Capitalized stripping expenditures were $204 million in the first quarter
compared with $210 million a year ago. The majority of this item constitutes the
preparation of pits for future production at our coal mines. We expect to
capitalize similar amounts each quarter for the remainder of the year.
Financing Activities
Other than the payment of our semi-annual dividend that totaled $259 million,
there were no significant financing activities in the quarter.
We have committed and unused bank credit facilities aggregating US$2.0 billion,
maturing in 2018.
OUTLOOK
We continue to experience volatile markets for our products and prices for some
of our products have declined significantly. Commodity markets have historically
been volatile, prices can change rapidly and customers can alter shipment plans.
This can have a substantial effect on our business. Demand for our products,
particularly coal, remains strong. However, increased production from Australian
mines has put downward pressure on coal prices. While we believe that the longer
term fundamentals for steelmaking coal, copper and zinc are favorable, the
recent weakness in some of these markets may persist for some time. We are also
significantly affected by foreign exchange rates. The Canadian dollar has fallen
significantly against the U.S. dollar to date in 2014 and this has had a
positive effect on the profitability of our Canadian operations. It will, to a
lesser extent, put upward pressure on a portion of our operating costs and
capital spending to the extent that a portion of our costs and capital spending
is denominated in U.S. dollars.
We have committed to spending an estimated $2.94 billion over the next four
years on the development of the Fort Hills oil sands project, which will consume
a significant portion of our cash resources. We have access to credit lines
which are expected to be sufficient to meet our capital commitments and working
capital needs over this period. We are taking further steps to manage our
capital spending profile and we continuously monitor all aspects of our cost
reduction program, our capital spending and key markets as conditions evolve.
Capital Expenditures
As mentioned on the preceding pages, we are reducing our sustaining and
development capital expenditures by approximately $150 million from the deferral
of equipment purchases and reduced spending on certain development projects and
are planning to restart the Pend Oreille zinc mine at a cost of approximately
$45 million. As a result, our previously disclosed 2014 capital expenditure
forecast has been reduced by approximately $105 million from $1.9 billion to
$1.8 billion. We also expect to spend $700 million on capitalized stripping
preparing mining areas for future production, which is unchanged from our
previous guidance. In addition, we are deferring the potential restart of the
Quintette steelmaking coal mine until coal market conditions improve.
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 March 31, 2014, $6.6 billion 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 that amount of our U.S. dollar debt are recorded in other
comprehensive income, with the remainder being charged to profit.
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 PROFIT AND CASH FLOW
(in millions,
except for
share data) 2014 2013 2012
----------------------------------------------------------------------------
Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Revenues $2,084 $2,376 $2,524 $2,152 $2,330 $2,730 $2,505 $2,561 $2,547
Gross profit 405 546 597 582 701 825 827 880 992
EBITDA 557 766 815 670 902 653 861 933 848
Profit
attributable
to
shareholders 69 232 267 143 319 200 256 354 258
Earnings per
share $ 0.12 $ 0.40 $ 0.46 $ 0.25 $ 0.55 $ 0.34 $ 0.44 $ 0.60 $ 0.44
Cash flow
from
operations 545 769 656 690 763 911 729 965 813
----------------------------------------------------------------------------
OUTSTANDING SHARE DATA
As at April 21, 2014 there were 566.9 million Class B subordinate voting shares
and 9.4 million Class A common shares outstanding. In addition, there were 11.0
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 20 of our 2013
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 March 31, 2014 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, 2014, we have adopted IFRIC 21, Levies ("IFRIC 21") with
retrospective application. IFRIC 21 provides guidance on the accounting for a
liability to pay a levy, if that liability is within the scope of IAS 37,
Provisions, Contingent Liabilities and Contingent Assets. Levies are imposed by
governments in accordance with legislation and do not include income taxes or
fines or other penalties imposed for breaches of legislation. The interpretation
was issued to address diversity in practice around when the liability to pay a
levy is recognized. An example of a common levy is property taxes.
A liability to pay a levy is recognized at the date of the obligating event,
which may be at a point in time or over a period of time. An obligating event is
the activity that triggers the payment of the levy as identified by legislation.
The fact that an entity is economically compelled to continue to operate in the
future, or prepares its financial statements on a going concern basis, does not
create an obligation to pay a levy.
The adoption of IFRIC 21 did not affect our financial results or disclosures as
our analysis determined that no changes were required to our existing accounting
treatment of levies.
