All dollar amounts expressed in this news release are in Canadian dollars unless
otherwise noted. -
Teck Resources Limited (TSX: TCK.A and TCK.B, NYSE: TCK) reported record annual
profit attributable to shareholders of $2.7 billion, or $4.52 per share, up 47%
from $1.8 billion in 2010. Fourth quarter profit attributable to shareholders
was $637 million, or $1.08 per share, almost double the $325 million, or $0.55
per share, in the fourth quarter of 2010.
"2011 was another strong year for Teck. Higher average commodity prices combined
with strong operating results contributed to new records for each of revenue,
gross profit, profit and cash flow from operations. This allowed us to increase
our annualized dividend rate to $0.80 per share. We ended the year with $4.4
billion in cash, which puts us in a strong position to advance our various
expansion projects," said Don Lindsay, President and CEO.
Highlights and Significant Items
-- We set a number of financial and operating milestones in 2011 including:
-- Record annual revenues of $11.5 billion (up 25% from 2010).
-- Record gross profit, before depreciation and amortization, of $5.8
billion (up 30% from 2010).
-- Record annual profit attributable to shareholders of $2.7 billion
(up 47% from 2010).
-- Record cash flow from operations, before working capital changes, of
$4.6 billion (up 37% from 2010).
-- Record annual copper production of 321,000 tonnes (up from 313,000
tonnes in 2010).
-- Record material moved at our coal operations resulted in coal
production of 6.7 million tonnes in the fourth quarter.
-- Other highlights and significant items include:
-- We achieved the lowest total reportable injury frequency in our
history in 2011, representing an 18% reduction from the previous
year and the fewest number of serious incidents on record.
-- In October, we announced a 33% increase in the semi-annual dividend
on our Class A common and Class B subordinate voting shares to $0.40
per share.
-- During the fourth quarter we purchased for cancellation
approximately 4.8 million Class B subordinate voting shares for $171
million pursuant to our normal course issuer bid announced in June,
2011.
-- To date we have reached agreement with our coal customers to sell
5.3 million tonnes of coal in the first quarter of 2012 at an
average price of US$230 per tonne. We expect to conclude additional
sales over the course of the quarter.
-- The Wintering Hills wind power project, in which we have a 30%
interest, became fully operational in November, 2011.
-- In November 2011, the regulatory application for the Frontier oil
sands project was submitted to the regulatory authorities, which is
a significant milestone in advancing the project towards commercial
production. The federal government subsequently referred the
application to an independent review panel, allowing provincial and
federal regulatory reviews of Frontier to be conducted in parallel.
This has the potential to reduce the regulatory timeline while
maintaining a thorough and rigorous review.
-- In January 2012, we announced an agreement to acquire SilverBirch
Energy Corporation ("SilverBirch") for a net cash outlay of $435
million, which will give us full ownership of the Frontier project,
including the Equinox property. The acquisition is subject to
SilverBirch shareholder and various regulatory approvals and is
expected to occur on or before April 16, 2012. This will increase
our total contingent resource by 67% to 3.5 billion barrels of
bitumen.
This news release is dated as at February 9, 2012. Unless the context otherwise
dictates, a reference to "Teck," "the company," "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, 2010, is available on SEDAR at www.sedar.com.
This document contains forward-looking statements. Please refer to the
cautionary language under the heading "CAUTIONARY STATEMENT ON FORWARD-LOOKING
INFORMATION" below.
Overview
Our continued focus on expanding coal and copper production is having a positive
impact on our business and financial results. In coal, investments in new mining
equipment, plant upgrades and people have resulted in substantial increases in
material moved, which will permit increased coal production. Our investments at
Carmen de Andacollo and Antamina have and will continue to generate increased
copper production from those two operations and we continue to advance our other
late stage copper development projects, particularly Quebrada Blanca Phase 2 and
Relincho. We also seek to strengthen our energy business unit with the
announcement of our proposed acquisition of SilverBirch Energy Corporation.
We enjoyed strong markets during the year, with record average prices for both
coal and copper, though prices declined significantly as the year drew to a
close. While there was a significant rebound in copper prices subsequent to year
end, coal prices have not rebounded and coal markets remain weaker than those we
experienced in the first half of 2011. Unit operating costs have also increased
as a result of higher input costs, lower grades and higher stripping ratios at
many of our mines.
The liability management transactions we undertook in 2010 have resulted in a
significant decrease in our finance expense, despite a successful bond issue in
mid-2011, which increased our debt levels. The proceeds of the bond issue,
together with strong cash flow from our operations, allowed us to build our cash
balance to $4.4 billion. This was after record investment in plant and
equipment, increased dividends and share buy backs. Our anticipated cash flow,
strong liquidity and cash position, together with access to capital markets,
should provide the financial capacity necessary to fund our attractive portfolio
of growth projects.
Profit and Adjusted Profit(i)
Adjusted profit, which excludes the effect of certain transactions described in
the table below, was $613 million, or $1.04 per share, in the fourth quarter of
2011 compared with $512 million, or $0.87 per share in the same period a year
ago. The higher adjusted profit was primarily due to significantly higher coal
prices, partially offset by lower sales volumes of zinc and coal.
Other items affecting profit attributable to shareholders in the fourth quarter
were a gain related to an increase in the fair value of our option to call
certain of our high yield notes prior to their maturity, which resulted from
declining market interest rates in the quarter. In addition, we incurred a
one-time charge in connection with a labour settlement at our Highland Valley
Copper mine. Pricing adjustments were minimal in the fourth quarter of 2011
compared with $38 million of after-tax positive pricing adjustments in the
fourth quarter of 2010. Profit attributable to shareholders was $637 million, or
$1.08 per share, in the fourth quarter compared with $325 million or $0.55 per
share in the same period last year.
Three months ended Year ended
December 31, December 31,
($ in millions) 2011 2010 2011 2010
----------------------------------------------------------------------------
Profit attributable to shareholders
as reported $ 637 $ 325 $ 2,668 $ 1,820
Add (deduct):
Asset sale gains (1) (2) (146) (768)
Foreign exchange gains (14) (25) (4) (65)
Derivative gains (61) (86) (128) (153)
Collective agreement charge 29 - 55 -
Financing items - 289 - 658
Asset write-downs 23 - 23 -
Tax items - 11 - 11
----------------------------------------
Adjusted profit $ 613 $ 512 $ 2,468 $ 1,503
----------------------------------------
Adjusted earnings per share $ 1.04 $ 0.87 $ 4.18 $ 2.55
----------------------------------------
(i) Our financial results are prepared in accordance with International
Financial Reporting Standards ("IFRS"), which is now GAAP in Canada. This
news release refers to adjusted profit, EBITDA and gross profit before
depreciation and amortization, which are not measures recognized under IFRS
in Canada and do not have a standardized meaning prescribed by IFRS or GAAP
in the United States. For adjusted profit we adjust profit as reported to
remove the effect of certain kinds of transactions in these measures. EBITDA
is profit before net finance expense, income taxes, depreciation and
amortization. Gross profit before depreciation and amortization is gross
profit with depreciation and amortization added back. These measures may
differ from those used by, and may not be comparable to such measures as
reported by, other issuers. We disclose these measures, which have been
derived from our financial statements and applied on a consistent basis,
because we believe they are of assistance in understanding the results of
our operations and financial position and are meant to provide further
information about our financial results to investors.
Business Unit Results
Our business unit results are presented in the tables below.
Three months ended December 31
Gross profit
before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2011 2010 2011 2010 2011 2010
----------------------------------------------------------------------------
Copper $ 778 $ 775 $ 339 $ 441 $ 254 $ 373
Coal 1,434 1,215 891 682 781 550
Zinc 760 726 204 229 177 204
----------------------------------------------------------------------------
Total $ 2,972 $ 2,716 $ 1,434 $ 1,352 $ 1,212 $ 1,127
----------------------------------------------------------------------------
Year ended December 31
Gross profit
before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2011 2010 2011 2010 2011 2010
----------------------------------------------------------------------------
Copper $ 3,108 $ 2,509 $ 1,674 $ 1,462 $ 1,369 $ 1,190
Coal 5,641 4,351 3,306 2,261 2,800 1,713
Zinc 2,765 2,363 808 715 708 619
----------------------------------------------------------------------------
Total $11,514 $ 9,223 $ 5,788 $ 4,438 $ 4,877 $ 3,522
----------------------------------------------------------------------------
Gross profit before depreciation and amortization from our copper business unit
decreased by $102 million in the fourth quarter compared with a year ago, as a
result of lower copper prices and a one-time pre-tax $44 million labour
settlement charge at our Highland Valley Copper mine. These items were partly
offset by a 12% increase in sales volumes due to higher production levels and
timing of shipments last year. Copper production in the fourth quarter rose by
5% to 89,000 tonnes compared with a year ago, primarily as a result of improved
production at Highland Valley Copper, Carmen de Andacollo and Antamina. Copper
prices averaged US$3.40 per pound in the fourth quarter of 2011, a decrease of
13% from US$3.92 per pound in the same period a year ago.
