Teck Reports Third Quarter Results for 2009
More News related to TCK
- Alamos Gold Inc. Extends Agi Dagi and Kirazli Acquisition Due Diligence Period
- Teck Metals Ltd. Creates Endowment for the Land Conservancy's Fort Shepherd Conservancy Area
- Teck Announces Closing of Morelos Sale
- 2010 IR Global Rankings: Invitation for Investors and Analysts Vote for Companies with the Best IR Program and for the Best IR Officer
- Don't Miss Out! The Registration Period for the 2010 IR Global Rankings Ends TOMORROW!
More News related to Press Releases
- Notable Late-Afternoon ETF Movers for 11/25: UNG, GDX, XRT Higher; UUP Lower
- Notable 52-Week High's and Low's: BMY, JCG, PBR, SLW, GOOG, INCY, NTAP, QADI, GOLD, BONT Higher; SPWRB Low
- Unusual 11 Mid-Day Movers 11/25: RTK, QADI, QBC, KBX Higher; BNHNA, DRAM, TBH, CWTR Lower
- Afternoon ETF Check: UNG, XRT, EWJ Up; VNM, RSX Down
- Notable Analyst Ratings Changes 11/25: EXXI, IWA, VPRT Upgraded; BNHN, NRG, GTE Downgraded
VANCOUVER, BRITISH COLUMBIA -- (MARKET WIRE) -- 10/28/09 -- Teck Resources Limited (TSX: TCK.A and TCK.B, NYSE: TCK) announced net earnings of $609 million, or $1.07 per share, in the third quarter. Our operating profit before depreciation was approximately $1.0 billion. At October 27, 2009, our cash balance, including restricted cash set aside for the payment of principal and interest on our term loan, was approximately $1.5 billion.
Don Lindsay, President and CEO said, "Our major operations continue to perform well and produced record revenues of $2.1 billion in the third quarter despite coal and zinc prices that were less than 50% of previous highs. Our total debt has now been reduced by $5 billion since we completed the Fording transaction in October 2008. We expect further reductions of approximately $1.1 billion upon the completion of previously announced asset sales expected later this year and early 2010."
Highlights and Significant Items
- Operating profit before depreciation in the third quarter was approximately $1.0 billion compared with $798 million last year. On a year-to-date basis operating profit before depreciation was $2.6 billion compared with $2.5 billion in 2008.
- Net earnings in the quarter were $609 million compared with $424 million in the third quarter of 2008. Net earnings on a year-to-date basis were $1.4 billion compared with $1.3 billion last year.
- EBITDA for the 12 months ended September 30, 2009 was $3.6 billion.
- Earnings from continuing operations before non-recurring items were $337 million and before pricing adjustments were $270 million in the third quarter. Earnings from continuing operations before non-recurring items on a year-to-date basis were $818 million and were $672 million before pricing adjustments.
- We recorded record revenues in both the third quarter of 2009 and on a year-to-date basis of $2.1 billion and $5.5 billion, respectively. Our copper, coal and zinc business units had higher revenues in the third quarter of 2009 compared to 2008.
- Our net debt to net-debt-plus-equity ratio at September 30, 2009 was 34%, a significant improvement from the 52% ratio at December 31, 2008.
- In July, we issued 101.3 million Class B subordinate voting shares to China Investment Corporation, for proceeds of US$1.5 billion and used the net proceeds to retire the outstanding balance of the bridge loan and reduce the balance of the term loan.
- Since we completed our acquisition of Fording in October 2008, the US$5.81 billion of bridge debt has been paid in full and the US$4 billion of term debt has been reduced to US$2.7 billion. Proceeds from our previously announced asset sale program, including the sale of a one-third interest in the Waneta Dam, the sale of the Morelos gold project, a portion of the future gold production from Carmen de Andacollo and two Turkish gold projects are now expected to total approximately US$1.2 billion. The net proceeds from these sales of US$1.1 billion are expected to be applied against our term debt. Our current cash balance is approximately $1.5 billion.
- Certain provisions of the term loan were amended in late October 2009. The most significant amendment allows us to apply non-scheduled payments against the majority of the existing payment schedule on a modified pro rata basis, rather than in inverse order of maturity. Accordingly, we expect that the proceeds from our announced asset sales, assuming they close as expected, will reduce our scheduled term loan payments in each of 2010 and 2011 from approximately US$1.1 billion to approximately US$600 million.
- In July, we announced the completion of statutory rail rate arbitration proceedings in respect of rates for certain westbound coal shipments that are expected to result in savings of approximately $70 million for the 2009 coal year. In addition, we entered into an agreement that allows us to ship up to 3.5 million tonnes of coal for delivery by Canadian National Railway between Kamloops, BC and the Vancouver area ports through March 1, 2010. This important development provides for a choice of rail carriers for some coal exports from western Canadian mines for the first time that we are aware of.
- In August, we announced that challenges to the previously granted permits for the water supply arrangements for our Andacollo copper hypogene project may result in delays to the start-up of the project. We now believe that start-up of the project will be delayed into the first quarter of 2010. The length of any delay will depend on the outcome of discussions with authorities and the nature of required changes to Andacollo's water system, if any.
- At Antamina, a feasibility study to expand mill throughput by 40% to 130,000 tonnes per day by the end of 2011 is currently under review by the Antamina shareholders with a decision expected in the fourth quarter.
This management's discussion and analysis is dated as at October 28, 2009 and should be read in conjunction with the unaudited consolidated financial statements of Teck Resources Limited (Teck) and the notes thereto for the nine months ended September 30, 2009 and with the audited consolidated financial statements of Teck and the notes thereto for the year ended December 31, 2008. In this news release, unless the context otherwise dictates, a reference to "the company" or "us", "we" or "our" refers to Teck and its subsidiaries. Additional information, including our annual information form and management's discussion and analysis for the year ended December 31, 2008, 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.