REVENUE AND GROSS PROFIT
Our revenue and gross profit by business unit are summarized in the tables below:
For the three months
ended March 31,
(Teck's share in Cdn$ millions) 2014 2013
----------------------------------------------------------------------------
REVENUE
Coal $ 880 $ 1,060
Copper
Highland Valley Copper 224 251
Antamina 178 157
Quebrada Blanca 98 82
Carmen de Andacollo 138 173
Duck Pond 12 20
Other 2 1
----------------------------------------------------------------------------
652 684
Zinc
Trail 392 500
Red Dog 208 144
Other 3 2
Inter-segment sales (52) (61)
----------------------------------------------------------------------------
551 585
Energy 1 1
----------------------------------------------------------------------------
TOTAL REVENUE $ 2,084 $ 2,330
----------------------------------------------------------------------------
GROSS PROFIT (LOSS)
Coal $ 114 $ 346
Copper
Highland Valley Copper 74 101
Antamina 112 97
Quebrada Blanca (4) (5)
Carmen de Andacollo 22 56
Duck Pond (4) 4
----------------------------------------------------------------------------
200 253
Zinc
Trail 2 29
Red Dog 88 71
Other 1 2
----------------------------------------------------------------------------
91 102
Energy - -
----------------------------------------------------------------------------
TOTAL GROSS PROFIT $ 405 $ 701
----------------------------------------------------------------------------
COST OF SALES SUMMARY
Our cost of sales information by business unit is summarized in the table below:
For the three months
ended March 31,
(Teck's share in Cdn$ millions) 2014 2013
----------------------------------------------------------------------------
OPERATING COSTS
Coal $ 350 $ 305
Copper
Highland Valley Copper 107 108
Antamina 40 36
Quebrada Blanca 65 63
Carmen de Andacollo 81 85
Duck Pond 6 8
Other 2 1
----------------------------------------------------------------------------
301 301
Zinc
Trail 95 94
Red Dog 44 28
Other 1 -
----------------------------------------------------------------------------
$ 140 $ 122
Energy - -
----------------------------------------------------------------------------
Total operating costs $ 791 $ 728
----------------------------------------------------------------------------
TRANSPORTATION COSTS
Coal $ 235 $ 236
Copper
Highland Valley Copper 9 9
Antamina 5 4
Quebrada Blanca 1 1
Carmen de Andacollo 10 9
Duck Pond 1 1
----------------------------------------------------------------------------
26 24
Zinc
Trail 29 27
Red Dog 29 19
----------------------------------------------------------------------------
58 46
----------------------------------------------------------------------------
Total transportation costs $ 319 $ 306
----------------------------------------------------------------------------
CONCENTRATE PURCHASES
Trail $ 252 $ 338
Inter-segment purchases (52) (61)
----------------------------------------------------------------------------
Total concentrate purchases $ 200 $ 277
----------------------------------------------------------------------------
ROYALTY COSTS
Coal $ 3 $ 3
Copper
Antamina 6 7
HVC 1 -
Duck Pond - 1
----------------------------------------------------------------------------
7 8
Zinc
Red Dog 32 14
----------------------------------------------------------------------------
Total royalty costs $ 42 $ 25
----------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
Coal $ 178 $ 170
Copper
Highland Valley Copper 33 33
Antamina 15 13
Quebrada Blanca 36 23
Carmen de Andacollo 25 23
Duck Pond 9 6
----------------------------------------------------------------------------
118 98
Zinc
Trail 15 12
Red Dog 15 12
----------------------------------------------------------------------------
30 24
Energy 1 1
----------------------------------------------------------------------------
Total depreciation and amortization $ 327 $ 293
----------------------------------------------------------------------------
TOTAL COST OF SALES $ 1,679 $ 1,629
PRODUCTION STATISTICS
Production statistics for each of our operations are presented in the tables
below. Operating results are on a 100% basis.
Three months
ended March 31,
Coal 2014 2013
----------------------------------------------------------------------------
Waste production (000's BCM's) 63,464 61,405
Clean coal production (000's tonnes) 6,730 6,234
Clean coal strip ratio (waste BCM's/coal tonnes) 9.43:1 9.85:1
Sales (000's tonnes) 6,168 6,578
----------------------------------------------------------------------------
Highland Valley Copper
Tonnes mined (000's) 28,711 26,382
Tonnes milled (000's) 10,756 11,264
Copper
Grade (%) 0.30 0.29
Recovery (%) 83.3 86.0
Production (000's tonnes) 26.9 28.5
Sales (000's tonnes) 28.1 31.3
Molybdenum
Production (million pounds) 1.0 1.9
Sales (million pounds) 1.2 1.9
----------------------------------------------------------------------------
Antamina
Tonnes mined (000's) 45,837 48,032
Tonnes milled (000's)
Copper-only ore 9,093 7,065
Copper-zinc ore 2,636 3,265
----------------------------------------------------------------------------
11,729 10,330
Copper (1)
Grade (%) 1.00 0.87
Recovery (%) 87.2 83.6
Production (000's tonnes) 101.4 77.3
Sales (000's tonnes) 92.9 74.2
Zinc (1)
Grade (%) 1.66 2.37
Recovery (%) 80.7 85.4
Production (000's tonnes) 32.9 67.3
Sales (000's tonnes) 35.8 56.5
Molybdenum
Production (million pounds) 1.8 2.1
Sales (million pounds) 2.3 2.4
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note:
(1) Copper ore grades and recoveries apply to all of the processed ores.
Zinc ore grades and recoveries apply to copper-zinc ores only.
----------------------------------------------------------------------------
Quebrada Blanca
Tonnes mined (000's) 8,444 14,709
Tonnes placed (000's)
Heap leach ore 1,306 1,688
Dump leach ore 1,011 2,943
----------------------------------------------------------------------------
2,317 4,631
Grade (SCu%) (1)
Heap leach ore 0.79 0.77
Dump leach ore 0.28 0.26
Production (000's tonnes)
Heap leach ore 8.5 7.6
Dump leach ore 5.4 5.9
----------------------------------------------------------------------------
13.9 13.5
Sales (000's tonnes) 12.4 10.1
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note:
(1) For heap leach and dump leach operations, copper grade is reported as%
soluble copper (SCu%) rather than% total copper.
