All participants, thank you for standing by. Welcome to Teck's First Quarter 2022 Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. This conference call is being recorded on Wednesday, April 27, 2022. I would now like to turn the conference call over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Thanks very much, Patrick. Good morning, everyone. Thank you for joining us for Teck's first quarter 2022 results conference call. Please note today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statements. Please refer to Slide 2 for the assumptions underlying our forward-looking statements. In addition, we will reference various non-GAAP measures throughout this call. Explanations and reconciliations regarding these measures could be found in our MD&A the latest press release on our website. Don Lindsay, our President and CEO, will begin today's call with first quarter highlights, followed by Jonathan Price, our CFO, who will provide additional color on our financial results. We will conclude today's session with a question-and-answer period to address any remaining questions. With that, I will turn the call over to Don.

Thank you, Fraser, and good morning, everyone. We are pleased to report an exceptional start to the year and our record-setting financial results in the first quarter and what is going to be a transformational year for all of us here at Teck. Solid operational performance and continued strong commodity prices drove a quarterly record of $3 billion in adjusted EBITDA, which is more than triple the same period last year. We delivered adjusted diluted earnings of $2.96 per share compared to $0.61 in Q1 of 2021. And importantly, our strong financial performance enabled us to both strengthen our balance sheet and return significant cash to shareholders. We continue to advance our flagship QB2 copper project with overall progress now surpassing 82% completion. We have to say we're very proud of this achievement, especially in light of the significant impact the Omicron wave had on workforce absenteeism, which exceeded 20% early in the quarter. Our QB2 capital cost guidance remains unchanged, and our teams are focused on systems completion and handover as we expect first copper from line 1 in Q4 of this year, assuming no further COVID waves or other major disruptions. During the quarter, we made meaningful progress towards our commitment to safety and sustainability leadership. On safety, our high potential injury frequency remained low at 0.14 in the quarter. On climate, as you will have seen, we expanded our climate action strategy building on our existing commitment to net 0 across our operations by 2050, we included a new short-term goal to achieve net 0 scope to GHG emissions by 2025. And we also have an ambition to achieve net 0 Scope 3 emissions by 2050. We are pleased to see our continued sustainability efforts being recognized by the industry. And during the quarter, we were named…

Thanks, Don. Teck delivered record-setting profitability in the first quarter, largely as a result of continued strength in the prices for all of our principal products as illustrated on Slide 21. Copper prices reached an all-time quarterly record average of USD 4.53 per pound in the first quarter, while zinc prices increased by 36% to an average of $1.70 per pound. Western Canadian Select, the heavy oil benchmark price increased sharply due to the impact of the Russian war in Ukraine. FOB Australia coal prices reached peak levels in the first quarter averaging a record high of USD 395 per ton for the quarter lagged by one month and a record high of USD 487 per ton for the calendar quarter. CFR China prices traded at an average of USD 405 per ton in the quarter. As you may have noted, we published a press release on April 10 and announcing the sales volume, average realized price and pricing adjustments for our steelmaking coal business unit in the first quarter. We intend to continue pre-releasing these data points each quarter going forward given the lack of visibility and publicly available information. We've outlined the key drivers for our record profitability on Slide 22. Adjusted EBITDA of $3 billion in the quarter represents an increase of more than $2 billion compared to last year, predominantly driven by strong commodity prices. Like others in the industry, we continue to face inflationary cost pressures which increased our Q1 operating costs by 13% compared to last year. Approximately half of this increase relates to diesel costs at our operations and in our transportation costs. The diesel prices increased by 52% compared to the same period last year. Further increases in the cost of a number of our key suppliers, including mining equipment, fuel, tires…

Thank you, Jonathan. So in closing, I have to say we are very pleased with how Teck is positioned to drive long-term shareholder value. Our first quarter results gave us an exceptional start to 2022. And as I said, this is a transformational year for Teck as we rebalance our portfolio towards copper. And as we bring on QB2 and advance our overall copper growth strategy we will rebalance and reduce the proportion of carbon in our overall business. As we've done to date, we'll continue to further strengthen our existing high-quality assets through our RACE technology transformation program and our sustainability strategy. Strong commodity prices over the last few months have accelerated our ability to return capital to shareholders. So looking ahead, we have the ability to generate even greater cash flows and returns. And with that, I'll turn the call over to the operator to open it up for questions.