Gross profit before depreciation and amortization from our coal business unit
increased by $209 million in the fourth quarter compared with a year ago,
primarily due to significantly higher coal prices. Lower sales volumes and
higher unit operating costs partially offset the higher coal prices. Coal
production was on target in the fourth quarter, increasing by 11% over last year
to 6.7 million tonnes. This was the result of our significant investment in
mobile equipment and workforce to implement our planned expansion. Unit cost of
product sold in the fourth quarter, before transportation and depreciation
charges, of $65 per tonne improved from previous quarters this year but
increased by 20%, or $11 per tonne, over the same quarter of 2010 due primarily
to increased contractor costs, higher strip ratios and significantly higher
prices for diesel and explosives. Coal sales of 5.5 million tonnes in the fourth
quarter were below production levels and 7% lower than the same period last
year. The decrease in fourth quarter sales volume compared with the same quarter
in 2010 reflects the weaker market conditions. Global economic conditions and
softer steel prices have caused many steel producers to slow their production
and be cautious in purchasing raw materials. While we continue to develop our
production capacity, our plans allow for flexibility to adapt to changes in
demand. We realized an average coal price of US$253 per tonne in the fourth
quarter, which was lower than the record high prices achieved earlier in 2011,
but still up 27% over the same period a year ago.
Gross profit before depreciation and amortization from our zinc business unit
decreased by $25 million in the fourth quarter compared with a year ago partly
due to lower zinc and lead prices and lower sales volumes from Red Dog. Zinc and
lead sales volumes from Red Dog declined by 11% and 20%, respectively, as
customers had accelerated deliveries of zinc and lead in the fourth quarter of
2010. Lead sales were also lower due to reduced annual lead production levels as
a result of lower ore grades from the Aqqaluk pit. Refined zinc and lead
production from Trail increased by 6% and 71%, respectively, compared with a
year ago as a result of improved performance in all areas of the plant,
increased throughput, and the impact of maintenance shutdowns in the fourth
quarter of 2010.
Revenues
Revenues from operations were $3.0 billion in the fourth quarter compared with
$2.7 billion a year ago. Revenues from our copper business unit were similar to
the same period a year ago as higher sales volumes were offset by lower copper
prices. Coal revenues increased by $219 million compared with the fourth quarter
of 2010 due to significantly higher realized coal prices, partially offset by a
7% decline in sales volumes. Revenues from our zinc business unit rose slightly
from a year ago as higher sales volumes from Trail were offset by lower volumes
from Red Dog and lower zinc and lead prices.
Average Prices and Exchange Rates(i)
Three months ended Year ended
December 31, December 31,
2011 2010 % Change 2011 2010 % Change
----------------------------------------------------------------------------
Copper (LME Cash - US$/pound) 3.40 3.92 -13% 4.00 3.42 +17%
Coal (realized - US$/tonne) 253 200 +27% 257 181 +42%
Zinc (LME Cash - US$/pound) 0.86 1.05 -18% 0.99 0.98 +1%
Silver (LME PM fix - US$/ounce) 32 27 +19% 35 20 +75%
Molybdenum (published price -
US$/pound) 13 16 -19% 15 16 -6%
Lead (LME Cash - US$/pound) 0.90 1.08 -17% 1.09 0.97 +12%
Cdn/U.S. exchange rate (Bank of
Canada) 1.02 1.01 +1% 0.99 1.03 -4%
(i) Except for coal prices, the average commodity prices disclosed above are
based on published benchmark prices and are provided for information only.
Our actual revenues are determined using commodity prices and other terms
and conditions specified in our various sales contracts with our customers.
The molybdenum price is the price published in Platts Metals Week.
BUSINESS UNIT RESULTS
The table below shows our production and sales of our major commodities.
Units
(000's) Production Sales
----------------------------------------------------------------------------
Year-To-
Fourth Quarter Year-To-Date Fourth Quarter Date
----------------------------------------------------
2011 2010 2011 2010 2011 2010 2010
----------------------------------------------------------------------------
Principal
products
Copper (note 1
& 2)
Contained in
concentrate tonnes 69 60 251 216 72 55 209
Cathode tonnes 20 25 70 97 19 26 101
----------------------------------------------------
89 85 321 313 91 81 310
----------------------------------------------------
Coal tonnes 6,698 6,028 22,785 23,109 5,547 5,950 23,167
Zinc
Contained in
concentrate tonnes 150 153 646 645 209 241 696
Refined tonnes 75 70 291 278 75 68 274
Other products
Lead
Contained in
concentrate tonnes 22 17 84 110 32 41 130
Refined tonnes 22 13 86 72 21 13 70
Molybdenum
Contained in
concentrate pounds 3,937 2,665 10,983 8,557 3,978 2,264 8,060
----------------------------------------------------------------------------
1. We include 100% of production and sales from our Highland Valley Copper,
Quebrada Blanca and Carmen de Andacollo mines in our production and
sales volumes, even though we own 97.5%, 76.5% and 90%, respectively, of
these operations, because we fully consolidate their results in our
financial statements. We include 22.5% of production and sales from
Antamina, representing our proportionate equity interest in Antamina.
2. Includes pre-commercial production and sales volumes from Carmen de
Andacollo prior to September 30, 2010. Production of copper contained in
concentrate during the pre-commercial start-up period in the nine months
ended September 30, 2010 was 20,700 tonnes. Sales of copper contained in
concentrate during the pre-commercial start-up in the nine months ended
September 30, 2010 was 16,000 tonnes.
REVENUES AND GROSS PROFIT
QUARTER ENDED DECEMBER 31
Our revenue, gross profit before depreciation and gross profit by business unit
are summarized in the table below:
Gross profit
before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2011 2010 2011 2010 2011 2010
----------------------------------------------------------------------------
Copper
Highland Valley
Copper $ 275 $ 221 $ 92 $ 127 $ 64 $ 120
Antamina 202 172 149 116 142 111
Quebrada Blanca 139 196 46 108 17 74
Carmen de Andacollo 126 146 42 66 26 50
Duck Pond 36 40 10 24 5 18
----------------------------------------------------------------------------
778 775 339 441 254 373
Coal (note 1) 1,434 1,215 891 682 781 550
Zinc
Trail 491 356 48 43 36 32
Red Dog 339 427 159 213 144 199
Other 3 13 - 2 - 2
Inter-segment sales (73) (70) (3) (29) (3) (29)
----------------------------------------------------------------------------
760 726 204 229 177 204
----------------------------------------------------------------------------
TOTAL $2,972 $2,716 $1,434 $1,352 $1,212 $1,127
----------------------------------------------------------------------------
1. Our coal business unit represents our interest in six operating mines.
We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal
River mines, and have a 95% partnership interest in the Elkview mine and
an 80% joint venture interest in the Greenhills mine.
REVENUES AND GROSS PROFIT
YEAR ENDED DECEMBER 31
Our revenue, gross profit before depreciation and gross profit by business unit
are summarized in the table below:
Gross profit
before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2011 2010 2011 2010 2011 2010
----------------------------------------------------------------------------
Copper
Highland Valley
Copper $ 997 $ 828 $ 486 $ 487 $ 396 $ 407
Antamina 799 641 588 420 565 399
Quebrada Blanca 562 697 255 406 160 288
Carmen de
Andacollo 608 208 288 91 213 59
Duck Pond 142 135 57 58 35 37
----------------------------------------------------------------------------
3,108 2,509 1,674 1,462 1,369 1,190
Coal (note 1) 5,641 4,351 3,306 2,261 2,800 1,713
Zinc
Trail 1,989 1,447 256 155 207 107
Red Dog 1,008 1,106 547 571 496 524
Other 18 40 2 9 2 8
Inter-segment
sales (250) (230) 3 (20) 3 (20)
----------------------------------------------------------------------------
2,765 2,363 808 715 708 619
----------------------------------------------------------------------------
TOTAL $11,514 $ 9,223 $ 5,788 $ 4,438 $ 4,877 $ 3,522
----------------------------------------------------------------------------
1. Our coal business unit represents our interest in six operating mines.
We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal
River mines, and have a 95% partnership interest in the Elkview mine and
an 80% joint venture interest in the Greenhills mine.