----------------------------------------------------------------------------
Carmen de Andacollo
Tonnes mined (000's) 7,564 5,946
Tonnes milled (000's) 4,599 4,197
Copper
Grade (%) 0.44 0.54
Recovery (%) 87.6 87.3
Production (000's tonnes) 17.6 19.7
Sales (000's tonnes) 18.3 21.4
Gold (1)
Production (000's ounces) 12.3 17.9
Sales (000's ounces) 11.1 19.2
Copper cathode
Production (000's tonnes) 1.0 0.9
Sales (000's tonnes) 1.0 0.8
----------------------------------------------------------------------------
Note:
1. Carmen de Andacollo processes 100% of gold mined, but 75% of the gold
produced is for the account of Royal Gold Inc.
----------------------------------------------------------------------------
Duck Pond
Tonnes mined (000's) 50 133
Tonnes milled (000's) 127 136
Copper
Production (000's tonnes) 3.2 3.3
Sales (000's tonnes) 2.0 1.8
Zinc
Production (000's tonnes) 4.1 3.5
Sales (000's tonnes) - 4.3
----------------------------------------------------------------------------
Trail
Concentrate treated (tonnes 000's)
Zinc 115 143
Lead 35 37
Metal production
Zinc (000's tonnes) 62.1 74.4
Lead (000's tonnes) 20.3 20.6
Silver (million ounces) 5.2 6.1
Gold (000's ounces) 12.3 15.9
Metal sales
Zinc (000's tonnes) 61.9 72.9
Lead (000's tonnes) 19.0 20.1
Silver (million ounces) 5.1 5.8
Gold (000's ounces) 11.6 19.8
----------------------------------------------------------------------------
Red Dog
Tonnes mined (000's) 1,048 942
Tonnes milled (000's) 1,077 873
Zinc
Grade (%) 16.9 17.8
Recovery (%) 83.6 82.3
Production (000's tonnes) 151.7 128.2
Sales (000's tonnes) 139.5 107.4
Lead
Grade (%) 4.0 3.9
Recovery (%) 68.2 66.8
Production (000's tonnes) 29.4 23.0
Sales (000's tonnes) - -
----------------------------------------------------------------------------
USE OF NON-GAAP FINANCIAL MEASURES
Our financial results are prepared in accordance with International Financial
Reporting Standards ("IFRS"). This document refers to gross profit before
depreciation and amortization, EBITDA, adjusted profit, adjusted earnings per
share, cash unit costs, net debt, debt to debt-plus-equity ratio, and the net
debt to net debt-plus-equity ratio, 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.
Gross profit before depreciation and amortization is gross profit with the
depreciation and amortization expense added back. EBITDA is profit attributable
to shareholders before net finance expense, income and resource taxes, and
depreciation and amortization. For adjusted profit, we adjust profit
attributable to shareholders as reported to remove the effect of certain types
of transactions that in our judgment are not indicative of our normal operating
activities or do not necessarily occur on a regular basis. This both highlights
these items and allows us to analyze the rest of our results more clearly. We
believe that disclosing these measures assists readers in understanding the cash
generating potential of our business in order to provide liquidity to fund
working capital needs, service outstanding debt, fund future capital
expenditures and investment opportunities, and pay dividends.
Unit costs are calculated by dividing the cost of sales for the principal
product by sales volumes. We include this information as it is frequently
requested by investors and investment analysts who use it to assess our cost
structure and margins and compare it to similar information provided by many
companies in our industry.
We sell both copper concentrates and refined copper cathodes. The price for
concentrates sold to smelters is based on average London Metal Exchange prices
over a defined quotational period, from which processing and refining deductions
are made. In addition, we are paid for an agreed percentage of the contained
copper in concentrates, which constitutes payable pounds. Adjusted revenue
excludes the revenue from co-products and by-products, but adds back the
processing and refining allowances to arrive at the value of the underlying
payable pounds of copper. Readers may compare this on a per unit basis with the
price of copper on the London Metal Exchange.
Adjusted cash cost of sales is defined as the cost of the product as it leaves
the mine, excluding depreciation and amortization charges. It is common practice
in the industry to exclude depreciation and amortization as these costs are
'non-cash' and discounted cash flow valuation models used in the industry
substitute expectations of future capital spending for these amounts. In order
to arrive at adjusted cash costs of sales for copper we also deduct the costs of
by-products and co-products. Total cash unit costs include the smelter and
refining allowances added back in determining adjusted revenue. This
presentation allows a comparison of unit costs, including smelter allowances, to
the underlying price of copper in order to assess the margin. Unit costs, after
deducting co-product and by-product margins, are also a common industry measure.
By deducting the co- and by-product margin per unit of the principal product,
the margin for the mine on a per unit basis may be presented in a single metric
for comparison to other operations. Readers should be aware that this metric, by
excluding certain items and reclassifying cost and revenue items, distorts our
actual production costs as determined under GAAP.
Net debt is total debt less cash and cash equivalents. The debt to
debt-plus-equity ratio takes total debt as reported and divides that by the sum
of total debt plus total equity. The net debt to net debt-plus-equity ratio is
net debt divided by the sum of net debt plus total equity, expressed as a
percentage. These measures are disclosed as we believe they provide readers with
information that allows them to assess our potential financing needs and credit
capacity and the ability to meet our short and long-term financial obligations.