[Operator Instructions] The first question is from Orest Wowkodaw from Scotia Bank. Please go ahead.

Don, obviously, cost inflation is impacting the mining industry across the board. I'm not surprised to see your higher cost guidance in coal. But I am a little surprised that you're maintaining cost guidance in copper and zinc even when you look at it before by-product credits. Can you maybe give us a bit of color on how you're managing that and whether that's related to perhaps some hedging done for fuel or something that's keeping costs at a lower level for some period of time?

I'm going to turn that question over to Shehzad. I'll just make a comment that one of the contributing factors, not just in one, but across the business is the success of our RACE21 program and will be we'll be issuing a release summarizing some of the key accomplishments there in the next short while. But Shehzad, over to you.

Orest, I'll start with the zinc business unit. Our higher production is part of the reason compared to last year as to -- that helps in maintaining the cost guidance and also the sensitivity to diesel, which has gone up significantly. There's a lot less in copper and zinc than it would be in coal. And of course, as Don mentioned, we have done a fair bit of work on RACE21, both Highland Valley and Red Dog, have been very active on the RACE21 side, which has helped on cost management. And as you -- and you mentioned before byproduct hedge and after byproduct credits in copper, zinc credits at Antamina have been very helpful after byproduct credits. And the same thing in the zinc business unit with lower TCs have also helped from last year.

Is there any -- are there any hedges or callers that are helping kind of contain costs for a certain period of time? Or is this your updated guidance reflecting full market cost?

No. The -- this is Jonathan here, Orest. No, the guidance reflects the prices you see in the market. We haven't hedged any of our key input costs.

And then just quickly, if I may, on the capital return program, pleasantly surprised the new USD 500 million buyback. Is this something now that the Board plans to look at on a quarterly basis?

I'll draw your attention to our release in February, where we said that the Board would be reviewing it regularly. We deliberately didn't use the word quarterly because regularly, it could be shorter than quarterly or it could be longer. But I think this does demonstrate that that's exactly what so.

The next question is from Lawson Winder from Bank of America Securities. Please go ahead.

Could I ask about the copper project pipeline? And whether or not your sort of order of preference has shifted at all, particularly with some of the smaller projects, such as Zafranal, San Nicolas and Schaft Creek. And then finally, with San Nicolas and Zafranal, would that be comfortable building those two projects alone, should they not -- should you guys not find a partner?

So the way we look at it is we have three projects that are in mining terms near term, meaning that they could all be in production by 2026. And those are QB mill, the QB mill expansion Zafranal and San Nicolas. In each of those cases, we have -- the team is working away advancing the projects. In Zafranal case, the hearing and Lima and Peru took place at the end of March was very successful, very impressive. I managed to get there myself and see it in action, and we've got very positive feedback from actually the regulator that time, and San Nicolas, a lot of work on there. And I should say on both of those projects, we still have a preference to have a partner. Of course, we have a partner on Zafranal is 80% are interested 20% with MFC. But we are in discussions with different parties on San Nicolas as well. And at some point, we'll put the pin in. But what's important to us is getting the right partner. It's really like an interview process more so than a valuation process. And I think all the parties involved are excited about the project, and at some point, we'll put the opinion. We do want to stay on that schedule to have it in production by 2026. So those are the three near-term. Galore Creek would then be what we would think of as medium term. It's a 50-50 joint venture with Newmont. We're working together updating the studies on that. And of course, it has a lot of gold in it. So it is got the real advantage of grade. So something for sure that's going to be a great mine. And then the other two are longer-dated Mesaba and Schaft Creek. But even with Mesaba, we're looking at different partner and development options there as well. So I expect different announcements throughout the year. I can't tell you exactly when. But certainly, there's a lot of activity in the copper growth in, for sure. And we're also, I should say, in the market, hiring people and building the team internally. And so that if we ended up choosing to do it on our own, we'll have the capability to do so. But we really like what we've done with QB2 and our partnership with Sumitomo Metal Mining and Sumitomo Corp. I think the market really liked to it derisks the project, both financially and from a market point of view and great customers, great partners. So we think that's a pretty good model. So while we're at this stage, I think it's still worth pursuing. Sorry, a bit of a long answer, but there's a lot in there.