COPPER
Highland Valley Copper (97.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Year ended
December 31, December 31,
2011 2010 2011 2010
----------------------------------------------------------------------------
Tonnes milled (000's) 11,653 11,112 42,284 42,488
Copper
Grade (%) 0.27 0.25 0.26 0.27
Recovery (%) 87.7 84.5 87.6 86.3
Production (000's tonnes) 27.3 23.9 97.3 98.5
Sales (000's tonnes) 30.4 23.0 103.9 97.8
Molybdenum (million pounds)
Production 2.8 2.0 7.9 6.9
Sales 3.1 1.8 8.4 6.7
Cost of sales ($ millions)
Operating costs (note 1) $ 171 $ 85 $ 474 $ 307
Distribution costs $ 12 $ 9 $ 37 $ 34
Depreciation and amortization $ 28 $ 7 $ 90 $ 80
Gross profit summary ($ millions)
(note 2)
Before depreciation and
amortization $ 92 $ 127 $ 486 $ 487
Depreciation and amortization (28) (7) (90) (80)
----------------------------------------------------------------------------
After depreciation and
amortization $ 64 $ 120 $ 396 $ 407
----------------------------------------------------------------------------
1. Cost of sales in the fourth quarter includes a $44 million one-time
labour settlement charge.
2. Results do not include a provision for the 2.5% non-controlling interest
in Highland Valley Copper.
The decline in Highland Valley Copper's fourth quarter gross profit before
depreciation and amortization was due mainly to a one-time labour settlement
cost of $44 million for the new 5-year labour agreement ratified in the quarter.
Copper production of 27,300 tonnes was 14% higher than the same period last year
primarily as a result of additional mill throughput and both improved feed
grades and recoveries. Higher grade production from the east wall of the Valley
pit has started to become available below the recently completed buttress
project and will be a significant feed source for the mill in 2012. Molybdenum
production of 2.8 million pounds increased by 40% over the corresponding period
last year primarily due to higher feed grades. Copper sales of 30,400 tonnes
were 32% higher than the same period last year as a result of the higher
production and timing of shipments.
Operating costs charged to cost of sales were $171 million, double the
comparable period last year. This was due to the effect of significantly higher
sales volumes and the one-time labour settlement costs. In addition, a greater
proportion of costs were capitalized as part of the mine life expansion program
in 2010.
Construction of the $475 million mill modernization project that was announced
last September has commenced. Detailed engineering is 12% complete and
excavation work has begun. The project is expected to increase throughput by 10%
and improve metal recoveries over the life of the mine, with completion expected
in the fourth quarter of 2013. Permit amendments were received for both the
Lornex extension project, which commenced overburden stripping in the quarter,
and for upgrades to the tailings system. A new life of mine plan was also
developed that will see the operation extend to 2026 at the expanded throughput
rate. A $58 million tailings upgrade project was approved, which involves
construction of new tailings disposal lines and a new cyclone plant. The
expansion is not based on a technical report filed under National Instrument
43-101. Highland Valley Copper's annual copper production is estimated to range
between 100,000 to 150,000 tonnes of contained copper, depending on ore grades
and hardness, for an average of 125,000 tonnes per year after completion of the
modernization project.
Highland Valley Copper production in 2012 is expected to be in the range of
105,000 to 110,000 tonnes of copper. Molybdenum production in 2012 is expected
to be similar to 2011.
Antamina (22.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Year ended
December 31, December 31,
2011 2010 2011 2010
----------------------------------------------------------------------------
Tonnes milled (000's)
Copper-only ore 6,930 5,895 25,335 18,996
Copper-zinc ore 2,726 3,452 12,259 17,511
----------------------------------------------------------------------------
9,656 9,347 37,594 36,507
Copper (note 1)
Grade (%) 1.15 1.06 1.04 1.00
Recovery (%) 87.4 85.3 85.9 82.2
Production (000's tonnes) 95.0 83.7 333.7 301.5
Sales (000's tonnes) 97.6 66.9 337.0 289.4
Zinc (note 1)
Grade (%) 2.03 2.59 2.26 2.62
Recovery (%) 81.4 85.5 84.4 84.8
Production (000's tonnes) 47.6 77.4 235.4 386.2
Sales (000's tonnes) 44.4 87.5 232.8 409.4
Molybdenum (million pounds)
Production 5.0 3.2 13.8 7.5
Sales 3.9 1.9 12.3 6.1
Cost of sales (US$ millions)
Operating costs $ 154 $ 119 $ 563 $ 521
Distribution costs $ 25 $ 23 $ 92 $ 98
Royalties and other costs (note 2) $ 34 $ 70 $ 204 $ 236
Depreciation and amortization $ 30 $ 31 $ 110 $ 98
Gross profit summary (our 22.5%
share) ($ millions)
Before depreciation and
amortization $ 149 $ 116 $ 588 $ 420
Depreciation and amortization (7) (5) (23) (21)
----------------------------------------------------------------------------
After depreciation and
amortization $ 142 $ 111 $ 565 $ 399
----------------------------------------------------------------------------
1. Copper ore grades and recoveries apply to all of the processed ores.
Zinc ore grades and recoveries apply to copper-zinc ores only.
2. In addition to royalties paid by Antamina, we also pay a royalty in
connection with the acquisition of our interest in Antamina equivalent
to 7.4% of our share of cash flow distributed by the mine.
The increase in our 22.5% share of Antamina's gross profit before depreciation
and amortization in the fourth quarter was due to significantly higher copper
sales volumes, which increased by 46%, partially offset by a 49% decrease in
zinc sales volumes, and lower copper and zinc prices.
Tonnes milled in the fourth quarter were 3% higher than a year ago. The mix of
mill feed in the fourth quarter was 67% copper-only ore, 22% copper-zinc ore and
11% bornite ore, compared with 60%, 31% and 9%, respectively, in the same period
a year ago. Copper production, on a 100% basis, was 95,000 tonnes compared with
83,700 tonnes in the fourth quarter of 2010 as a result of the higher proportion
of copper-only ores processed in the quarter as well as higher copper grades and
recoveries. As anticipated, zinc production decreased significantly to 47,600
tonnes from 77,400 tonnes in the same period a year ago due to a 28% decrease in
copper-zinc ore processed in the quarter as well as lower zinc grades and
recoveries. Molybdenum production was significantly higher in the fourth quarter
compared with a year ago as a result of higher throughput of copper-only ores
with higher molybdenum grades.
In early February 2012, as part of a major expansion project to increase ore
throughput capacity to 130,000 tonnes per day, Antamina successfully
commissioned ball mill number four, which is operating at 100% capacity. SAG
mill number two remains in the commissioning phase, which commenced in December,
2011. The SAG mill is expected to receive ore feed in early February. In the
flotation areas of the project, good progress is being made towards anticipated
final commissioning of the copper and zinc flotation in March and the molybdenum
circuit in June.
Antamina has almost doubled its fleet in the mine with the addition of 30 haul
trucks, two large shovels and other support equipment. In addition, the Antamina
power system expansion was completed with the commissioning of a 55 kilometre
power line and 200kv substation. Management continues to forecast a ramp-up to
full productive capacity by the end of the first quarter of 2012. A final
estimation of capital spending for the expansion will be determined at that
time. The expansion is not based on a technical report filed under National
Instrument 43-101.
Our 22.5% share of Antamina's copper production in 2012 is expected to increase
approximately 30% and be in the range of 95,000 to 100,000 tonnes as a greater
proportion of copper-only ore is planned to be mined, which is expected to
increase by approximately 50% in 2012. Our 22.5% share of zinc production is
expected to be in the range of 40,000 to 45,000 tonnes.
Quebrada Blanca (76.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Year ended
December 31, December 31,
2011 2010 2011 2010
----------------------------------------------------------------------------
Tonnes placed (000's)
Heap leach ore 1,796 1,881 6,621 7,821
Dump leach ore 6,030 6,546 23,288 19,607
----------------------------------------------------------------------------
7,826 8,427 29,909 27,428
Grade (TCu%) (note 1)
Heap leach ore 0.84 0.81 0.90 0.87
Dump leach ore 0.43 0.39 0.46 0.44
Production (000's tonnes)
Heap leach ore 10.6 9.6 33.6 51.5
Dump leach ore 7.1 12.0 29.8 34.7
----------------------------------------------------------------------------
17.7 21.6 63.4 86.2
Sales (000's tonnes) 17.5 22.7 63.5 89.8
Cost of sales (US$ million)
Operating costs $ 88 $ 86 $ 301 $ 275
Distribution costs $ 2 $ 2 $ 7 $ 9
Depreciation and amortization $ 29 $ 34 $ 96 $ 115
Gross profit summary ($ millions)
(note 2)
Before depreciation and
amortization $ 46 $ 108 $ 255 $ 406
Depreciation and amortization (29) (34) (95) (118)
----------------------------------------------------------------------------
After depreciation and
amortization $ 17 $ 74 $ 160 $ 288
----------------------------------------------------------------------------
1. TCu% is the percent assayed total copper grade.
2. Results do not include a provision for the 23.5% non-controlling
interest in Quebrada Blanca.