The measures described above do not have standardized meanings under IFRS, may
differ from those used by other issuers, and may not be comparable to such
measures as reported by others. These measures have been derived from our
financial statements and applied on a consistent basis as appropriate. We
disclose these measures because we believe they assist readers in understanding
the results of our operations and financial position and are meant to provide
further information about our financial results to investors. These measures
should not be considered in isolation or used in substitute for other measures
of performance prepared in accordance with IFRS.
Profit and Adjusted Profit
Three months
ended March 31,
($ in millions) 2014 2013
----------------------------------------------------------------------------
Profit attributable to shareholders as reported $ 69 $ 319
Add (deduct):
Asset sales and provisions 8 7
Foreign exchange losses 9 4
Derivative (gains) losses (2) (2)
Tax items 21 -
--------------------------
Adjusted profit $ 105 $ 328
--------------------------
Adjusted earnings per share $ 0.18 $ 0.56
--------------------------
Reconciliation of Profit Attributable to Shareholders to EBITDA
Three months
ended March 31,
($ in millions) 2014 2013
----------------------------------------------------------------------------
Profit attributable to shareholders $ 69 $ 319
Finance expense net of finance income 68 87
Provision for income and resource taxes 93 203
Depreciation and amortization 327 293
----------------------------------------------------------------------------
EBITDA $ 557 $ 902
----------------------------------------------------------------------------
Reconciliation of Gross Profit Before Depreciation and Amortization
----------------------------------------------------------------------------
Three months
ended March 31,
($ in millions) 2014 2013
----------------------------------------------------------------------------
Gross profit $ 405 $ 701
Depreciation and amortization 327 293
----------------------------------------------------------------------------
Gross profit before depreciation and
amortization $ 732 $ 994
----------------------------------------------------------------------------
Reported as:
Coal $ 292 $ 516
Copper
Highland Valley Copper 107 134
Antamina 127 110
Quebrada Blanca 32 18
Carmen de Andacollo 47 79
Duck Pond 5 10
----------------------------------------------------------------------------
318 351
Zinc
Trail 17 41
Red Dog 103 83
Other 1 2
----------------------------------------------------------------------------
121 126
Energy 1 1
----------------------------------------------------------------------------
Gross profit before depreciation and
amortization $ 732 $ 994
----------------------------------------------------------------------------
Coal Unit Cost Reconciliation
----------------------------------------------------------------------------
Three months
ended March 31,
(Cdn$ in millions, except where noted) 2014 2013
----------------------------------------------------------------------------
Cost of sales as reported (1) $ 766 $ 714
Less:
Transportation (235) (236)
Depreciation and amortization (178) (170)
Inventory write-down (30) (6)
----------------------------------------------------------------------------
Adjusted cash cost of sales $ 323 $ 302
----------------------------------------------------------------------------
Tonnes sold (000's) 6,168 6,578
----------------------------------------------------------------------------
Adjusted per unit costs - Cdn$/tonne
Adjusted cost of sales $ 52 $ 46
Transportation 38 36
Inventory write-down 5 1
----------------------------------------------------------------------------
Cash unit costs - Cdn$/tonne $ 95 $ 83
----------------------------------------------------------------------------
Average exchange rate (Cdn$ per US$1.00) $ 1.10 $ 1.01
Adjusted per unit costs - US$/tonne (2)
Adjusted cost of sales $ 47 $ 45
Transportation 35 36
Inventory write-down 4 1
----------------------------------------------------------------------------
Cash unit costs - US$/tonne $ 86 $ 82
----------------------------------------------------------------------------
Notes:
1. As reported in our segmented information note included with our
consolidated financial statements.
2. Average period exchange rates are used to convert to US$/tonne
equivalent.
Copper Unit Cost Reconciliation
----------------------------------------------------------------------------
Three months
ended March 31,
(Cdn$ in millions, except where noted) 2014 2013
----------------------------------------------------------------------------
Revenue as reported (1) $ 652 $ 684
By-product revenue (A) (2) (55) (86)
Smelter processing charges 39 29
----------------------------------------------------------------------------
Adjusted revenue $ 636 $ 627
----------------------------------------------------------------------------
Cost of sales as reported (1) $ 452 $ 431
Less:
Depreciation and amortization (118) (98)
By-product cost of sales (B) (2) (8) (11)
----------------------------------------------------------------------------
Adjusted cash cost of sales $ 326 $ 322
----------------------------------------------------------------------------
Payable pounds sold (millions) (C) 177.0 175.5
Adjusted per unit cash costs - Cdn$/pound
Adjusted cash cost of sales $ 1.84 $ 1.83
Smelter processing charges 0.22 0.17
----------------------------------------------------------------------------
Total cash unit costs - Cdn$/pound (D) $ 2.06 $ 2.00
Cash margin for by-products - Cdn$/pound ((A - B)/C
=(G)) (2) $ (0.27) $ (0.43)
----------------------------------------------------------------------------
Net cash unit cost Cdn$/pound (D - G) (3) $ 1.79 $ 1.57
----------------------------------------------------------------------------
US$ AMOUNTS
Average exchange rate (Cdn$ per US$1.00) (E) $ 1.10 $ 1.01
Adjusted per unit costs - US$/pound (4)
Adjusted cash cost of sales $ 1.67 $ 1.81
Smelter processing charges 0.20 0.17
----------------------------------------------------------------------------
Total cash unit costs - US$/pound (F) (2) $ 1.87 $ 1.98
Cash margin for by-products - US$/pound (G/E = H) $ (0.25) $ (0.43)
----------------------------------------------------------------------------
Net cash unit costs - US$/pound (F - H) $ 1.62 $ 1.55
----------------------------------------------------------------------------
Notes:
1. As reported in our segmented information note included with our
consolidated financial statements.