Earnings and Adjusted Earnings(i)
Net earnings were $609 million, or $1.07 per share, in the third quarter compared with $424 million or $0.95 per share in the same period last year. Net earnings in the third quarter included non-cash foreign exchange translation gains of $311 million on our net debt. Earnings also included positive after-tax pricing adjustments of $67 million from rising base metal prices and an after-tax gain of $27 million ($62 million pre-tax) from the sale of our Pogo gold operation. Partly offsetting these items was a $58 million after-tax asset impairment charge related to our investment in the Fort Hills oil sands project and the write-off of $26 million of previously capitalized debt financing fees as a result of the early repayment of our bridge loan in the quarter.
Three months ended Nine months ended
September 30 September 30
(in millions of dollars) 2009 2008 2009 2008
--------------------------------------------------------------------------
Net earnings as reported $ 609 $ 424 $ 1,420 $ 1,266
Add (deduct):
(Earnings) loss from discontinued
operations (26) 3 (86) 5
Derivative (gains) losses (16) (15) 40 (35)
Asset impairment included in equity
losses 58 - 71 12
Asset sales and other (3) (9) (184) (21)
Foreign exchange gains on net debt (311) - (526) -
Financing items 26 - 113 -
Tax items - - (30) (11)
------------------------------------
Adjusted net earnings 337 403 818 1,216
Negative (positive) pricing
adjustments (note 1) (67) 126 (146) 59
------------------------------------
Comparative net earnings $ 270 $ 529 $ 672 $ 1,275
------------------------------------
(1) See FINANCIAL INSTRUMENTS AND DERIVATIVES section for further
information.
(i) Our financial results are prepared in accordance with Canadian GAAP (GAAP). This news release refers to adjusted net earnings, comparative net earnings, operating profit and operating profit before depreciation and pricing adjustments, which are not measures recognized under GAAP in Canada or the United States and do not have a standardized meaning prescribed by GAAP. For adjusted net earnings and comparative net earnings, we adjust net earnings as reported to remove the effect of unusual and/or non-recurring transactions in these measures. Operating profit is revenues less operating expenses and depreciation and amortization. Operating profit before depreciation and pricing adjustments is operating profit with depreciation, amortization and pricing adjustments added or deducted as appropriate. Pricing adjustments are described under the heading "Average Commodity Prices and Exchange Rates" below. 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 shareholders.
Business Unit Results
Our third quarter and year-to-date business unit results are presented in the tables below:
Three Months ended September 30
Operating profit
before
depreciation
and pricing
(in millions of dollars) Revenues adjustments Operating profit
---------------------------------------------------------------------------
2009 2008 2009 2008 2009 2008
---------------------------------------------------------------------------
Copper $ 642 $ 522 $ 308 $ 452 $ 298 $ 200
Coal 869 600 389 362 236 350
Zinc 620 618 165 192 160 129
---------------------------------------------------------------------------
Total $ 2,131 $ 1,740 $ 862 $ 1,006 $ 694 $ 679
---------------------------------------------------------------------------
Nine Months Ended September 30
Operating profit
before
depreciation
and pricing
(in millions of dollars) Revenues adjustments Operating profit
---------------------------------------------------------------------------
2009 2008 2009 2008 2009 2008
---------------------------------------------------------------------------
Copper $ 1,497 $ 2,011 $ 663 $ 1,347 $ 639 $ 1,096
Coal 2,697 1,365 1,423 710 1,059 674
Zinc 1,313 1,679 306 503 259 383
---------------------------------------------------------------------------
Total $ 5,507 $ 5,055 $ 2,392 $ 2,560 $ 1,957 $ 2,153
---------------------------------------------------------------------------
Operating profit from our copper business unit was $298 million in the third quarter after recording $72 million of positive pricing adjustments. This compares with an operating profit of $200 million in the third quarter of 2008 after negative pricing adjustments of $187 million. Our operating profit, before the pricing adjustments, was lower in the third quarter of 2009 primarily due to copper prices that were 24% lower in the third quarter than in the same period last year.
Operating profit from our coal business unit was $236 million in the quarter compared with $350 million in the third quarter of 2008. Our results in the third quarter reflect our 100% ownership interest in Teck Coal compared with a 40% direct interest last year. Coal sales volumes improved from the previous two quarters and were 5.7 million tonnes in the third quarter compared with 6.0 million tonnes (on a 100% basis) last year. Despite our increased ownership interest, operating profits were negatively affected by significantly reduced realized coal prices, which averaged C$152 (US$137) per tonne in the third quarter compared with C$252 (US$245) per tonne last year. The lower coal price reflects the lower contracted price settlement for the 2009 coal year that commenced April 1, 2009.
Operating profit from our zinc business unit was $160 million in the third quarter after recording $35 million of positive pricing adjustments. This compares with an operating profit of $129 million after the impact of $21 million of negative pricing adjustments in the third quarter of 2008. Lower sales from our Red Dog mine due to timing of shipments and lower refined zinc volumes from Trail as a result of production curtailments reduced operating profits before the pricing adjustments. At the beginning of September, Trail operations returned to full refined zinc production of 25,000 tonnes per month after operating at a curtailed rate of approximately 20,000 tonnes per month since December, 2008.
As a result of the sale of our Hemlo and Pogo gold operations, the results from these two operations are included in discontinued operations. In early July, we completed the sale of our interest in the Pogo mine for US$255 million, and recorded an after-tax gain of $27 million.
Revenues
Revenues from operations were $2.1 billion in the third quarter compared with $1.7 billion a year ago. Revenues from coal operations increased by $269 million, with the increase primarily attributable to the higher sales volumes resulting from our increased ownership in Teck Coal, partially offset by significantly lower realized coal prices. Revenues from copper and zinc increased by $122 million, as revenues from our base metal operations in the third quarter were affected by positive pricing adjustments compared with significant negative adjustments last year.