The decline in Quebrada Blanca's gross profit before depreciation and
amortization in the fourth quarter was due to lower copper prices and reduced
sales volumes as a result of a decline in production levels, as described below.
Quebrada Blanca is now transitioning from a high grade heap leach operation to a
lower grade dump leach operation and processing a greater proportion of dump
leach ore in the quarter compared with a year ago. As a result, copper
production was 18% lower than the fourth quarter of 2010.
On February 7, 2012, we announced that a new 46-month labour agreement was
ratified by the workers' union. The new agreement replaces the agreement that
expired in January and covers the period from February, 2012 to November, 2015.
One-time settlement costs related to the new labour agreement were US$6 million,
and will be recorded in the first quarter of 2012.
Quebrada Blanca's production in 2012 is expected to be in the range of 65,000 to
70,000 tonnes of copper cathode.
Carmen de Andacollo (90%)
Operating results at the 100% level are summarized in the following table:
Three months ended Year ended
December 31, December 31,
2011 2010 2011 2010
----------------------------------------------------------------------------
Tonnes milled (000's) 3,763 3,686 14,751 9,685
Copper (note 1)
Grade (%) 0.51 0.45 0.51 0.45
Recovery (%) 89.5 81.9 88.2 78.6
Production (000's tonnes) 17.3 14.1 66.1 34.8
Sales (000's tonnes) 16.2 14.1 63.0 30.7
Gold (000's ounces) (note 2)
Production 15.8 11.3 54.3 27.7
Sales 12.2 11.0 47.5 24.0
Copper cathode (000's tonnes)
Production 1.8 2.7 6.3 10.3
Sales 1.3 2.6 6.0 10.9
Cost of sales (US$ million)
Operating costs $ 78 $ 73 $ 304 $ 108
Distribution costs $ 6 $ 6 $ 22 $ 7
Depreciation and amortization $ 15 $ 17 $ 76 $ 32
Gross profit summary ($ millions)
(note 3)
Before depreciation and
amortization $ 42 $ 66 $ 288 $ 91
Depreciation and amortization (16) (16) (75) (32)
----------------------------------------------------------------------------
After depreciation and
amortization $ 26 $ 50 $ 213 $ 59
----------------------------------------------------------------------------
1. Includes pre-commercial production and sales volumes from Carmen de
Andacollo prior to September 30, 2010. Production of copper contained in
concentrate during the pre-commercial start-up period was 20,700 tonnes
for the nine months ended September 30, 2010. Sales of copper contained
in concentrate during the pre-commercial start-up were 16,600 tonnes for
the nine months ended September 30, 2010.
2. Carmen de Andacollo processes 100% of gold mined, but 75% of the gold
produced is for the account of Royal Gold Inc.
3. Results do not include a provision for the 10% non-controlling interest
in Andacollo.
The decrease in Carmen de Andacollo's gross profit before depreciation and
amortization in the fourth quarter was primarily due to lower copper prices
compared with the same period a year ago, partly offset by increased sales
volumes.
During the fourth quarter, concentrator throughput was 40,900 tonnes per day.
Copper production in the fourth quarter rose 23% to 17,300 tonnes compared with
a year ago as a result of higher ore grades and improved recoveries. The mill is
now operating at higher rates compared with the fourth quarter of 2010 when
commercial production commenced.
Work continues on a study to examine adding more plant capacity to increase
annual copper production to a range of 100,000 to 120,000 tonnes. The study
includes drilling to confirm additional ore reserves and addresses the key
issues of availability of process water and permitting requirements. The study
is expected to be completed during the first quarter of 2012. The planned plant
throughput and production improvements noted above are not based on a technical
report filed under National Instrument 43-101.
The labour agreement with the workers' union that expired in December, 2011 was
replaced by a new 45-month labour agreement, ratified by the workers' union,
which commenced January, 2012 and will end September, 2015. One-time settlement
costs related to the new labour agreement were US$10 million, which will be
recorded in the first quarter of 2012.
Carmen de Andacollo's production in 2012 is expected to be in the range of
70,000 to 75,000 tonnes of copper in concentrate and 5,000 tonnes of copper
cathode.
Duck Pond (100%)
Duck Pond's gross profit before depreciation and amortization was $10 million in
the fourth quarter compared with $24 million in the same period last year.
Copper and zinc production in the fourth quarter were 3,300 tonnes and 5,000
tonnes, respectively, compared with 3,700 tonnes and 5,800 tonnes, respectively,
last year. The lower production was a result of lower grades and throughput.
Copper and zinc sales in the fourth quarter were 3,800 tonnes and 7,700 tonnes,
respectively, compared with 4,000 tonnes and 4,900 tonnes, respectively, last
year. The lower gross profit was primarily due to lower realized metal prices
compared to the same quarter a year ago, despite significantly higher zinc sales
in the current quarter.
Copper and zinc production for 2011 were 13,200 tonnes and 21,300 tonnes,
respectively. This compares with copper production of 15,000 tonnes and 20,200
tonnes of zinc production in 2010.
Duck Pond's production in 2012 is expected to be in the range of 10,000 to
15,000 tonnes of copper and between 15,000 to 20,000 tonnes of zinc.
Copper Development Projects
Quebrada Blanca Phase 2
Work continues on finalizing the feasibility study for the Quebrada Blanca
hypogene project by the end of the first quarter of 2012. As indicated
previously, production could average approximately 200,000 tonnes of copper and
5,000 tonnes of molybdenum per year in concentrates over a 30 year mine life.
There is potential for higher production rates during the first ten years of
operation, with production commencing as early as 2016. Infill and exploration
drilling continue to produce encouraging results and a new resource and reserve
estimate will be completed following the feasibility study. The project will
face the same industry-wide cost pressures as seen on other large scale projects
contemplated for development.
As part of the ongoing project work plan for 2012, the Social Environmental
Impact Assessment ("SEIA") is expected to be submitted to the Chilean
authorities during the second quarter. There are issues yet to be resolved
during 2012, such as securing long-term power supply for the project and
settling project financing arrangements with other shareholders. During 2012,
partial funding of the project is expected to allow engineering to continue and
the procurement of long lead equipment to begin so that the schedule for a 2016
start-up can be maintained.
Relincho
Subsequent to completion of the pre-feasibility study for the development of a
140,000 tonnes per day concentrator project, a feasibility study for Relincho
was commenced in the third quarter of 2011. As per the prefeasibility design,
production would average 180,000 tonnes per year of copper and 6,000 tonnes per
year of molybdenum over the 22 year mine life, with higher production in the
first five years. The feasibility study is expected to be complete by the first
quarter of 2013. Exploration and geotechnical drilling are ongoing and a new
resource and reserve estimate is expected at the completion of the feasibility
study.
Galore Creek (50%)
Subsequent to the completion of the prefeasibility study in July, 2011 for the
Galore Creek project, work on an advanced engineering program to consider
additional development options was completed in the fourth quarter. As a result
of this work, the partners have approved a $25 million work program for 2012
which will focus primarily on field work such as infill and geotechnical
drilling to support these development options. Some additional engineering and
environmental studies will also continue.
COAL
Teck Coal Partnership (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Year ended
December 31, December 31,
2011 2010 2011 2010
----------------------------------------------------------------------------
Production (000's tonnes) 6,698 6,028 22,785 23,109
Sales (000's tonnes) 5,547 5,950 22,207 23,167
Average sale price
US$/tonne $ 253 $ 200 $ 257 $ 181
C$/tonne $ 259 $ 204 $ 254 $ 188
Operating expenses (C$/tonne)
Cost of product sold $ 65 $ 54 $ 73 $ 58
Transportation $ 33 $ 35 $ 32 $ 32
Depreciation and amortization $ 20 $ 23 $ 23 $ 24
Gross profit summary ($ millions)
Before depreciation and
amortization $ 891 $ 682 $ 3,306 $ 2,261
Depreciation and amortization (110) (132) (506) (548)
----------------------------------------------------------------------------
After depreciation and
amortization $ 781 $ 550 $ 2,800 $ 1,713
----------------------------------------------------------------------------
Gross profit before depreciation and amortization in the fourth quarter was up
31% over last year due primarily to higher US dollar selling prices, partially
offset by lower sales volumes and higher unit cost of product sold.
Production for the fourth quarter increased by 11% compared with the same
quarter of 2010. Movement of overburden that must be removed to expose raw coal
in the fourth quarter was up 14% over last year. Our investments in mobile
equipment and workforce, made to advance our expansion plans, have significantly
increased our capacity to move overburden and expose raw coal. During 2011, we
increased our haul truck fleet by 23 units and our shovel fleet by 2 units. In
addition, we replaced 21 existing haul trucks and 3 existing shovels. This new
large capacity equipment increases the overall productivity and efficiency of
our mobile equipment fleets. We have also increased our workforce by
approximately 500 people. We completed the expansion of the processing plant at
our Greenhills mine during 2011 and the plant expansion at Elkview is expected
to be completed in the first quarter of 2012.