2. By-products includes both by-products and co-products.
3. Net unit cost cash cost of principal product after deducting co-product
and by-product margins per unit of principal product and excluding
depreciation and amortization.
4. Average period exchange rates are used to convert to US$/lb equivalent.
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, the sensitivity of our profit to changes in
commodity prices and exchange rates, the impact of potential production
disruptions, the impact of currency exchange rates, the expected timing and
costs of restarting our Pend Oreille zinc operation, expectations regarding
second quarter coal sales levels, cost of product sold, annual production
targets, our expectation that Antamina will return to higher production in 2014,
the amount of our portion of the 2014 expenditures for the Fort Hills oils sands
project, anticipated capital expenditures, expectations that we have sufficient
credit capacity to meet capital commitments and working capital over the next
four years, 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, 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 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, 2013, 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 Q1/2014 financial
results at 11:00 AM Eastern time, 8:00 AM Pacific time, on Tuesday, April 22,
2014. 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 will be archived at www.teck.com.
----------------------------------------------------------------------------
Teck Resources Limited Condensed Interim Consolidated Financial Statements
For the Three Months Ended March 31, 2014
(Unaudited)
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Income
(Unaudited)
----------------------------------------------------------------------------
Three months ended
March 31,
(Cdn$ in millions, except for share data) 2014 2013
----------------------------------------------------------------------------
Revenues $ 2,084 $ 2,330
Cost of sales (1,679) (1,629)
----------------------------------------------------------------------------
Gross profit 405 701
Other operating expenses
General and administration (31) (34)
Exploration (12) (14)
Research and development (6) (2)
Other operating income (expense) (Note 3) (104) (18)
----------------------------------------------------------------------------
Profit from operations 252 633
Finance income 1 1
Finance expense (Note 4) (69) (88)
Non-operating income (expense) (Note 5) (13) (13)
Share of losses of associates (1) (1)
----------------------------------------------------------------------------
Profit before tax 170 532
Provision for income and resource taxes (93) (203)
----------------------------------------------------------------------------
Profit for the period $ 77 $ 329
----------------------------------------------------------------------------
Profit attributable to:
Shareholders of the company $ 69 $ 319
Non-controlling interests 8 10
----------------------------------------------------------------------------
Profit for the period $ 77 $ 329
----------------------------------------------------------------------------
Earnings per share
Basic $ 0.12 $ 0.55
Diluted $ 0.12 $ 0.55
Weighted average shares outstanding (millions) 576.3 582.1
Shares outstanding at end of period (millions) 576.3 581.5
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Comprehensive Income
(Unaudited)
----------------------------------------------------------------------------
Three months ended
March 31,
(Cdn$ in millions) 2014 2013
----------------------------------------------------------------------------
Profit $ 77 $ 329
Other comprehensive income (loss) in the period
Items that may be subsequently reclassified to
profit
Currency translation differences (net of taxes
of $36 and $19) 78 48
Change in fair value of available-for-sale
financial instruments (net of taxes of $(1)
and $8) 8 (59)
Cash flow hedges (net of taxes of $(1) and
$nil) 3 -
----------------------------------------------------------------------------
89 (11)
Items that will not be reclassified to profit
Remeasurements of retirement benefit plans (net
of taxes of $1 and $(32)) 4 74
----------------------------------------------------------------------------
Total other comprehensive income for the period 93 63
----------------------------------------------------------------------------
Total comprehensive income for the period $ 170 $ 392
----------------------------------------------------------------------------
Total other comprehensive income attributable to:
Shareholders of the company $ 89 $ 61
Non-controlling interests 4 2
----------------------------------------------------------------------------
$ 93 $ 63
----------------------------------------------------------------------------
Total comprehensive income attributable to:
Shareholders of the company $ 158 $ 380
Non-controlling interests 12 12
$ 170 $ 392
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Cash Flows
(Unaudited)
----------------------------------------------------------------------------
Three months ended
March 31,
(Cdn$ in millions) 2014 2013
----------------------------------------------------------------------------
Operating activities
Profit $ 77 $ 329
Adjustments:
Depreciation and amortization 327 293
Provision (recovery) for deferred income and
resource taxes (15) 69
Share of losses of associates 1 1
Foreign exchange losses 10 5
Finance expense 69 88
Other 1 (9)
----------------------------------------------------------------------------
470 776
Net change in non-cash working capital items 75 (13)
----------------------------------------------------------------------------
545 763
Investing activities
Purchase of property, plant and equipment (400) (388)
Capitalized stripping costs (204) (210)
Expenditures on financial investments and other
assets (8) (82)
Proceeds from the sale of investments and other
assets 2 2