And then on your updated goal to achieve net 0 Scope 2, I'm curious, are there any potential substantial CapEx investment that might be required on behalf of Teck in order to achieve that? And what are sort of like the main points that have to get achieved to ultimately reach that

Yes. So I'm going to turn this over to Shehzad actually, but the short answer is no on the big capital. It's really all about clean power of it. Shehzad?

So in Chile [Audio Gap] Scope 2 purchase agreements. And remember, a couple of years ago, we converted two contracts that we had to renewable, and we have one contract left right now at 122 megawatts with the provider. And we are in the process of looking at options and working on development of new renewable projects to be able to convert that coal-fired contract over to renewable.

I want to get it done faster than 2025, so I'm putting a lot of pressure on Shehzad.

We'll do.

The next question is from Carlos De Alba from Morgan Stanley. Please go ahead.

So on QB2, congratulations on the continuous progress. I noticed that tagline 1 to start producing in the fourth quarter. But yet on the copper outlook corporate production guidance, you have not included any volumes there. Could you elaborate a little bit more why that is the case and give us a range as to how much volumes maybe just minimum, and that is the reason you are not including in your guidance, any color on that regard would be great. As well as I noticed that there was no comment related to QB2 COVID capital cost. So I just wonder if the guidance remains between USD 900 million and USD 1 billion for that. And then if I may, on the coal side, could you comment on the Chinese market and your expectations for shipments into that -- in that market in Q2 or for the remainder of 2022?

Carlos, I think we've got four questions there. I'm going to take the one on guidance, I'm going to turn it to Jonathan on the copper production guidance. I'm going to ask Red to talk about QB2 since you are sit and he's on the line and can give you some insights on how things are going there. And last, it'd be real fully on the China and whole size. So on guidance, we've been quite clear, there's no change to guidance on either the definitive investment capital cost that we had put out before or on the COVID cost. So no change there at all on production forecast.

Yes. On the production guidance, we haven't guided to volumes at this point in time. As you highlight, we will do so, of course for 2023 in due course. But for the time being, we continue to just follow the progress of the project, and we'll provide updates throughout the remainder of the year.

And then Red is on the line and Red since QB2 is on the table, maybe turn it over to you to share your thoughts.

Yes. Thanks for the question, Carlos. Just in general, we're really excited about where we're at right now. Our team has come through this Omicron wave extremely well. We're very proud of how they've managed the health and safety of our employees. They weathered through these really high absentee rates that we had earlier in the year, large hundreds of people in quarantine as many as 800 that at one point. And we've got a really clear path now to first copper in the fourth quarter. So all of that is really positive for us, momentum's building and we're having a very good month right now in April. When you talk about volumes of production during particularly the first couple of months of ramp up, let me just give you some color on what that looks like on the ground. You start this equipment and start putting load in, rock in it. And then the first thing you do is you turn it off and your retorque folds and check tolerances and clearances and those kinds of things, and you turn it on and you put more rock in it. One of the next things that you do is adjust the shoots that all have to be kind of custom fit and formed as you get the larger volumes of material going in there. So it's really herky-jerky up down, up down shakeout process that you go through. So we're very comfortable with where we're headed in the fourth quarter and just are not going to make guesses about how that up down, up down, goes in the first couple of months getting this thing really tightened up and fine-tuned and ready to run for decades.

And then Real Foley for the coal.

Yes. Thanks for the question, Carlo. So on coal sales to China for 2022, we're expecting they'll be between 25% and 30%. Keep in mind that we always reserve tons for spot sales, and we'll be placing these tons in markets where we achieve the best returns.

The next question is from Lucas Pipes from B. Riley Securities. Please go ahead.