Our production capacity has increased, giving us the ability to produce 24.5 to
25.5 million tonnes of clean coal in 2012. Actual production will depend on
customer demand.
The decrease in fourth quarter sales volume compared with the same quarter in
2010 reflects the weaker market conditions. Global economic conditions and
falling steel prices have caused many steel producers to slow their production
and be cautious in purchasing raw materials.
The average coal price of US$253 per tonne in the fourth quarter was down from
the record high prices achieved earlier in 2011, but still up 27% over last
year. Market conditions turned downward in the third quarter and continued to
weaken through the fourth quarter as uncertainty over the global economic
conditions grew. By historical standards, however, prices for high quality
steelmaking coal remain relatively high. We have agreed on prices with our
quarterly contract customers for the first quarter of 2012. Pricing of
approximately US$235 per tonne for our highest quality product is consistent
with prices reportedly achieved by our competitors. As of the date of this
release, we have sold approximately 5.3 million tonnes of coal for delivery in
the first quarter at an average price of US$230 per tonne. We may choose to sell
additional tonnage on the spot market, which would increase sales volumes, but
such gains could be offset by delays in customer vessels. Vessel nominations for
quarterly contract tonnage are determined by our customers and deliveries depend
on vessels arriving at port as scheduled. The spread between the quarterly
benchmark price and spot prices tends to widen in a weaker market. Additional
spot sales or further delays to quarterly contract vessels could cause average
pricing to decline.
Unit cost of product sold in the fourth quarter before transportation and
depreciation charges of $65 per tonne improved from previous quarters in 2011,
but increased by 20%, or $11 per tonne, over the same quarter of 2010. This was
due to increased contractor costs, higher strip ratios and significantly higher
prices for diesel and explosives. We continue to experience cost pressures
arising from general inflation in most of our input cost categories. Excluding
the impact of the $40 million union labour settlement costs recorded in the
second quarter, our unit cost of product sold continued to fall in each
successive quarter of 2011, from $76 per tonne in the first quarter, to $73 per
tonne in the second quarter, to $70 per tonne in the third quarter, to $65 in
the fourth quarter. We will continue to realize unit cost benefits of higher
coal volumes in 2012, although this benefit is expected to be offset by
inflationary pressures on most of our input costs. We currently expect our 2012
annual cost of product sold to fall within a range of $72 to $78 per tonne, for
our current production plans.
Unit transportation costs were $33 per tonne compared with $35 per tonne in the
same quarter in 2010 due primarily to lower port loading charges under one of
our agreements. We currently expect our 2012 annual unit transportation costs to
fall within the range of $34 to $38 per tonne.
As a result of the drilling program at our coal mines, we have expanded our high
quality reserves by 62% from 665 million tonnes at the end of 2010 to
approximately 1.1 billion tonnes, resulting in a $4 per tonne reduction in our
per unit depreciation charge.
The feasibility study for the re-opening of our Quintette mine in northeast
British Columbia is progressing. Additional work is ongoing to ensure water
management plans are complete for inclusion in the permit application and to
update the mine plan based on additional drilling. This information will be
included in the study, which is now due for completion in the second quarter of
2012. Long-lead equipment items, including trucks, shovels and drills, have been
ordered, preliminary on-site work has commenced and stakeholder consultation
processes are ongoing. Assuming that permits are approved on a timely basis and
that development proceeds as currently planned, the mine could be in production
in the second half of 2013 with production ramping up to approximately three
million tonnes per year.
Work is ongoing to develop and implement selenium management plans for each of
our six operating coal mines and for the Quintette project. It is also possible
that permitting for current and future projects may be delayed or withheld until
appropriate selenium management plans are developed and implemented. We have
begun to implement a number of measures, including a water treatment plant,
entailing expenditures of $72 million over the next 3 years, however, our plans
are not yet complete and additional costs may be incurred, which may be
significant.
ZINC
Trail (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Year ended
December 31, December 31,
2011 2010 2011 2010
----------------------------------------------------------------------------
Metal production
Zinc (000's tonnes) 74.6 70.5 291.2 278.3
Lead (000's tonnes) 21.6 12.6 85.6 71.5
Silver (million ounces) 5.8 3.8 21.8 19.9
Metal sales
Zinc (000's tonnes) 75.1 68.7 289.1 274.2
Lead (000\'s tonnes) 21.7 13.1 84.2 70.2
Silver (million ounces) 5.8 3.7 21.7 19.6
Cost of sales ($ millions)
Concentrates $ 312 $ 186 $ 1,258 $ 847
Operating costs $ 103 $ 106 $ 373 $ 353
Distribution costs $ 28 $ 21 $ 102 $ 92
Depreciation and amortization $ 12 $ 11 $ 49 $ 48
Gross profit summary ($ millions)
Before depreciation and
amortization $ 48 $ 43 $ 256 $ 155
Depreciation and amortization (12) (11) (49) (48)
----------------------------------------------------------------------------
After depreciation and amortization $ 36 $ 32 $ 207 $ 107
----------------------------------------------------------------------------
Gross profit at Trail before depreciation and amortization in the fourth quarter
increased slightly over the same period a year ago due primarily to higher
silver production and silver prices. Increased production and sales volumes for
zinc and lead in the fourth quarter were offset by lower prices. Production of
zinc and lead increased due to improved performance of all plants and increased
throughput during 2011 compared with 2010. In the fourth quarter of 2010,
production and sales volumes were affected by a planned maintenance shutdown of
the Kivcet lead smelter and one of the two zinc roasters.
Concentrate purchase costs were higher in the fourth quarter, which reflected
higher silver prices and increased throughput compared with the same period a
year ago. In the fourth quarter, operating costs increased as expenses for
energy and supplies increased consistent with higher production, although the
impact was offset by lower non-routine maintenance expenses, which were higher
in the fourth quarter of 2010 due to the planned shutdown.
Trail's production in 2012 is expected to be in the range of 280,000 to 290,000
tonnes of refined zinc, 85,000 tonnes of refined lead and 21 million ounces of
silver.
Red Dog (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Year ended
December 31, December 31,
2011 2010 2011 2010
----------------------------------------------------------------------------
Tonnes milled (000's) 856 835 3,673 3,572
Zinc
Grade (%) 19.7 18.8 19.1 18.2
Recovery (%) 80.0 83.8 81.5 82.8
Production (000's tonnes) 135.3 130.2 572.2 538.0
Sales (000's tonnes) 191.8 216.2 555.9 584.6
Lead
Grade (%) 5.5 5.0 5.0 5.4
Recovery (%) 46.4 41.7 45.9 57.0
Production (000's tonnes) 22.1 17.3 84.0 109.9
Sales (000's tonnes) 32.7 40.8 78.3 129.9
Cost of sales (US$ millions)
Operating costs $ 88 $ 85 $ 219 $ 227
Distribution costs $ 41 $ 45 $ 114 $ 120
Royalties (NANA) $ 47 $ 81 $ 129 $ 173
Depreciation and amortization $ 15 $ 14 $ 51 $ 46
Gross profit summary ($ millions)
Before depreciation and
amortization $ 159 $ 213 $ 547 $ 571
Depreciation and amortization (15) (14) (51) (47)
----------------------------------------------------------------------------
After depreciation and
amortization $ 144 $ 199 $ 496 $ 524
----------------------------------------------------------------------------
Red Dog's gross profit before depreciation and amortization decreased by $54
million in the fourth quarter compared with the same period last year primarily
due to lower metal prices and reduced sales volumes. Zinc sales volumes in the
fourth quarter decreased by 11% compared with the same period a year ago as
customers had accelerated deliveries of zinc and lead in the fourth quarter of
2010. Lead sales volumes decreased by 20%, partly reflecting reduced 2011 annual
production levels and acceleration of sales in the fourth quarter of 2010.
Zinc production of 135,300 tonnes rose 4% compared with the same period a year
ago primarily as a result of higher throughput. Lead production increased to
22,100 tonnes compared with 17,300 tonnes in the fourth quarter of 2010 as
grades and recoveries were affected when mining initial ore from Aqqaluk in the
fourth quarter of 2010.
For the year, a new record was achieved for mill throughput at 3.67 million
tonnes, 3% higher than the previous year. The higher mill throughput and zinc
grades were partially offset by lower recoveries resulting in an additional
34,000 tonnes of zinc production in 2011, a 6% increase over 2010. Lead
production for 2011 declined by 26,000 tonnes, as the higher throughput was
offset by the lower grade and recovery of the near surface Aqqaluk ore.
A major capital project was successfully commissioned in December with the
installation of the two IsaMills in the zinc re-grind circuit. During 2012,
circuit performance will be optimized to take advantage of a finer grind to
allow for improved recovery of the Aqqaluk ore in comparison to processing the
same ore through the older tower mills.