----------------------------------------------------------------------------
(610) (678)
Financing activities
Issuance of debt 12 -
Repayment of debt (14) (12)
Debt interest paid (158) (143)
Purchase and cancellation of Class B subordinate
voting shares - (35)
Dividends paid (259) (262)
Distributions to non-controlling interests (7) (9)
----------------------------------------------------------------------------
(426) (461)
Effect of exchange rate changes on cash and cash
equivalents 105 59
----------------------------------------------------------------------------
Decrease in cash and cash equivalents (386) (317)
Cash and cash equivalents at beginning of period 2,772 3,267
----------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 2,386 $ 2,950
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Balance Sheets
(Unaudited)
----------------------------------------------------------------------------
March 31, December 31,
(Cdn$ in millions) 2014 2013
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 2,386 $ 2,772
Current income and resource taxes receivable 29 71
Trade accounts receivable 992 1,232
Inventories (Note 6) 1,742 1,695
----------------------------------------------------------------------------
5,149 5,770
Financial and other assets 783 746
Investments in associates 24 24
Property, plant and equipment 28,317 27,811
Deferred income and resource tax assets (Note 8) 422 164
Goodwill 1,686 1,668
----------------------------------------------------------------------------
$ 36,381 $ 36,183
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities
Trade accounts payable and other liabilities $ 1,454 $ 1,784
Dividends payable (Note 9(d)) - 259
Current income and resource taxes payable 3 61
Debt (Note 7) 69 59
----------------------------------------------------------------------------
1,526 2,163
Debt (Note 7) 7,965 7,664
Deferred income and resource tax liabilities (Note
8) 6,169 5,908
Retirement benefit liabilities 517 479
Other liabilities and provisions 1,221 1,158
Equity
Attributable to shareholders of the company 18,759 18,597
Attributable to non-controlling interests 224 214
----------------------------------------------------------------------------
18,983 18,811
----------------------------------------------------------------------------
$ 36,381 $ 36,183
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Changes in Equity
(Unaudited)
----------------------------------------------------------------------------
Three months ended
March 31,
(Cdn$ in millions) 2014 2013
----------------------------------------------------------------------------
Class A common shares $ 7 $ 7
Class B subordinate voting shares
Beginning of period 6,503 6,699
Share repurchase - (14)
Issued on exercise of options - -
----------------------------------------------------------------------------
End of period 6,503 6,685
Retained earnings
Beginning of period 11,853 11,291
Profit for the period attributable to
shareholders of the company 69 319
Share repurchase - (20)
Remeasurements of retirement benefit plans 4 74
----------------------------------------------------------------------------
End of period 11,926 11,664
Contributed surplus
Beginning of period 130 113
Share option compensation expense 4 3
----------------------------------------------------------------------------
End of period 134 116
Accumulated other comprehensive income
(loss) attributable to shareholders of the
company(Note 9(b))
Beginning of period 104 (35)
Other comprehensive income 89 61
Less remeasurements of retirement benefit
plans recorded in retained earnings (4) (74)
----------------------------------------------------------------------------
End of period 189 (48)
Non-controlling interests
Beginning of period 214 189
Profit for the period attributed to non-
controlling interests 8 10
Other comprehensive income 4 2
Other 45 2
Dividends or distributions (7) (9)
----------------------------------------------------------------------------
End of period 224 194
----------------------------------------------------------------------------
Total equity $ 18,983 $ 18,618
----------------------------------------------------------------------------
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").
These condensed interim consolidated financial statements follow the same
accounting policies and methods of application as our most recent annual
financial statements. Accordingly, they should be read in conjunction with our
most recent annual financial statements. The Board of Directors authorized these
financial statements for issue on April 21, 2014.
2. ADOPTION OF NEW IFRS PRONOUNCEMENT
We adopted IFRIC 21, Levies ("IFRIC 21") on January 1, 2014 with retrospective
application. IFRIC 21 provides guidance on the accounting for a liability to pay
a levy, if that liability is within the scope of IAS 37, Provisions, Contingent
Liabilities and Contingent Assets. Levies are imposed by governments in
accordance with legislation and do not include income taxes, which are accounted
for under IAS 12, Income Taxes or fines or other penalties imposed for breaches
of legislation. The interpretation was issued to address diversity in practice
around when the liability to pay a levy is recognized. An example of a common
levy is property taxes.
IFRIC 21 defines an obligating event as the activity that triggers the payment
of the levy, as identified by legislation. A liability to pay a levy is
recognized at the date of the obligating event, which may be at a point in time
or over a period of time. The fact that an entity is economically compelled to
continue to operate in the future, or prepares its financial statements on a
going concern basis, does not create an obligation to pay a levy that will arise
in a future period as a result of continuing to operate.
The adoption of IFRIC 21 did not affect our financial results or disclosures as
our analysis determined that no changes were required to our existing accounting
treatment of levies.