Average Metal Prices and Exchange Rates(i)
Three months ended Nine months ended
September 30 September 30
2009 2008 % Change 2009 2008 % Change
---------------------------------------------------------------------------
Copper (LME Cash - US$/pound) 2.65 3.48 -24% 2.12 3.62 -41%
Coal (realized - US$/tonne) 137 245 -44% 164 183 -10%
Zinc (LME Cash - US$/pound) 0.80 0.80 -% 0.67 0.95 -29%
Silver (LME PM fix -- US$/ounce) 15 15 -% 14 17 -18%
Molybdenum (published price -
US$/pound) 15 34 -56% 11 33 -67%
Lead (LME Cash - US$/pound) 0.87 0.87 -% 0.70 1.08 -35%
Cdn/U.S. exchange rate (Bank of
Canada) 1.10 1.04 +6% 1.17 1.02 +15%
(i) The average commodity prices disclosed above 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 major
supplier selling price published in Platts Metals Week.
Sales of metals in concentrate 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. Accordingly, revenue in a quarter is based on current prices for sales occurring in the quarter and ongoing pricing adjustments from sales that are still subject to final pricing. These pricing adjustments result in additional revenues in a rising price environment and reductions to revenue in a declining price environment. The extent of the pricing adjustments also takes into account the actual price participation terms as provided in the concentrate sales agreements. In the third quarter we had positive pricing adjustments of $107 million ($67 million after non-controlling interests and taxes) compared with negative adjustments of $208 million ($126 million after non-controlling interests and taxes) last year. The amount consists of $28 million of pricing adjustments on sales from the previous quarter and $79 million on sales that were initially recorded at the average price for the month of shipment and subsequently revalued at quarter end forward curve prices.
At June 30, 2009 outstanding receivables included 88 million pounds of copper provisionally valued at an average of US$2.31 per pound and 118 million pounds of zinc provisionally valued at an average of US$0.71 per pound. During the third quarter, 82 million pounds of copper included in the June 30, 2009 receivables were settled at an average final price of US$2.62 per pound and 118 million pounds of zinc were settled at an average final price of US$0.76 per pound, resulting in positive after-tax pricing adjustments of C$17 million ($28 million before tax) in the quarter. Positive after-tax pricing adjustments on current quarter sales were C$50 million.
At September 30, 2009, outstanding receivables included 113 million pounds of copper provisionally valued at an average of US$2.78 per pound, 173 million pounds of zinc provisionally valued at an average of US$0.87 per pound and 65 million pounds of lead provisionally valued at an average of US$1.03 per pound.
Cash Flow from Operations
Cash flow from operations, before changes in non-cash working capital items, was $584 million in the third quarter, similar to $591 million in the same period last year. Increased cash flow from our coal business unit, before depreciation, was offset by higher interest charges. Our coal business unit had lower operating profits on a 100% basis, but our increased ownership resulted in slightly higher cash flow accruing to us. A reduction of non-cash working capital items provided $136 million as a source of cash in the third quarter, as the seasonal draw-down of concentrate inventories at Red Dogwere partly offset by increased receivable balances at our coal business unit. This compares with a$267 million reduction in non-cash working capital items in the same period last year primarily due to lower receivable balances at the end of the quarter as a result of declining metal prices.
BUSINESS UNIT RESULTS
The table below shows our share of production and sales of our major commodities.
Units
(000's) Production Sales
--------------------------------------------------------------------------
Third Quarter Year-to-date Third Quarter Year-to-date
------------- ------------ ------------- ------------
2009 2008 2009 2008 2009 2008 2009 2008
--------------------------------- ------------ ------------- ------------
Principal
products
Copper
(note 1
and 2) tonnes 50 53 150 152 58 52 155 150
Copper
Cathode
(note 2) tonnes 26 26 79 79 28 27 73 79
------------------------------------------------------
76 79 229 231 86 79 228 229
------------------------------------------------------
Coal
(note 3)
Direct
share tonnes 5,331 2,152 13,576 7,110 5,708 2,383 14,399 7,316
In-direct
share tonnes - 645 - 2,133 - 715 - 2,195
------------------------------------------------------
5,331 2,797 13,576 9,243 5,708 3,098 14,399 9,511
------------------------------------------------------
Refined
zinc tonnes 56 69 174 205 59 64 179 206
Zinc
(note 1
and 4) tonnes 182 168 522 514 191 224 439 479
Major
by-products
Molyb-
denum
(note 1) pounds 1,890 1,723 5,594 5,092 2,068 1,624 5,718 5,434
Refined
lead tonnes 19 18 57 64 19 20 56 65
Lead
(note 1) tonnes 32 31 96 105 72 81 73 89
--------------------------------------------------------------------------
(1) Production and sales volumes of base metals refer to metals contained
in concentrate.
(2) We include 100% of production and sales from our Highland Valley
Copper, Quebrada Blanca and 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.
(3) The direct share of coal production included our 40% proportionate
share of production from Teck Coal until October 30, 2008 prior to
our acquisition of Fording and 100% thereafter. The indirect share of
coal production was the pro rata share of production represented by our
19.95% interest in units of Fording.
(4) The Lennard Shelf zinc mine ceased production in August 2008 and the
Pend Oreille zinc mine was placed on care and maintenance in February
2009.
REVENUES AND OPERATING PROFIT
QUARTER ENDED SEPTEMBER 30
Our revenue, operating profit before depreciation and pricing adjustments and operating profit by business unit are summarized in the table below:
Operating
profit (loss)
before
depreciation, Operating
amortization profit (loss)
($ in millions) Revenues and pricing adjustments (note 2)
---------------------------------------------------------------------------
2009 2008 2009 2008 2009 2008
---------------------------------------------------------------------------
Copper
Highland Valley
Copper $ 259 $ 193 $ 108 $ 182 $ 124 $ 87
Antamina 166 121 88 133 112 58
Quebrada Blanca 147 149 80 98 45 48
Carmen de Andacollo 26 38 14 30 4 17
Duck Pond 44 21 18 9 13 (10)
---------------------------------------------------------------------------
642 522 308 452 298 200
Coal (note 1) 869 600 389 362 236 350
Zinc
Trail 298 317 36 50 23 37
Red Dog 367 317 129 147 138 105
Other 14 27 3 (6) 2 (14)
Inter-segment sales (59) (43) (3) 1 (3) 1
---------------------------------------------------------------------------
620 618 165 192 160 129
---------------------------------------------------------------------------
TOTAL $ 2,131 $ 1,740 $ 862 $ 1,006 $ 694 $ 679
---------------------------------------------------------------------------
(1) On October 30, 2008, we completed the acquisition of Fording's assets
which increased our direct ownership interest in Teck Coal from 40% to
100%. The results summarized in the above table reflect our increased
ownership from October 30, 2008.