Zinc available for sale from January 1, 2012 to the beginning of next year's
shipping season totals 205,000 tonnes. Zinc sales volumes in the first quarter
of 2012 are estimated to be approximately 95,000 tonnes. All offsite lead
inventories had been sold as of the end of the year.
Red Dog's production of contained metal in 2012 is expected to be in the range
of 525,000 to 545,000 tonnes of zinc and 70,000 tonnes of lead. In accordance
with the agreements governing our development of the mine, the net profits
royalty that we pay to NANA Development Inc. increases to 30% in the fourth
quarter of 2012 from the current 25%.
ENERGY
Fort Hills Project (20%)
Engineering studies are ongoing to update the design basis for the project and
improve the accuracy of the cost estimates in anticipation of a project sanction
decision by the partners in 2013. Should the partners sanction Fort Hills (Phase
1), production is anticipated to start in mid-2016, ramping up to approximately
160,000 barrels per day of bitumen production.
Our share of the 2011 Fort Hills spending was $54 million. Suncor, operator of
Fort Hills, has provided a 2012 preliminary project spending estimate of
approximately $800 million, which includes; engineering, site preparation
activities, procurement of some long lead items and early works. Our share of
the 2012 forecast spending would be $220 million, including our ongoing earn-in
commitments.
Frontier Project (50%)
The Frontier Project has been designed for up to four production lines with a
total capacity of approximately 277,000 barrels per day of bitumen, the first
two production lines are planned to have a production capacity of 159,000
barrels per day. The Frontier Project includes an option of developing Equinox
as a satellite operation.
The Frontier Project regulatory application was submitted to regulators in the
fourth quarter of 2011. Review and approval of the application is anticipated to
take up to three years. On January 19, 2012 the Federal Environment Minister
announced the referral of the Frontier regulatory application to an independent
review panel. The Frontier Project requires various provincial and federal
regulatory reviews. Conducting these reviews in parallel can streamline and
improve the regulatory process, while maintaining a thorough and rigorous
review.
In January 2012, we announced an agreement to acquire SilverBirch that will give
us full ownership of the Frontier project, including Equinox. Closing of the
transaction is subject to SilverBirch shareholder approval and regulatory
approval. This agreement creates a simplified ownership structure for Frontier,
provides an opportunity to explore new partnerships and other alternatives to
move the project towards development, and reduces our exposure to oil sands
leases not amenable to mining. If approved, it will increase our total
contingent resources by 67% to a total of 3.5 billion barrels of bitumen. This
transaction is expected to close in April 2012 and to result in a net cash
outlay of $435 million.
No field exploration activities are planned in 2012 and the key focus will be on
supporting the regulatory application review, consultations with stakeholders
and ongoing engineering studies.
Lease 421 Area Project (50%)
A seismic program was successfully completed on the Lease 421 Area during the
first quarter of 2011. Data acquired during the field seismic program should
assist in planning future coreholes.
To date, a total of 59 coreholes have been completed in the Lease 421 Area. The
results indicate 49 of the coreholes contain prospective oil sands that range in
thickness from 10 to 40 metres (averaging 19 metres) with oil sand grades
ranging from 9% to 18% by weight with 10-12% fines and overburden thicknesses
ranging from 17 to 68 metres (averaging 39 metres). These results indicate the
potential for a mineable resource, however, further corehole drilling is
required to establish the quantity and quality of any potential resource and
environmental baseline data collection is required to assess any future project
potential.
Wintering Hills Wind Power Project (30%)
The Wintering Hills wind power project became fully operational in November,
2011 with the installation and commissioning of 55 1.6 MW wind turbines. Our
share of expected power generation in 2012 is 80 GWhs, which will result in
50,000 tonnes of CO2 equivalent offsets. The total investment in connection with
the project is approximately $64 million.
OTHER COST AND EXPENSES
Financing expenses were $169 million in the fourth quarter compared with $153
million a year ago. The debt interest component of our financing expense
increased only slightly from $122 million to $129 million in the quarter,
despite the higher debt levels that resulted from the US$2 billion bond issue
earlier this year. The effect of the higher debt was largely offset by the
ongoing effect of the liability management transactions in 2010 in which we
replaced high yield debt with lower cost debt with staged maturation. Financing
expense under IFRS includes interest expense on debt and additional interest
components relating to pension and decommissioning and restoration provisions.
Other operating income and expense includes items we consider to be related to
the operation of our business, such as pricing adjustments from settlement
receivables, which are further described below, share-based compensation, gains
or losses on commodity derivatives, gains or losses on sale of operating or
exploration assets, and provisions for our closed properties. Other operating
expense, net of other income, was $117 million in the fourth quarter compared
with $16 million in the fourth quarter of 2010. Share-based compensation expense
was $27 million in the fourth quarter of 2011 compared with $71 million in the
same period a year ago. Large recoveries and expenses result primarily from
increases or decreases in our share price. Pricing adjustments in the fourth
quarter were minimal compared with positive pricing adjustments of $93 million
in the fourth quarter of 2010, when there was a sharp rise in copper prices. We
incurred asset write-downs of $30 million in the fourth quarter, resulting from
provisions on obsolete plant and equipment and exploration properties.
Provisions for our closed properties totalled $33 million in the fourth quarter
compared with $19 million in the fourth quarter of 2010.
Pricing adjustments from the sale and purchase of our various products are now
included in other operating income (expense). These pricing adjustments were
previously included in our revenue or operating costs as applicable. Sales of
metals in concentrate or copper cathodes are recognized in revenue on a
provisional pricing basis when title transfers and the rights and obligations of
ownership pass to the customer, which usually occurs upon shipment. However,
final pricing is typically not determined until a subsequent date, often in the
following quarter. Revenue in a quarter is based on prices at the date of sale.
These pricing adjustments result in gains in a rising price environment and
losses in a declining price environment and these are recorded as other
operating income (expense). The extent of the pricing adjustments also takes
into account the actual price participation terms as provided in certain
concentrate sales agreements. It should be noted that while these effects arise
on the sale of concentrates, we also purchase concentrates at our Trail refinery
where the opposite effects occur.
The table below outlines our outstanding receivable and payable positions, which
were provisionally valued at September, 2011 and our receivable and payable
positions provisionally valued at, December 31, 2011.
Outstanding at Settled during the Outstanding at
September 30, 2011 fourth quarter December 31, 2011
------------------------------------------------------------
(pounds in
millions) Pounds US$/lb Pounds US$/lb Pounds US$/lb
----------------------------------------------------------------------------
Copper sold 149 3.24 120 3.40 164 3.43
Zinc sold 210 0.87 193 0.86 184 0.83
Zinc purchased 79 0.87 77 0.85 108 0.83
Lead sold 61 0.93 61 0.90 41 0.90
----------------------------------------------------------------------------
Non-operating income (expense) includes items that arise from financial and
other matters and includes such items as foreign exchange, debt refinancing,
realized gains or losses on marketable securities and gains and losses on the
revaluation of call options on certain of our high yield notes. In the fourth
quarter of 2011, other non-operating income was $81 million, consisting of gains
on the revaluation of our call options and foreign exchange gains. This compares
with $224 million of other expenses in the fourth quarter of 2010, which
included debt repurchase and financing costs of $341 million partly offset by
gains on the revaluation of our call options.
Income and resource taxes for the quarter were $311 million, or 32% of pre-tax
earnings, which is higher than the Canadian statutory income tax rate of 27%.
This was mainly due to the effect of resource taxes in Canada and higher tax
rates in foreign jurisdictions.
Income tax pools arising out of the Fording transaction in 2008 currently shield
us from cash income taxes, but not resource taxes, in Canada. Canadian
Development Expenditure tax pools and tax loss carry forwards primarily
generated by those pools are $8.4 billion. We remain subject to cash taxes in
foreign jurisdictions and resource taxes in Canada.
OPERATING CASH FLOW, FINANCIAL POSITION AND LIQUIDITY
Cash flow from operations, before changes in non-cash working capital items, was
$1.2 billion in the fourth quarter compared with $1.0 billion a year ago.
Changes in non-cash working capital items resulted in a use of cash of $49
million in the fourth quarter compared with a $124 million source of cash in the
same period a year ago. In the fourth quarter of 2010, we sold a portion of our
coal receivables, which reduced our working capital requirements by
approximately $150 million.
Expenditures on property, plant and equipment were $374 million in the fourth
quarter and included $177 million on sustaining capital and $197 million on
major development projects. The largest components of sustaining expenditures
were at our coal operations which totalled $57 million. Major development
expenditures included $15 million for preparatory stripping for Highland Valley
Copper's mine life extension project, $38 million for Antamina's expansion, $10
million at the Quebrada Blanca hypogene project and $92 million at our coal
operations. The expenditures at our coal operations are largely to enable us to
incrementally expand production at existing operations.