3. OTHER OPERATING INCOME (EXPENSE)
----------------------------------------------------------------------------
Three months
ended March 31,
(Cdn$ in millions) 2014 2013
----------------------------------------------------------------------------
Pricing adjustments $ (63) $ (22)
Share-based compensation (Note 9(a)) (1) 4
Environmental costs (2) (1)
Social responsibility and donations (5) -
Loss on operating assets (1) -
Write-down on operating assets (12) -
Care and maintenance (3) (2)
Commodity derivatives 3 3
Provision for closed properties (5) 9
Other (15) (9)
----------------------------------------------------------------------------
$ (104) $ (18)
----------------------------------------------------------------------------
4. FINANCE EXPENSE
----------------------------------------------------------------------------
Three months
ended March 31,
(Cdn$ in millions) 2014 2013
----------------------------------------------------------------------------
Debt interest $ 95 $ 85
Discount and financing fee amortization 1 1
Less capitalized interest (50) (26)
----------------------------------------------------------------------------
46 60
Net interest expense on retirement benefit plans 5 7
Decommissioning and restoration provision
accretion 17 18
Other 1 3
----------------------------------------------------------------------------
$ 69 $ 88
----------------------------------------------------------------------------
5. NON-OPERATING INCOME (EXPENSE)
----------------------------------------------------------------------------
Three months
ended March 31,
(Cdn$ in millions) 2014 2013
----------------------------------------------------------------------------
Foreign exchange losses $ (10) $ (5)
Write-down of marketable securities - (8)
Other (3) -
----------------------------------------------------------------------------
$ (13) $ (13)
----------------------------------------------------------------------------
6. INVENTORIES
Inventory is recorded at the lower of cost and net realizable value. During the
period, total inventory write-downs were $32 million (March 31, 2013 - $10
million) and were included as part of cost of sales.
7. DEBT
----------------------------------------------------------------------------
(Cdn$ in millions) March 31, 2014 December 31, 2013
----------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
----------------------------------------------------------------------------
5.375% notes due October 2015
(US$300 million) $ 331 $ 354 $ 318 $ 342
3.15% notes due January 2017
(US$300 million) 330 345 318 330
3.85% notes due August 2017
(US$300 million) 328 352 315 338
2.5% notes due February 2018
(US$500 million) 549 558 528 537
3.0% notes due March 2019 (US$500
million) 548 559 527 530
4.5% notes due January 2021
(US$500 million) 549 566 528 538
4.75% notes due January 2022
(US$700 million) 769 797 739 753
3.75% notes due February 2023
(US$750 million) 818 780 787 745
6.125% notes due October 2035
(US$700 million) 758 804 729 731
6.0% notes due August 2040 (US$650
million) 715 722 688 668
6.25% notes due July 2041
(US$1,000 million) 1,093 1,146 1,051 1,078
5.2% notes due March 2042 (US$500
million) 545 505 524 473
5.4% notes due February 2043
(US$500 million) 546 523 526 494
Antamina senior revolving credit
facility due April 2015 25 25 24 24
Other 130 130 121 121
----------------------------------------------------------------------------
8,034 8,166 7,723 7,702
Less current portion of long-term
debt (69) (69) (59) (59)
----------------------------------------------------------------------------
$ 7,965 $ 8,097 $ 7,664 $ 7,643
----------------------------------------------------------------------------
The fair values of debt are determined using market values where available and
cash flows based on our cost of borrowing for other items.
8. INCOME AND RESOURCE TAXES
a) Internal Reorganization
During the period, we completed an internal reorganization that transferred
certain mining assets previously held by our wholly-owned subsidiaries to the
parent company. This had the effect of reclassifying approximately $260 million
from our deferred tax liabilities to our deferred tax assets.
b) Proposed Chile Tax Rate Change
On April 1, the Chilean Government introduced a comprehensive tax reform bill
that proposes to phase in over the next four years an increase to the first
stage corporate tax rate from 20% to 25% and from 2017, the elimination of the
deferral of the second stage corporate tax such that the corporate tax rate will
effectively become, between the first stage and second stage, 35% as earned.
Once the tax reform bill is enacted, we will determine the effect of it on our
financial results.
9. EQUITY
a) Share-Based Compensation
During the first quarter of 2014, we granted 3,133,185 Class B subordinate
voting share options to employees. These options have a weighted average
exercise price of $26.25, 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 $7.37 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 1.62%, a
dividend yield of 3.43% and an expected volatility of 41%.
During the first quarter of 2014, we issued 927,802 deferred, restricted and
performance share units to employees and directors. Deferred, restricted and
performance share units issued vest immediately for directors and vest in three
years for employees. Furthermore, the performance share units have a performance
vesting criterion that may increase or decrease the number of units ultimately
vested. The total number of deferred, restricted and performance share units
outstanding at March 31, 2014 was 3,458,151.
A share-based compensation expense (recovery) of $1 million (2013 - $(4)
million) was recorded for the three months ended March 31, 2014 in respect of
all outstanding share options and units.
b) Accumulated Other Comprehensive Income
The components of accumulated other comprehensive income are:
----------------------------------------------------------------------------
March 31, March 31,
(Cdn$ in millions) 2014 2013
----------------------------------------------------------------------------
Currency translation adjustment $ 181 $ 9
Unrealized gain (loss) on available-for-sale
financial assets (net of tax of $(1) and $8) 13 (59)
Unrealized gain on cash flow hedges (net of tax
of $nil and $nil) 1 -
----------------------------------------------------------------------------
$ 195 $ (50)
----------------------------------------------------------------------------
Accumulated other comprehensive income
attributable to:
Shareholders of the company $ 189 $ (48)
Non-controlling interests 6 (2)
----------------------------------------------------------------------------
$ 195 $ (50)
----------------------------------------------------------------------------
c) Normal Course Issuer Bid
On occasion, we purchase and cancel Class B subordinate voting shares pursuant
to normal course issuer bids that allow us to purchase up to a specified maximum
number of shares over a one-year period.
Our current 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. During the period, no
shares have been repurchased pursuant to our current issuer bid.
d) Dividends
Dividends of $0.45 per share were declared on our Class A common shares and
Class B subordinate voting shares with a record date of December 16, 2013 and
were paid on January 2, 2014.