(2) After depreciation, amortization and pricing adjustments.
REVENUES AND OPERATING PROFIT
NINE MONTHS ENDED SEPTEMBER 30
Our revenue, operating profit before depreciation and pricing adjustments and operating profit by business unit are summarized in the table below:
Operating
profit (loss)
before
depreciation, Operating
amortization profit (loss)
($ in millions) Revenues and pricing adjustments (note 2)
---------------------------------------------------------------------------
2009 2008 2009 2008 2009 2008
---------------------------------------------------------------------------
Copper
Highland Valley
Copper $ 599 $ 722 $ 214 $ 497 $ 270 $ 436
Antamina 430 567 226 431 278 383
Quebrada Blanca 318 510 162 295 69 212
Carmen de Andacollo 71 126 36 83 4 59
Duck Pond 79 86 25 41 18 6
---------------------------------------------------------------------------
1,497 2,011 663 1,347 639 1,096
Coal (note 1) 2,697 1,365 1,423 710 1,059 674
Zinc
Trail 871 1,160 106 191 67 153
Red Dog 552 584 206 303 199 242
Other 39 102 3 (1) 2 (22)
Inter-segment sales (149) (167) (9) 10 (9) 10
---------------------------------------------------------------------------
1,313 1,679 306 503 259 383
---------------------------------------------------------------------------
TOTAL $ 5,507 $ 5,055 $ 2,392 $ 2,560 $ 1,957 $ 2,153
---------------------------------------------------------------------------
(1) On October 30, 2008, we completed the acquisition of Fording's assets
which increased our direct ownership interest in Teck Coal from 40% to
100%. The results summarized in the above table reflect our increased
ownership from October 30, 2008.
(2) After depreciation, amortization and pricing adjustments.
COPPER
Highland Valley Copper (97.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
----------------------------------------------------------------------
Tonnes milled (000's) 10,640 11,634 32,645 33,017
Copper
Grade (%) 0.32 0.32 0.31 0.31
Recovery (%) 89.0 83.0 86.4 83.5
Production (000's tonnes) 30.0 30.5 87.6 85.2
Sales (000's tonnes) 33.9 30.8 89.6 84.6
Molybdenum
Production (million pounds) 1.5 0.9 4.5 2.6
Sales (million pounds) 1.7 0.9 4.5 2.7
Cost of sales ($ millions)
Operating costs $ 103 $ 86 $ 255 $ 230
Distribution costs $ 9 $ 8 $ 23 $ 22
Depreciation and
amortization $ 23 $ 12 $ 51 $ 34
Operating Profit ($ millions)
Before depreciation $ 147 $ 100 $ 321 $ 470
After depreciation $ 124 $ 87 $ 270 $ 436
----------------------------------------------------------------------
Highland Valley Copper's operating profit, before positive pricing adjustments, was $85 million in the third quarter compared with $169 million a year ago. Positive pricing adjustments of $39 million were recorded in the quarter compared with $82 million of negative price adjustments last year.
Copper production of 30,000 tonnes in the third quarter was similar to last year. Lower mill throughput due to ore hardness was offset by improved mill recoveries as a result of processing less clay-bearing ores. Molybdenum production increased to 1.5 million pounds in the third quarter compared with 900,000 pounds last year as a result of mining higher grade sections of the Valley pit.
Operating costs increased to $103 million in the third quarter compared with $86 million a year ago, primarily due to higher sales volumes and higher costs associated with increased waste movement. Depreciation increased substantially to $23 million as capitalized waste stripping costs related to the mine extension are now being amortized.
As previously announced, certain geotechnical issues have been identified which will restrict access to ore in the Valley pit for the next 18 to 24 months. The shortfall is expected to be partially made up with lower grade ore from the Lornex and Highmont pits. Although the mill is expected to run at full capacity, the blend of ores available will have lower grades, throughput rates and recovery. We expect that Highland Valley's copper production will be approximately 115,000to 120,000 tonnes in 2009.
Geotechnical assessments completed to date indicate remedial actions could include approximately 80 million tonnes of additional stripping above the east wall before release of the 2013 extension ore, now expected in the second half of 2011. Final remedial designs and a new life-of-mine plan are expected to be completed by the end of the fourth quarter of 2009 after current geotechnical assessments are complete.
In early October, Highland Valley received permitting approval for a new zone in the Valley pit which includes 36 million tonnes of low grade ore not previously in the mine plan. The zone will be mined in conjunction with the west wall stripping currently underway, and is expected to help address the short term ore supply constraints in the Valley pit while the geotechnical issues are being resolved.
Antamina (22.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
----------------------------------------------------------------------------
Tonnes milled (000's)
Copper-only ore 4,342 4,870 12,020 13,712
Copper-zinc ore 3,979 3,263 12,591 8,668
----------------------------------------------------------------------------
8,321 8,133 24,611 22,380
Copper (note 1)
Grade (%) 1.10 1.15 1.17 1.25
Recovery (%) 81.6 87.6 81.8 89.3
Production (000's tonnes) 74.6 87.1 234.5 255.8
Sales (000's tonnes) 78.8 82.0 241.6 247.7
Zinc (note 1)
Grade (%) 3.06 3.60 2.92 3.65
Recovery (%) 86.1 83.6 83.5 86.1
Production (000's tonnes) 109.6 95.8 310.6 264.8
Sales (000's tonnes) 107.5 92.3 295.0 252.8
Molybdenum
Production (million pounds) 1.5 3.4 4.7 11.0
Sales (million pounds) 1.7 3.2 5.3 12.1
Cost of sales (US$ millions)
Operating costs $ 105 $ 112 $ 311 $ 323
Distribution costs $ 26 $ 44 $ 73 $ 117
Royalties and other costs (note 2) $ 53 $ 28 $ 111 $ 160
Depreciation and amortization $ 25 $ 38 $ 74 $ 105
Our 22.5% share of operating profit ($
millions)
Before depreciation $ 117 $ 66 $ 295 $ 405
After depreciation $ 112 $ 58 $ 278 $ 383
----------------------------------------------------------------------------
(1) Copper ore grades and recoveries apply to all of the processed ores.