We also made investments totaling $324 million primarily in a number of publicly
traded companies in the fourth quarter.
During the fourth quarter we purchased for cancellation approximately 4.8
million Class B subordinate voting shares for $171 million pursuant to our
normal course issuer bid announced in June, 2011.
We have committed bank credit facilities aggregating $1.2 billion, the majority
of which mature in 2015. The current unused availability under these facilities,
after drawn letters of credit, amounts to $1.1 billion.
OUTLOOK
We continue to experience volatile markets for our products. Commodity markets
have historically been volatile and prices can change rapidly and customers can
alter shipment plans. This can have a substantial impact on our business. The
uncertainty over the ongoing economic conditions in Europe continues to have an
effect on the global economy, and this may affect both prices and shipments to
our customers.
Commodity Prices and 2012 Production
Commodity prices are a key driver of our earnings. On the supply side, the
depleting nature of ore reserves, difficulties in finding new ore bodies, the
permitting processes, the availability of skilled resources to develop projects,
as well as infrastructure constraints, political risk and significant cost
inflation may continue to have a moderating impact on the growth in future
production. Although we are concerned about current global economic conditions,
particularly in Europe, we believe that, over the longer term, the
industrialization of emerging market economies will continue to be a major
positive factor in the future demand for commodities. Therefore, we believe that
the long-term price environment for the products that we produce and sell
remains favourable.
Based on our expected 2012 mid-range production estimates and a Canadian/US
dollar exchange rate of $1.00, the sensitivity of our annual profit attributable
to shareholders to the indicated changes in commodity prices, before pricing
adjustments, and the US dollar exchange rate is as follows:
----------------------------------------------------------------------------
2012
Mid-Range Effect of
Production Change Effect on
Estimates Change On Profit EBITDA
----------------------------------------------------------------------------
Coal (000's tonnes) 25,000 US$1/tonne $ 16 million $ 25 million
Copper (tonnes) 362,000 US$0.01/lb $ 5 million $ 7 million
Zinc (tonnes) 880,000 US$0.01/lb $ 7 million $ 10 million
US$ exchange Cdn$0.01 $ 55 million $ 85 million
----------------------------------------------------------------------------
1. The effect on our profit attributable to shareholders of commodity price
and exchange rate movements will vary from quarter to quarter depending
on sales volumes.
2. Zinc includes 285,000 tonnes of refined zinc and 595,000 tonnes of zinc
contained in concentrates.
3. All production estimates are subject to change based on market and
operating conditions.
Foreign exchange translation gains and losses on our US dollar denominated debt
arising from exchange rate fluctuations are not expected to have a significant
effect on our 2012 earnings, as our debt level is expected to be designated as a
hedge against our investments in US dollar denominated foreign operations and
working capital items.
Copper and zinc prices are currently trading similar to 2011 average prices.
Coal market conditions softened in the third quarter and remained so through the
fourth quarter. By historical standards, however, prices for high quality
steelmaking coal remain relatively high. The fluctuations in the Canadian/US
dollar exchange rate can have a significant effect on our profit and financial
position. The Canadian dollar, to date in 2012, has averaged approximately $1.01
against the US dollar compared with $0.99 in 2011.
Our copper production for 2012 is expected to be in the range of 350,000 to
375,000 tonnes as a result of improved production at our operations. This
compares with 322,000 tonnes produced in 2011.
Our coal production in 2012 is expected to be in the range of 24.5 to 25.5
million tonnes. Our actual production will depend upon improvements in customer
demand for deliveries of steelmaking coal. Should deliveries not improve, we may
adjust our production plans, depending on market conditions and the sales
outlook. We have the flexibility to devote additional resources to pre-stripping
in these circumstances.
Our zinc in concentrate production in 2012 is expected to be in the range of
580,000 to 610,000 tonnes compared with 646,000 tonnes in 2011. Red Dog's
production is expected to decrease by approximately 35,000 tonnes and our share
of zinc production from Antamina will decrease by approximately 10,000 tonnes
due to ore body sequencing. Refined zinc production from our Trail metallurgical
complex in 2012 is expected to be in the range of 280,000 to 290,000 tonnes.
Capital Expenditures
Our forecast capital expenditures for 2012 are expected to be approximately $2.3
billion and are summarized in the following table:
----------------------------------------------------------------------------
($ in millions) Sustaining Development Total
----------------------------------------------------------------------------
Copper $ 320 $ 860 $ 1,180
Coal 365 505 870
Zinc 160 60 220
Energy (note 1) - 40 40
Corporate 25 - 25
----------------------------------------------------------------------------
$ 870 $ 1,465 $ 2,335
----------------------------------------------------------------------------
1. Assumes successful closing of SilverBirch acquisition in April, 2012.
Spending on development projects is expected to include $340 million for
Quintette, $325 million for Quebrada Blanca Phase 2 and $300 million for
Highland Valley Copper's mill expansion and extension stripping. The amount and
timing of actual capital expenditures is dependent upon being able to secure
necessary permits, equipment, supplies, materials and labour on a timely basis
and at expected costs to enable the projects to be completed as currently
anticipated. Some of these expenditures have not yet received all necessary
internal and minority interest approvals.
We also expect to invest approximately $220 million as our share of costs for
the Fort Hills oil sands project, which is accounted for as an investment in
associates.
Foreign Exchange, Debt Revaluation and Interest Expense
The sales of our products are denominated in US 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 US dollar denominated debt is subject to revaluation based on changes in the
Canadian/US dollar exchange rate. As at December 31, 2011, all of our US dollar
denominated debt is designated as a hedge against our US dollar denominated
foreign operations and working capital items. As a result, any foreign exchange
gains or losses arising on our designated US dollar debt are recorded in other
comprehensive income.
Taxes
The Peruvian Government enacted a new mining tax regime effective October 1,
2011, which includes a Special Mining Tax, a Modified Mining Royalty and a
Special Mining Burden. Our Peruvian affiliate, Compania Minera Antamina S.A.
("CMA"), is operating under a tax stability agreement and is exempt from the
Special Mining Tax and the Modified Mining Royalty until 2016. In the interim,
CMA will be subject to the Special Mining Burden which applies to its operating
margin based on a progressive sliding scale ranging from 4% to 13.12%, which is
deductible in computing its Peruvian income taxes.
In October, the Canadian parliament substantively enacted legislation to remove
the ability of corporations to defer income for tax purposes through partnership
structures. The regulations allow for a phase out period over five years. The
date at which this change will affect our taxes payable is dependent upon income
levels in Canada.
FINANCIAL INSTRUMENTS AND DERIVATIVES
We hold a number of financial instruments and derivatives, the most significant
of which are marketable securities, foreign exchange forward sales contracts,
fixed price forward metal sales contracts, prepayment rights on senior debt
notes and settlements receivable and payable. The financial instruments and
derivatives are all recorded at fair values on our balance sheet with gains and
losses in each period included in other comprehensive income and profit for the
period as appropriate. Some of our gains and losses on metal-related financial
instruments are affected by smelter price participation and are taken into
account in determining royalties and other expenses. All are subject to varying
rates of taxation depending on their nature and jurisdiction.
QUARTERLY EARNINGS AND CASH FLOW
(in millions,
except for
share data) 2011 2010
----------------------------------------------------------------------------
Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1
Revenues $ 2,972 $ 3,380 $ 2,796 $ 2,366 $ 2,716 $ 2,414 $ 2,198 $ 1,895
Gross profit 1,212 1,571 1,197 897 1,127 926 848 621
EBITDA 1,304 1,660 1,461 1,034 1,013 921 888 1,504
Profit (note
1) 637 814 756 461 325 316 283 896
Earnings per
share $ 1.08 $ 1.38 $ 1.28 $ 0.78 $ 0.55 $ 0.54 $ 0.48 $ 1.52
Cash flow
from
operations $ 1,199 1,383 621 754 1,156 771 834 513
----------------------------------------------------------------------------
1. Attributable to shareholders of the company.
OUTSTANDING SHARE DATA
As at February 8, 2012 there were 576,597,478 Class B subordinate voting shares
and 9,353,470 Class A common shares outstanding. In addition, there were
5,743,520 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 14 of our 2010
year end financial statements.
