Teck Resources Limited Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Shift: Completed sale of remaining interest in steelmaking coal business, received $7.3 billion in cash, returned $720 million to shareholders in Q3, reduced debt by $1.5 billion to a net cash position of $1.8 billion as of September 30.
• Operational Achievements: Continued growth in copper production, with QB setting consecutive record quarters; higher zinc and concentrate production at Red Dog; completed QB2 project; investigated Antamina employee fatality; improved safety metrics with a high potential incident frequency rate of 0.10 (33% reduction Y/Y); rolled out mental health first aid training.
• QB Operations: Copper production improved QoQ but was impacted by lower grade ore; mill throughput ramped up towards nameplate capacity; recoveries improved, but September production declined marginally due to maintenance; plans to improve recovery and online time in 2025 through test work and equipment modifications.
• Near-Term Projects: QB ramp-up continues; Highland Valley mine life extension permit accepted; San Nicolas joint venture permit process ongoing; other projects in planning stages for potential sanction in 2025.

Segment Performance

• Copper: Gross profit before depreciation and amortization more than doubled to $604 million in the quarter, driven by higher sales volumes, prices, and byproduct credits. Copper production set consecutive record quarters with QB ramp-up. Adjusted annual copper production guidance was revised to 420,000 to 455,000 tonnes. Molybdenum production guidance was reduced to 3,000 to 4,000 tons.
• Zinc: Gross profit before depreciation and amortization from the zinc segment increased 49% compared to the same quarter last year, due to higher zinc prices, silver and lead byproduct revenues, and lower treatment charges. Red Dog had strong operating performance, but refine zinc production guidance was lowered to 240,000 to 250,000 tons due to a fire in the electrolytic zinc plant at Trail. Annual zinc net cash unit cost guidance was improved to $0.45 to $0.55 per pound.

Guidance

• 2024 Updates: Net cash unit cost guidance for copper revised to $0.45 to $0.55 per pound; zinc refine production guidance lowered to 240,000 to 250,000 tons; QB production guidance narrowed for 2024 (200,000 to 210,000 tons) and 2025 (240,000 to 280,000 tons); Highland Valley production revised; molybdenum production guidance reduced to 3,000 to 4,000 tons.
• 2025 Outlook: Other assets' guidance to be updated in January; only QB guidance was revised based on ongoing operational assessments.

Risks

• Employee Safety: Investigation ongoing for Antamina employee fatality; monitored safety and operational risks.
• Regulatory Uncertainty: Uncertainty in Mexico regarding San Nicolas project permitting.
• Operational Challenges: Geotechnical issues at QB impacting production, mill optimization and recovery improvements needed, fire at Trail operations affecting zinc production.

Question and Answer

Q: On QB2 guidance cuts, what gives confidence in 2025 guidance?

A: Progress on throughput, recoveries, and grade improvement; geotechnical issue under control, mine plan reworked, with plans for 2025 improvements in recovery and online time.

Q: Status of San Nicolas project permitting in Mexico?

A: Monitoring situation, open pit mining concession status, feasibility study ongoing with hopeful resolution but ongoing uncertainty.

Q: QB maintenance days in September and 2025 downtime?

A: September had extra days for maintenance and equipment issues; 2025 downtime planned for optimization work on mill components.

Q: Production guidance updates for 2025?

A: Only QB guidance updated in Q3; other assets' guidance to be updated in January.

Q: Growth strategy on greenfields?

A: Focus on low capital intensity, de-risked projects with good returns, leveraging learnings from QB ramp-up.

Q: Working capital build in Q3?

A: Due to production vs sales timing, expected to unwind in Q4 and Q1 as material moves to filtration and port for sales.

Q: Clarity on QB optimization?

A: Investor Day in November will provide more details on optimization plans, including potential throughput above nameplate.

Q: Trail operations improvement?

A: Leadership changes, metallurgical work, cost reductions; no major CapEx associated with current improvements.

Q: Balance sheet capital returns and debt reduction?

A: ~$400M remaining for debt reduction, ongoing share buyback with value-driven execution.

Q: Zinc market outlook?

A: Chronic concentrate shortage, low treatment charges, positive outlook for 2025 due to underinvestment and disruptions in zinc mines.