Zinc ore grades and recoveries apply to copper-zinc ores only.
(2) In addition to royalties paid by Antamina, we also pay a royalty in
connection with the acquisition of our interest in Antamina equivalent
to 7.4% of our share of cash flow distributed by the mine.
Our 22.5% share of Antamina's operating profit, before positive pricing adjustments, was $82 million in the third quarter compared with $125 million in the same period last year. Our share of positive pricing adjustments in the third quarter was $30 million compared with $67 million of negative price adjustments in the same period a year ago.
Tonnes milled in the third quarter increased slightly compared with a year ago, despite the higher mix of harder copper-zinc ores processed, and consisted of 52% copper-only ore and 48% copper-zinc ore. This compares with 60% and 40%, respectively, in the same period a year ago. The lower proportion of copper-only ore and lower mill recoveries in the quarter resulted in copper production of 74,600 tonnes in the third quarter, a 14% decline over a year ago. Conversely, zinc production increased by 14% to 109,600 tonnes due to the higher proportion of copper-zinc ore processed in the quarter.
Operating costs in the third quarter decreased slightly due to reduced consumption of major consumables, including power and fuel. Distribution costs declined substantially due to new shipping contracts entered into at very favorable rates, while royalty costs almost doubled to $53 million as a result of higher operating earnings in the quarter this year.
A feasibility study to expand mill throughput by 40% to 130,000 tonnes per day by the end of 2011 is currently under review by the Antamina shareholders with a decision expected in the fourth quarter.
Quebrada Blanca (76.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
---------------------------------------------------------------------------
Tonnes placed (000's)
Heap leach ore 1,704 2,080 5,588 5,707
Dump leach ore 3,384 3,187 7,588 7,769
---------------------------------------------------------------------------
5,088 5,267 13,176 13,476
Grade (TCu%) (note 1)
Heap leach ore 1.05 1.25 1.15 1.28
Dump leach ore 0.52 0.49 0.53 0.57
Production (000's tonnes)
Heap leach ore 15.5 16.2 46.9 48.2
Dump leach ore 6.0 5.1 18.0 15.5
---------------------------------------------------------------------------
21.5 21.3 64.9 63.7
Sales (000's tonnes) 23.8 21.4 59.3 63.4
Cost of sales (US$ million)
Operating costs $ 55 $ 65 $ 124 $ 179
Inventory adjustments (note 2) $ - $ 4 $ - $ 37
Distribution costs $ 2 $ 3 $ 6 $ 7
Depreciation and amortization $ 34 $ 26 $ 82 $ 70
Operating profit ($ millions) (note 3)
Before depreciation $ 82 $ 75 $ 165 $ 283
After depreciation $ 45 $ 48 $ 69 $ 212
---------------------------------------------------------------------------
(1) TCu% is the percent assayed total copper grade.
(2) Inventory adjustments consist of mark-to-market adjustments of work
in process inventory at the time of the acquisition of the mine in
August 2007, which were charged to earnings as the inventory was sold.
(3) Results do not include a provision for the non-controlling interests'
23.5% share of Quebrada Blanca.
Quebrada Blanca's operating profit, before pricing adjustments, was $43 million compared with $71 million in the third quarter of 2008. Positive pricing adjustments were $2 million in the quarter compared with negative pricing adjustments of $23 million last year.
Copper production in the third quarter of 21,500tonnes was similar to last year. Sales volumes of 23,800 tonnes in the third quarter were 11% higher than the same period last year due to the timing of shipments.
Operating costs in the third quarter, before changes in inventory, were US$48 million compared with US$66 million a year ago as a result of reduced maintenance costs, lower fuel, sulphuric acid and other consumable costs. Quebrada Blanca is also realizing the benefits of operating its power house more efficiently which has partially reduced the need to purchase power from significantly higher priced third party sources.
During the second quarter pre-feasibility work was commenced on the Quebrada Blanca hypogene project. Work is expected to continue throughout the second quarter of 2010.
Carmen de Andacollo (90%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
---------------------------------------------------------------------------
Tonnes placed (000's)
Heap leach ore 987 935 2,825 2,788
Dump leach ore 178 179 778 444
---------------------------------------------------------------------------
1,165 1,114 3,603 3,232
Grade (TCu%) (note 1)
Heap leach ore 0.48 0.65 0.58 0.65
Dump leach ore 0.25 0.31 0.29 0.27
Production (000's tonnes)
Heap leach ore 3.0 4.2 11.1 11.9
Dump leach ore 1.0 1.0 2.9 3.7
---------------------------------------------------------------------------
4.0 5.2 14.0 15.6
Sales (000's tonnes) 4.2 5.3 13.2 15.6
Cost of sales (US$ million)
Operating costs $ 10 $ 12 $ 27 $ 35
Inventory adjustments (note 2) $ - $ - $ - $ 8
Distribution costs $ - $ 1 $ 2 $ 2
Depreciation and amortization $ 9 $ 8 $ 28 $ 21
Operating profit ($ millions) (note 3)
Before depreciation $ 14 $ 25 $ 37 $ 80
After depreciation $ 4 $ 17 $ 4 $ 59
---------------------------------------------------------------------------
(1) TCu% is the percent assayed total copper grade.
(2) Inventory adjustments consist of mark-to-market adjustments of work in
process inventory at the time of the acquisition of the mine in August
2007, which were charged to earnings as the inventory was sold.
(3) Results do not include a provision for the non-controlling interests'
10% share of Andacollo.