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, our future production at our business units and individual operations,
profit and cash flow, sales volume and selling prices for our products
(including settlement of coal contracts with customers), plans and expectations
for our oil sands investments and other development projects, forecast operating
costs, 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 sensitivity of our earnings to changes in commodity prices
and exchange rates, the impact of potential production disruptions, the impact
of currency exchange rates, future trends for the company, progress in
development of mineral properties, increased coal and copper production as a
result of our expansion plans, timing of completion and results of our
modernization program at Highland Valley, the timing and anticipated production
results from the expansion study at Carmen de Andacollo, the statements under
the heading "Copper Development Projects," the timing and anticipated production
from the reopening of the Quintette coal mine, capital expenditures and mine
production costs, unit cost of product for coal, unit transportation costs,
demand and market outlook for commodities, future commodity prices and treatment
and refining charges, the success and timing of the closing of the Fort Hills
transaction, the outcome of mine permitting currently underway, timing of
completion of studies on our projects and the impact of measures to manage
selenium discharges. 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,
interest rates, 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 and with respect to the SilverBirch
transaction, assumptions regarding the satisfaction of closing conditions. 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 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 and
changes or further deterioration in general economic conditions.
Statements concerning future production costs or volumes, and the sensitivity of
the company's earnings to changes in commodity prices and exchange rates are
based on numerous assumptions of management regarding operating matters and on
assumptions that demand for products develops as anticipated, that customers and
other counterparties perform their contractual obligations, that operating and
capital plans will not be disrupted by issues such as mechanical failure,
unavailability of parts and supplies, labour disturbances, interruption in
transportation or utilities, adverse weather conditions, and that there are no
material unanticipated variations in the cost of energy or supplies.
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, 2010, filed on
SEDAR and on EDGAR under cover of Form 40-F.
WEBCAST
Teck will host an Investor Conference Call to discuss its Q4/2011 financial
results at 11:00 AM Eastern time, 8:00 AM Pacific time, on Thursday, February 9,
2012. A live audio webcast of the conference call, together with supporting
presentation slides, will be available at our website at www.teck.com. The
webcast is also available at www.earnings.com. The webcast will be archived at
www.teck.com.
Teck Resources Limited
Consolidated Statements of Income
(Unaudited)
----------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
(Cdn$ in millions, except for share
data) 2011 2010 2011 2010
----------------------------------------------------------------------------
Revenues $ 2,972 $ 2,716 $11,514 $ 9,223
Cost of sales (1,760) (1,589) (6,637) (5,701)
----------------------------------------------------------------------------
Gross profit 1,212 1,127 4,877 3,522
Other operating expenses
General and administration (35) (33) (125) (137)
Exploration (33) (19) (105) (56)
Research and development (3) (7) (17) (20)
Other operating income (expense)
(Note 1) (117) (16) (174) 640
----------------------------------------------------------------------------
Profit from operations 1,024 1,052 4,456 3,949
Finance income 35 23 113 95
Finance expense (Note 2) (169) (153) (595) (691)
Non-operating income (expense) (Note
3) 81 (224) 197 (418)
Share of losses of associates (1) (3) (5) (5)
----------------------------------------------------------------------------
Profit before tax 970 695 4,166 2,930
Provision for income and resource
taxes (311) (333) (1,398) (994)
----------------------------------------------------------------------------
Profit $ 659 $ 362 $ 2,768 $ 1,936
----------------------------------------------------------------------------
Profit attributable to:
Shareholders of the company $ 637 $ 325 $ 2,668 $ 1,820
Non-controlling interests 22 37 100 116
----------------------------------------------------------------------------
Profit $ 659 $ 362 $ 2,768 $ 1,936
----------------------------------------------------------------------------
Earnings per share
Basic $ 1.08 $ 0.55 $ 4.52 $ 3.09
Diluted $ 1.08 $ 0.55 $ 4.50 $ 3.08
Weighted average shares outstanding
(millions) 589.4 589.9 590.4 589.5
Shares outstanding at end of period
(millions) 586.6 590.6 586.6 590.6
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Cash Flows
(Unaudited)
----------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
(Cdn$ in millions) 2011 2010 2011 2010
----------------------------------------------------------------------------
Operating activities
Profit $ 659 $ 362 $ 2,768 $ 1,936
Adjustments for:
Depreciation and amortization 222 225 911 916
Provision for deferred income
and resource taxes 212 137 701 282
Share of losses of associates 1 3 5 5
Gains on sale of investments and
assets (1) (2) (174) (859)
Unrealized gains on derivatives (71) (104) (158) (182)
Asset write-downs 30 - 30 -
Foreign exchange gains (16) (29) (7) (81)
Loss on debt repurchase - 341 - 782
Finance income (35) (23) (113) (95)
Finance expense 169 153 595 691
Other 78 (31) 73 (18)
----------------------------------------------------------------------------
1,248 1,032 4,631 3,377
Net change in non-cash working
capital items (49) 124 (674) (103)
----------------------------------------------------------------------------
1,199 1,156 3,957 3,274
Investing activities
Property, plant and equipment (374) (300) (1,236) (810)
Financial investments and other
assets (324) (9) (463) (46)
Proceeds from the sale of
investments and other assets 71 147 289 1,239
Decrease in restricted cash - - - 91
----------------------------------------------------------------------------
(627) (162) (1,410) 474
Financing activities
Issuance of debt - 57 1,907 1,560
Repayment of debt (11) (1,171) (104) (5,054)
Interest paid (120) (198) (377) (533)
Issuance of Class B subordinate
voting shares - 26 4 33
Purchase and cancellation of Class
B subordinate voting shares (171) - (171) -
Dividends paid - - (354) (118)
Distributions to non-controlling
interests (13) (33) (54) (89)
----------------------------------------------------------------------------
(315) (1,319) 851 (4,201)
Effect of exchange rate changes on
cash and cash equivalents (112) (21) 175 (46)
----------------------------------------------------------------------------
Increase (decrease) in cash and
cash equivalents 145 (346) 3,573 (499)
Cash and cash equivalents at
beginning of period 4,260 1,178 832 1,331
----------------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 4,405 $ 832 $ 4,405 $ 832
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Balance Sheets
(Unaudited)
----------------------------------------------------------------------------
December 31, December 31,
(Cdn$ in millions) 2011 2010
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 4,405 $ 832
Trade accounts receivable and other 1,343 1,094
Inventories 1,641 1,374
----------------------------------------------------------------------------
7,389 3,300
Financial and other assets 1,138 805
Investments in associates 715 659
Property, plant and equipment 23,150 22,309
Deferred income and resource tax assets 180 345
Goodwill 1,647 1,637
----------------------------------------------------------------------------
$ 34,219 $ 29,055
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities
Trade accounts payable and accrued liabilities $ 1,528 $ 1,508
Dividends payable 235 177
Current portion of debt 359 65
----------------------------------------------------------------------------
2,122 1,750
Debt 6,676 4,883
Deferred income and resource tax liabilities 5,342 4,899
Retirement benefit obligations 691 542
Other liabilities and provisions 1,495 1,086
Equity
Attributable to shareholders of the company 17,721 15,773
Attributable to non-controlling interests 172 122
----------------------------------------------------------------------------
17,893 15,895
----------------------------------------------------------------------------
$ 34,219 $ 29,055
----------------------------------------------------------------------------
1. OTHER OPERATING INCOME (EXPENSE)
----------------------------------------------------------------------------
Three months Year ended
ended December 31, December 31,
(Cdn$ in millions) 2011 2010 2011 2010
----------------------------------------------------------------------------
Gain on sale of operating assets $ 1 $ 1 $ 130 $ 721
Commodity derivatives 7 1 7 8
Pricing adjustments 4 93 (210) 116
Share-based compensation (27) (71) 21 (124)
Provision for closed properties (33) (19) (30) (47)
Asset impairment (30) - (30) -
Other (39) (21) (62) (34)
----------------------------------------------------------------------------
$ (117) $ (16) $ (174) $ 640
----------------------------------------------------------------------------
2. FINANCE (EXPENSE)
---------------------------------------------------------------------------
Three months Year ended
ended December 31, December 31,
(Cdn$ in millions) 2011 2010 2011 2010
---------------------------------------------------------------------------
Debt interest $ (129) $ (122) $ (449) $ (547)
Financing fees and amortization (4) (3) (12) (17)
Pension liability accretion (27) (26) (101) (102)
Decommissioning and restoration
provision accretion (13) (11) (52) (35)
Less interest capitalized 4 9 19 10
---------------------------------------------------------------------------
$ (169) $ (153) $ (595) $ (691)
---------------------------------------------------------------------------
3. NON-OPERATING INCOME (EXPENSE)
----------------------------------------------------------------------------
Three months Year ended
ended December 31, December 31,
(Cdn$ in millions) 2011 2010 2011 2010
----------------------------------------------------------------------------
Foreign exchange gains $ 16 $ 16 $ 7 $ 54
Other derivative gains 66 96 146 168
Debt repurchase and financing costs - (341) - (782)
Gain on sale of investments - 1 44 138
Other (1) 4 - 4
----------------------------------------------------------------------------
$ 81 $ (224) $ 197 $ (418)
----------------------------------------------------------------------------
Grafico Azioni Cream Minerals Ltd. (TSXV:CMA)
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