10. SEGMENT INFORMATION
Based on the principal products we produce and our development projects, we have
five reportable segments - coal, copper, zinc, energy and corporate - which is
the way we report information to our Chief Executive Officer. The corporate
segment includes all of our initiatives in other commodities, our corporate
growth activities and groups that provide administrative, technical, financial
and other support to all of our business units. Other operating expenses include
general and administration costs, exploration, research and development, and
other operating income (expense). Sales between segments are carried out at
arm's length.
----------------------------------------------------------------------------
Three months ended March 31, 2014
(Cdn$ in millions) Coal Copper Zinc Energy Corporate Total
----------------------------------------------------------------------------
Segment revenues 880 652 603 1 - 2,136
Less: Inter-segment
revenues - - (52) - - (52)
----------------------------------------------------------------------------
Revenues 880 652 551 1 - 2,084
Cost of sales (766) (452) (460) (1) - (1,679)
----------------------------------------------------------------------------
Gross profit 114 200 91 - - 405
Other operating income
(expenses) (1) (87) (6) - (59) (153)
----------------------------------------------------------------------------
Profit from operations 113 113 85 - (59) 252
Net finance expense (10) (6) (7) - (45) (68)
Non-operating income
(expenses) - - - - (13) (13)
Share of profit (loss)
from associates - - - - (1) (1)
----------------------------------------------------------------------------
Profit before tax 103 107 78 - (118) 170
----------------------------------------------------------------------------
Capital expenditures 210 178 47 165 4 604
----------------------------------------------------------------------------
Goodwill 1,203 483 - - - 1,686
----------------------------------------------------------------------------
Total assets 17,590 9,660 3,156 2,679 3,296 36,381
----------------------------------------------------------------------------
Three months ended March 31, 2013
Coal Copper Zinc Energy Corporate Total
Segment revenues 1,060 684 646 1 - 2,391
Less: Inter-segment
revenues - - (61) - - (61)
----------------------------------------------------------------------------
Revenues 1,060 684 585 1 - 2,330
Cost of sales (714) (431) (483) (1) - (1,629)
----------------------------------------------------------------------------
Gross profit 346 253 102 - - 701
Other operating income
(expenses) - (34) 1 - (35) (68)
----------------------------------------------------------------------------
Profit from operations 346 219 103 - (35) 633
Net finance expense (12) (4) (9) - (62) (87)
Non-operating income
(expenses) - - - - (13) (13)
Share of losses of
associates - - - - (1) (1)
----------------------------------------------------------------------------
Profit before tax 334 215 94 - (111) 532
----------------------------------------------------------------------------
Capital expenditures 241 259 46 46 6 598
----------------------------------------------------------------------------
Goodwill 1,203 443 - - - 1,646
----------------------------------------------------------------------------
Total assets 17,667 8,336 4,009 1,932 2,839 34,783
----------------------------------------------------------------------------
11. 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
March 31, 2014, 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. Environmental Protection Agency ("EPA") to conduct a remedial
investigation on the Upper Columbia River in Washington State.
The Lake Roosevelt litigation involving Teck Metal 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 December 2012, the court found in favour of the
plaintiffs in phase one of the case, issuing a declaratory judgment that TML is
liable under the Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") for response costs, the amount of which will be
determined in a subsequent phase of the case.
In October 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 did it attempt to define the extent of natural resource
damages, if any, attributable to past smelter operations. In December 2013, the
District Court ruled in favour of the plaintiffs. The plaintiffs have
subsequently filed amended pleadings in relation to air emissions, and TML has
filed a responsive motion to strike the air claims on the basis that CERCLA does
not apply to air emissions in the manner proposed by the plaintiffs.
A hearing with respect to liability in connection with air emissions, if that
claim survives, and past response costs is now expected to take place in
December 2015 and a subsequent hearing, with respect to claims for natural
resource damages and assessment costs, is expected to follow, assuming the
remedial investigation and feasibility study being undertaken by TAI are
completed, which is now expected to occur in 2017.
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.
12. 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.
13. 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 March 31, 2014 and December 31, 2013 are summarized in
the following table:
----------------------------------------------------------------------------
(Cdn$ in millions) March 31, 2014 December 31, 2013
Level Level Level Level Level Level
1 2 3 Total 1 2 3 Total
----------------------------------------------------------------------------
Financial assets
Marketable equity
securities $ 283 $ - $ - $ 283 $ 260 $ - $ - $ 260
Debt securities - - 16 16 - - 16 16
Settlements
receivable - 672 - 672 - 695 - 695
Derivative
instruments - 1 - 1 - 1 - 1
----------------------------------------------------------------------------
$ 283 $ 673 $ 16 $ 972 $ 260 $ 696 $ 16 $ 972
----------------------------------------------------------------------------
Financial
liabilities
Derivative
instruments $ - $ 6 $ - $ 6 $ - $ 10 $ - $ 10
Settlements
payable - 40 - 40 - 42 - 42
----------------------------------------------------------------------------
$ - $ 46 $ - $ 46 $ - $ 52 $ - $ 52
----------------------------------------------------------------------------
For our non-financial assets and liabilities measured at fair value on a
non-recurring basis, no fair value measurements were made as at March 31, 2014
or December 31, 2013.
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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