And Don, I have a higher high-level question. So QB2, kind of home stretch there, much lower CapEx next year. You're generating an incredible amount of free cash flow in the coal business here in Q2 and possibly longer given the global backdrop. And I'm reminded of the book never rest on your ore. So what are you going to do next year in the years to come, you have a really strong hand of cards here. What are your priorities?

I'd like to buy the whole company back myself. We think we're in a great position. We think the company is in really strong shape. We have great optionality to continue to grow the copper business. There are seven different projects, three of which were are, as I just mentioned, reasonably near term, and they can be developed on a capital-light basis, right? That's our objective. That's one of the reasons why we want to partner and so on. And so if we keep going down that path, that's going to put us in a very good position to continue to return capital to shareholders and whether it's by buybacks or dividends, it gets decided at the time. And so that's a pretty clean strategy, easy for people to understand great cash flows from our steelmaking coal business, our energy business now and zinc business and that cash going into the copper growth, which reflects what's going on in the world. We've got a very serious global commitment to decarbonization which means electrification, which means copper. And so that's -- we're basically reflecting what's going on in the world. So I think we keep executing. As you can tell from listening to Red Conger in his color on the project as the project is in very good hands. The whole team is pulling together here. And so we think the next few years are going to be very exciting.

And my second question is higher level on the coal side. I'd say the one area where the greatest concerns from investors announcements in China with regards to increased coal production. Do you have expectations for your success in alleviating some of the coal pressures. And what this could mean for global coking coal prices in the quarters to come?

Yes. I'll turn that over to Real. But I'd make sort of this big picture observation. Throughout the years, there have been different announcements and events in different markets, china included. And it's one thing to make announcement. It's another thing to see what actually happens. And if you track the steelmaking production in China over the last year, it's pretty stable. But Real, over to you.

Yes. Thanks, Lucas. So yes, China increased overall coal production during the quarter. When you look at it just for coking coal, the increase is very small. And local consultants in China are expecting that the increase in production this year could be maybe up to 4 million tons, that would bring it up to about 494 million tons compared to 490 million tons last year. Now I say up to 4 million because there's a number of challenges with safety inspections that are continuing. There's also the 20th party Congress that will take place in October, November this year. Those increased safety inspections at the coal mines are expected to go on from now right through to the 20th party Congress. So there's going to be pressure actually to maintain even production at the level that it's at right now.

The next question is from Brian MacArthur from Raymond James. Please go ahead.

Can I just follow up on Slide 26, you talked about the $2 billion decrease in capital next year, which is obviously very positive. But then you go on to say sustaining capital, capitalized strip all coming back down. So if I just by ball that, that's maybe, I don't know, $500 million of that. The other $1.5 billion decrease. Some of that's QB2, obviously, but are there other growth projects built in there? And where I'm going with it a little bit is, obviously, the QB2 cash is different than the corporate cash, just given your relative percentage ownership. So I'm just trying to figure out -- I actually thought it might have gone down a little bit more on a corporate basis. I'm just trying to figure out what else is in there if you can give us any color.

Yes. Thanks for the question there. So we will see a reduction in sustaining capital year-over-year into 2023. We've guided this year to 1.4 sustaining. We think a longer-term sustainable level is closer to $1 billion, including QB2, but we're not going to get all the way there by 2023. So you'll see some step down in sustaining capital. We'll also see a step down in capitalized stripping, as you mentioned. With respect to QB2, it's important to note here that all of these numbers are on 100% basis for QB2 because we consolidate that. If you look at our guidance in terms of to go capital and you look at the guidance for 2022, you'll see there's a reasonable amount of capital carried over into the first half of next year, and that could be $600 million or $700 million. So that as well explains what you don't see sort of a cliff in the QB2 capital year-over-year. And then finally, I'd say, if you look at our guidance for this year, we've guided to 300 million in other growth across the business, and that goes to a bunch of studies that we're doing across many of our base metals assets and we expect that to continue as well. As Don mentioned, we have this pipeline of projects ahead of us. We're readying a number of those for near-term development decisions. And therefore, the studies and sort of pre-execution work continues to ramp up. So there's a lot of growth activity still in the portfolio in 2023, both QB2 and future options, which explains why the number perhaps isn't falling as much as you might assume.