Andacollo's operating profit was $4 million after minimal pricing adjustments in the third quarter compared with $17 million after negative pricing adjustments of $5 million in the third quarter of 2008. The decline in operating profit was primarily due to a lower average copper price and lower sales volumes.
Copper production of 4,000 tonnes in the third quarter was consistent with the current mine plan, but 23% lower than a year ago as the mine is transitioning from mining the supergene deposit to the primary hypogene zone scheduled for commissioning in the first quarter of 2010.
Sales volumes in the third quarter were similar to production levels, but 21% lower than the same period last year, reflecting the reduced production levels.
The development of Andacollo's concentrate project is progressing, with commissioning scheduled for the first quarter of 2010 and achievement of design capacity over the following six months. The development consists of the construction of a 55,000 tonne per day concentrator and tailings facility and is expected to produce 80,000 tonnes of copper and 55,000 ounces of gold in concentrate annually over the first 10 years of the project. The capital cost forecast for the project is US$425 million, of which US$383 million has been spent from inception to September 30, 2009.
Challenges to the previously granted permits for the water supply for the hypogene project are expected to result in delays to the start-up of the project. We are in dialogue with national and regional authorities to resolve the issue. We have contingency plans for alternate water supply and are now proceeding with them to mitigate our risk. Due to the status of these permits, we believe that start-up of the hypogene project will be delayed until the first quarter of 2010. The length of any delay will depend on the outcome of discussions with authorities and the nature of required changes to Andacollo's water system, if any.
On April 6, 2009, Andacollo announced the sale of an interest in future gold production from the Andacollo mine to Royal Gold, Inc. ("Royal Gold"). Proceeds to Andacollo are expected to be US$218 million and 1.2 million common shares of Royal Gold. Royal Gold will be entitled to payment based on 75% of the payable gold produced until total cumulative production reaches 910,000 ounces of gold, and 50% thereafter. The proposed sale is not expected to close until after the permitting issues are resolved. Andacollo and RoyalGold have agreed to extend the outside date for the closing of that transaction to January 29, 2010.
Duck Pond (100%)
Duck Pond's operating profit was $13 million in the third quarter compared with an operating loss of $10 million in the same period last year. Copper and zinc production in the quarter was 3,300 tonnes and 6,000tonnes, respectively, compared with 3,100 tonnes and 4,000 tonnes in the same period last year.
COAL
Teck Coal Partnership (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
----------------------------------------------------------------------------
Production (000's tonnes) 5,331 5,378 13,576 17,774
Sales (000's tonnes) 5,708 5,957 14,399 18,290
Average sale price
US$/tonne $ 137 $ 245 $ 164 $ 183
C$/tonne $ 152 $ 252 $ 187 $ 187
Operating expenses (C$/tonne)
Cost of product sold $ 54 $ 61 $ 56 $ 51
Transportation $ 30 $ 41 $ 33 $ 39
Depreciation and amortization $ 27 $ 5 $ 25 $ 5
Our share of operating profit ($
millions) (note 1)
Before depreciation $ 389 $ 362 $ 1,423 $ 710
After depreciation $ 236 $ 350 $ 1,059 $ 674
----------------------------------------------------------------------------
(1) Results of Teck Coal represent our 100% direct interest commencing
October 30, 2008 and 40% prior to that date.
On October 30, 2008, we acquired all the assets of Fording, which consisted of Fording's 60% interest in Teck Coal (formerly Elk Valley Coal Partnership). The transaction increased our interest in the partnership from an effective interest of 52% to a 100% interest. We began to fully consolidate the results of Teck Coal on October 30, 2008.
Coal production levels, which were reduced in the first half of 2009 as a result of reduced demand from customers, increased in the third quarter to the same level as the third quarter of 2008. Where possible, previously planned temporary production shutdowns were cancelled or reduced in length in order to meet increased demand.
Sales volumes of 5.7 million tonnes for the third quarter, which were constrained by our clean coal inventory levels early in the quarter, reflect strong demand in China for seaborne coking coal and increased deliveries to our traditional contract customers in Asia. Customers in Asia are expected to account for approximately three quarters of our 2009 calendar year sales volume. Historically, Asia represented about half of our sales volume.
The average U.S. dollar selling prices in the third quarter were lower when compared with the same quarter in 2008,which primarily reflects the lower contract price settlements for the 2009 coal year that commenced April 1, 2009. During the third quarter of 2009, approximately 0.7 million tonnes of carryover tonnage was delivered at the higher 2008 contract prices. In addition, we agreed to settle the unfulfilled 2008 carryover obligations of several European customers in exchange for lump sum cash payments to us totalling $56 million. This amount was recorded as other income in the third quarter. We have contracted with our traditional customers for annual tonnages that more closely match their requirements and buying patterns. The trend towards increased spot sales continued in the third quarter, with approximately 0.7 million tonnes sold at prevailing spot market prices.
The decrease in unit cost of product sold for the third quarter compared with the same quarter in 2008 primarily reflects lower strip ratios and reduced diesel fuel prices. Additional stripping of waste during the first half of 2009, when production levels were much lower, benefitted strip ratios and unit costs in the third quarter.
The decrease in unit transportation costs for the third quarter compared with the same quarter in 2008 reflects lower contractual rail rates with Canadian Pacific Railway for the westbound transportation of coal from our five British Columbia mine sites as well as lower port loading costs, which are variable in part with average selling prices.
The increases in depreciation and amortization expense when compared to 2008, reflect our acquisition of Fording's interest in Teck Coal and the resultant higher cost base of our operating assets.
We now expect 2009 coal sales to be in the range of 19.5 to 20.5 million tonnes. We expect our thermal and PCI coal sales to comprise approximately 13% of our total sales volume for the 2009 calendar year and approximately 10% for the 2009 coal year, which is consistent with our expected long-term average thermal and PCI sales mix of 10%.
We have completed 2009 coal year price negotiations with all of our traditional customers, with pricing consistent with previously announced settlements at US$128 per tonne for our highest quality coal products. We expect our average realized selling price for the 2009 calendar year to be in the range of US$155 to US$158 per tonne.
Unit cost of product sold for the 2009 calendar year is expected to be in the range of $54 to $56 per tonne. Unit transportation costs for calendar 2009 are expected to be in the range of $31 to $32 per tonne. Unit transportation costs include the impact of ocean freight on Chinese spot sales, which are made inclusive of the cost to transport the coal from the Vancouver ports to the Chinese coast. This trend towards increased sales made inclusive of ocean freight increases the volatility and reduces the predictability of our average selling prices and our unit transportation costs as a result of fluctuations in ocean freight rates.
The union labour agreement for our Line Creek Operations expired on June 1, 2009 and we are in the process of negotiating a new agreement.
ZINC
Trail (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
----------------------------------------------------------------------------
Metal production
Zinc (000's tonnes) 55.8 69.3 173.5 204.5
Lead (000's tonnes) 19.0 18.2 57.1 64.3
Metal sales
Zinc (000's tonnes) 58.8 64.1 179.1 205.7
Lead (000's tonnes) 18.7 20.2 55.7 65.1
Power
Surplus power sold (GW.h) 341 308 1,041 811
Power price (US$/MW.h) $ 32 $ 62 $ 28 $ 65
Cost of sales ($ millions)
Concentrates $ 165 $ 161 $ 466 $ 636
Operating costs $ 77 $ 82 $ 230 $ 258
Distribution costs $ 20 $ 23 $ 69 $ 75
Depreciation and amortization $ 13 $ 13 $ 39 $ 38
Operating profit ($ millions) before
depreciation
Metal operations $ 25 $ 31 $ 75 $ 140
Power sales 11 19 31 51
----------------------------------------------------------------------------
$ 36 $ 50 $ 106 $ 191
Operating profit ($ millions) after
depreciation
Metal operations $ 15 $ 22 $ 46 $ 112
Power sales 8 15 21 41
----------------------------------------------------------------------------
$ 23 $ 37 $ 67 $ 153
----------------------------------------------------------------------------
Operating profit at Trail's metal operations declined to $15 million in the third quarter compared with $22 million in the same period last year due to lower sales volumes. Metals operating profit was also negatively affected by significant declines in prices for sulphur and specialty metal products. Curtailments of refined zinc production, which began in late 2008, continued through to the end of August to better match production to market conditions. Commencing in September, Trail began the process of returning to full refined zinc production and this was achieved at the end of the quarter.
Power operating profits were significantly lower at $8 million in the third quarter compared with $15 million last year due to a sharp decline in power prices, partly offset by higher sales volumes as a result of the zinc production curtailment.
On June 17, 2009 we entered into an agreement with BC Hydro regarding the proposed sale of a one-third interest in the Waneta Dam for $825 million. The transaction is subject to the receipt of certain third party consents and necessary regulatory approvals. We expect the sale to close in the first quarter of 2010.
Upper Columbia River Basin (Lake Roosevelt)
Teck American continued work to fulfill its obligations under the settlement agreement reached with the United States and the EPA in June 2006 to complete a remedial investigation and feasibility study of the Upper Columbia River ("RI/FS"). Work plans initiated in the third quarter of 2009 which will continue into the fourth quarter, included sampling of beaches, surface water and fish.
In addition, discovery and motion proceedings continue in the Lake Roosevelt litigation in the Federal District Court for the Eastern District of Washington. The first phase of the case, dealing with liability under CERCLA for cost recovery and natural resource damages, is scheduled to be tried in October 2010.
Red Dog (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
------------------------------------------------------------------------
Tonnes milled (000's) 890 784 2,499 2,308
Zinc
Grade (%) 20.6 19.9 20.9 20.5
Recovery (%) 82.3 84.9 82.6 84.5
Production (000's tonnes) 150.8 131.5 431.2 400.0
Sales (000's tonnes) 162.1 184.0 350.2 363.7
Lead
Grade (%) 5.8 5.7 5.7 6.4
Recovery (%) 61.7 65.7 66.7 65.4
Production (000's tonnes) 31.8 29.2 95.1 96.5
Sales (000's tonnes) 71.8 77.4 71.8 80.2
Cost of sales (US$ millions)
Operating costs $ 85 $ 80 $ 136 $ 125
Distribution costs $ 38 $ 47 $ 73 $ 79
Royalties (NANA and State) $ 62 $ 54 $ 58 $ 89
Depreciation and amortization $ 24 $ 24 $ 44 $ 43
Operating profit ($ millions)
Before depreciation $ 164 $ 130 $ 249 $ 285
After depreciation $ 138 $ 105 $ 199 $ 242
------------------------------------------------------------------------
Red Dog's operating profit, before pricing adjustments, was $103 million in the third quarter compared with $124 million in the same period last year. Positive pricing adjustments were $35 million in the third quarter compared with $19 million of negative pricing adjustments in the third quarter of 2008. The decline in operating profit before pricing adjustments was due to lower sales volumes of zinc and lead as a result of the timing of shipments.
Mill throughput in the third quarter increased by 106,000 tonnes, or 14% compared with the same period a year ago as a result of a series of site-driven performance improvement initiatives. Consequently zinc production increased to 150,800 tonnes in the third quarter compared with 131,500 tonnes last year.
Red Dog's 2009 shipping season commenced on July 3, and was completed on October 18, 2009 following the shipment of 1,025,000 tonnes of zinc concentrate and 221,000 tonnes of lead concentrate. This is compared with shipments of 920,000 tonnes of zinc and 247,000 tonnes of lead concentrate for the 2008 shipping season. Metals in concentrate available for sale from October 1, 2009 to the beginning of next year's shipping season are approximately 434,000 tonnes of zinc in concentrate and 49,000 tonnes of lead in concentrate. Zinc and lead sales volumes in the fourth quarter are estimated to be approximately 210,000 tonnes and 46,000 tonnes, respectively.