I was going to say, if you want to further break down on that, just contact Fraser and he can help with the numbers.

Because that's very helpful. That's exactly what I was trying to get at. And can I just ask QB working capital, does that get counted in that $700 million as well carryover?

No. The working capital is not in there.

The next question is from Jackie Przybylowski from BMO Capital Markets. Please go ahead.

I just want to follow up on the question Orest asked earlier in the call on the share buyback. So I guess there's a lot of moving parts. I just want to make sure I'm clear. Can you maybe talk a little bit about how quickly you expect to complete this new USD 500 million in share buyback. And can you just maybe remind us if you finish the CAD 100 million that you announced in February and also the 40 million share NCIB that was approved in November, is there where you're at in all of those programs, if you don't mind, things.

Yes, sure. So the November announcement is the annual announcement of the renewal of the NCIB and you pick a total possible numbers, and there is a regulated maximum. And so we put 40 million shares there, which is a big number. That doesn't guarantee that you're going to do all 40 million shares, but it gives you then the room to start. And then, of course, you have to authorize a dollar amount. The Board gives myself and Jonathan amount to work with. When we were doing the special dividend and increasing the base dividend, we just started with a small amount to get the NCIB going. And we completed that amount a while back. So we just reloaded last night. As we had said in February, the Board will be reviewing it regularly. And so USD 500 million gives us something to work with. I couldn't tell you how long it's going to take to execute. That really depends on market conditions and so on. And then the Board will review it again. They reviews it again, our export meeting is actually at the end of May, there's different for me scheduled. And generally, we would review it as a scheduled board meeting. But if Jonathan and I feel that we want to reload sooner. We can call a quick call or something. So it will be reviewed regularly, and that's basically our position. And that sort of matches as we continue to generate all this cash, we don't know what the commodity prices are going to be next quarter or the quarter after. We've seen a lot of volatility, as you know. And so -- but while the prices are reasonably high where they are now. We're general this cash. We probably want to review that buyback very regularly. And then if the prices happen to fall off, then that may be sort that. So I think that's about all we can tell you.

And sorry, Don, this is probably a really dumb question, but the authorization -- the normal annual authorization of 40 million shares in the fall. I mean that possibly would kind of get gobbled up by that Q1 $100 million announcement in this new announcement. So would you need to go back and add to that blanket NCIB approval if you wanted to do another buyback at some point later this year?

Yes. So NCIB is a core is bid. I encourage you to go and read the rules on that. We are buying back stock under that authorization. If we get to the maximum allowed by the regulators under that, we would then have to actually do a tender offer something more formal. So right now, rating under that 40 million shares, and I suspect that will be enough for now.

And Jackie, just for context, we bought back CAD 100 million through to April, and that was 2 million shares, and the NCIB is 40. So there's plenty of headroom under that right now, even accounting for the USD 500 million that was authorized yesterday.

And then maybe I could just ask about the QB mill expansion. I know you mined in the release that you've got a pre-feasibility that you're working on. I mean that sort of means different things at different companies sometimes. So can you maybe talk a little bit about what level of detail you're expecting to include in that pre-feasibility study?

I'll turn that 1 over to Red Conger, please. Unless you want to jump in. Red over to you.

We're really excited about this development. We've checked roughly 12 key calculations for fatal flaws. One example would be can the tailing dam that we currently have constructed accommodate the rate of rise that we would -- that we would incur from increasing the capacity by 50%. So we've gone through those kinds of things, got positive engineering results on all of those. So that's what's really triggered us to be bullish about this particular approach. And we're actually working on combining the elements of the feasibility study into the work that we're doing right now to fast track this thing. So we're trying to get all of that in place to do permitting, et cetera, here at the end of the year.

This concludes today's question-and-answer session. I would like to turn the meeting back over to Mr. Lindsay.

Okay. Well, thanks all for attending today. We're very excited about position we're in, very pleased with the results in Q1. Q2 is looking even better. And so we look forward to discussing that with you at the next call in July. Thanks very much.

Thank you. The conference has now ended. Please disconnect your lines at this time, and thank you for your participation.