The Supplemental Environmental Impact Statement ("SEIS") for the Aqqaluk deposit, the next ore body scheduled to be developed at the Red Dog mine, was approved by the United States Environmental Protection Agency ("EPA") on October 9, 2009. After a waiting period for the EIS that concludes on November 9, 2009, the EPA is expected to renew the Red Dog water discharge permit. In addition to the discharge permit, Teck will require a permit from the U.S. Army Corps of Engineers ("Corps"), the issuance of which is anticipated after November 28, 2009. The SEIS, the discharge permit, and the Corps permit are all subject to appeal by any of the numerous parties which commented on the permits during the public comment period. We have been working with the public agencies involved and with the entities which made comment to address any concerns they had raised. While we believe that the regulatory process has been robust and appropriate, there can be no assurance that an appeal of the SEIS or the permits will not delay the development of Aqqaluk. We are developing contingency plans in order to minimize any potential disruption to the operation from any appeal.
ENERGY
Fort Hills Project
The timing of a final investment decision on the Fort Hills oil sands project remains uncertain, pending both improvements in commodity prices and financial markets and the completion of a project review by Suncor, the operator and 60% owner. Spending on the project has been significantly reduced and the workforce downsized to reflect the lower level of activity. The Fort Hills site has been placed on care and custody during the third quarter. Suncor has provided a forecast project spending estimate of $33 million for 2010, of which our share is expected to be $9 million compared with our $320 million share in 2009, assuming the project remains on care and custody during 2010 and some regulatory work is carried forward.
In the third quarter we recorded an equity loss of $58 million from our Fort Hills oil sands investment as a result of the deferral of the upgrading portion of the project. Current economic conditions have increased the uncertainty around the probability of realizing future benefits from the costs incurred to engineer and design the upgrader and accordingly an asset impairment charge has been recorded. Including amounts recognized in a prior period, the charge for the third quarter fully writes down our 20% equity share of the previously capitalized cost for the upgrader, including all related contract cancellation charges.
Frontier and Equinox Projects
The operational phase of the pilot plant test work to support the design assumptions used for both the Equinox and Frontier oil sands projects was completed during the third quarter. Data analysis has commenced and is expected to be finalized in the first half of 2010. Engineering studies have started on the Frontier Project which will include an option of developing Equinox as a satellite operation. The results of this work are expected in late 2010 and will be compared to the draft Design Basis Memorandum study for Equinox as a standalone project. The joint venture continues to advance the projects through the permitting process.
Other Oil Sand Leases
During the 2009 winter drilling season 54 core holes were completed in the Lease 421 Area, bringing the total core holes completed to 59. Preliminary results indicate 49 of the core holes contain prospective oil sands that range in thickness from 10 to 40 metres (averaging 19 metres) with overburden thicknesses ranging from 17 to 68 metres (averaging 39 metres). Results from the core analysis for the 2009 wells are expected to be available in the fourth quarter of 2009.
GOLD
During the year, and in accordance with our announced intentions, we have sold our interest in our operating gold mines consisting of the Hemlo and Pogo mines. Our 40% interest in the Pogo mine was sold in the third quarter to our partners at Pogo, Sumitomo Metal Mining and Sumitomo Corporation, for proceeds of US$255 million resulting in a pre-tax gain on sale of $62 million. Gains on the sale of these properties and their operating results are now included in discontinued operations on our statement of earnings.
We continue our program of disposing of gold related assets, with a number of transactions pending. These include our Morelos project in Mexico and our Agi Dagi and Kirazli projects in Turkey.
In August, we entered into an agreement to sell our indirect 78.8% interest in the Morelos gold project in to Gleichen Resources Ltd. for US$150 million in cash plus common shares that will constitute 4.9% of Gleichen's issued and outstanding shares at closing. Completion of the transaction is subject to a financing condition in favour of Gleichen and to other customary conditions. The sale is expected to close in the fourth quarter.
In September, we entered into a memorandum of understanding with our partners, Fronteer Development Group Inc. and Alamos Gold Incorporated to sell the Agi Dagi and Kirazli projects to Alamos. Alamos will pay US$40 million and issue four million shares to us and Fronteer in connection with the transaction. Closing is subject to execution of definitive agreements and customary conditions. We have a 60% interest in the two projects, which results in our share of the proceeds being US$24 million and 2.4 million shares of Alamos.
COSTS AND EXPENSES
Administration and general expenses were $57 million in the third quarter compared with $15 million last year. The increase was due mainly to higher non-cash stock-based compensation that is linked to our share price, which increased significantly in the third quarter compared with a significant decline in 2008.
Our interest expense increased significantly to $172 million in the quarter compared with $17 million a year ago. This increase was a result of the debt incurred to finance the acquisition of the Fording Coal assets in October, 2008. This debt was initially short-term and bore relatively low rates of interest. However, our higher credit spread and the longer maturities of our refinancing have resulted in higher interest rates. Interest expense was lower compared with previous quarters due to lower debt balance from significant principal repayments. Debt and interest charges are denominated in US dollars and fluctuations in the exchange rate also affect interest expense. A strengthening Canadian dollar served to reduce these amounts in the third quarter.
Other income, net of other expenses, was $393 million in the third quarter compared with other income of $26 million last year. Significant items in the third quarter included non-cash foreign exchange translation gains totalling $356 million and $56 million from the settlement of unfulfilled 2008 coal year obligations. The non-cash foreign exchange translation gain on our debt totalled $832 million, of which $376 million was recorded in other income and $456 million in other comprehensive income. The portion credited to other comprehensive income relates to that portion of our US dollar debt that is designated as a hedge against our investments in subsidiaries whose functional currency is the US dollar.
Provision for Income and Resource Taxes
Income and resource taxes for the quarter were $180 million, or 21% of pre-tax earnings, which is lower than the Canadian statutory tax rate. This is the result of the significant foreign exchange gains in the quarter, which is subject to the lower capital gains tax rate. This was partially offset by the effect of resource taxes in Canada.
Income tax pools arising out of the Fording transaction shield us from cash income taxes, but not resource taxes, in Canada. We remain subject to cash taxes in foreign jurisdictions.
Non-controlling Interests
Non-controlling interest expense, which represents other parties&apo
Related Categories
Press ReleasesStocks Mentioned
+1.38Related Entities
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
