Q2 2017 Financial Report Conference Call Presentation
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Transcript of Q2 2017 Financial Report Conference Call Presentation
Second Quarter 2017 ResultsJuly 27, 2017
Forward Looking Information
2
Both these slides and the accompanying oral presentation contain certain forward-looking statements within the meaning of the United States Private Securities
Litigation Reform Act of 1995 and forward-looking information within the meaning of the Securities Act (Ontario). Forward-looking statements can be identified
by the use of words such as “plans”, “expects” or “does not expect”, “is expected”, “budget”, “scheduled”, “estimates”, “forecasts”, “intends”, “anticipates” or
“does not anticipate”, or “believes”, or variation of such words and phrases or state that certain actions, events or results “may”, “could”, “should”, “would”,
“might” or “will” be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of Teck to be materially different from any future results, performance or achievements expressed or
implied by the forward-looking statements.
The forward-looking statements in these slides and the oral presentation include estimates, forecasts, and statements as to management’s expectations withrespect to, among other matters, our dividend expectations, closing of the sale of Waneta Dam, sales, cost and production guidance for our variouscommodities and operations, expectation that our realized coal sale price relative to prices assessments will be similar to what is has been relative tonegotiated quarterly benchmark, expected timing of first oil from Fort Hills, Fort Hills cost guidance and timing of discussed project milestones, the availability ofour credit facilities, anticipated pricing adjustments, our expectation that we will generate significant free cash flow, and demand and market outlook forcommodities. These forward-looking statements involve numerous assumptions, risks and uncertainties and actual results may vary materially.
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, inventories of, and the level and volatility of prices of zinc, copper, coal and gold and other primary metals and minerals produced by Teck as well
as oil, natural gas and petroleum products, Teck’s costs of production and production and productivity levels, as well as those of its competitors, power prices,
market competition, the accuracy of Teck’s reserve estimates (including, with respect to size, grade and recoverability) and the geological, operational and
price assumptions on which these are based, our ongoing relations with our employees and partners and joint venturers, performance by customers and
counterparties of their contractual obligations, and the future operational and financial performance of the company generally. Our Fort Hills project
expectations also include assumptions that the project is built and operated according to our project development plan.
The foregoing list of assumptions is not exhaustive. Events or circumstances could cause actual results to differ materially. Factors that may cause actual
results to vary include, but are not limited to: adverse developments in business and economic conditions in the principal markets for Teck’s products, in credit
markets, or in the supply, demand, and prices for metals and other commodities to be produced, changes in interest and currency exchange rates, failure of
customers or counterparties to perform their contractual obligations, inaccurate geological or metallurgical assumptions (including with respect to the size,
grade and recoverability of mineral reserves and resources), changes in taxation regimes, legal disputes or unanticipated outcomes of legal proceedings,
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 permits or government approvals, industrial disturbances or
other job action, and unanticipated events related to health, safety and environmental matters), and changes in general economic conditions or conditions in
the financial markets. The closing of the Waneta Dam sale depends on conditions precedent being satisfied, some of which are out of Teck’s control. Our Fort
Hills project is not controlled by us and construction and production schedules may be adjusted by our partners.
Certain of these risks are described in more detail in the annual information form of the company available at www.sedar.com and in public filings with the SEC.
The company does not assume the obligation to revise or update these forward-looking statements after the date of this document or to revise them to reflect
the occurrence of future unanticipated events, except as may be required under applicable securities laws.
6.36.962
Q2 2016 Q2 2017
Mt
Second Quarter 2017 Highlights
• Set Q2 records for coal production, coal sales & zinc production at Antamina
• Increased gross profit by ~$900M1
• Fort Hills construction >92% complete
• Reduced debt further to US$4.8B
• Set new dividend policy, doubling our base dividend to $0.20/share annually
• Announced sale of our two-thirds interest in Waneta Dam for $1.2B
• Continuing to progress our Satellite Project initiative
3 1. Before depreciation and amortization. Non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” section of our quarterly news releases for further information.
Record Q2 Coal Sales
0.6
6.7 6.8
Q2 2016 Q2 2017
Mt
Record Q2 Coal Production
0.1
Record Q2 Zinc Production Antamina
23
102
Q2 2016 Q2 2017kt
79
4
Q2 2017
Revenue $ 2.8 billion
Gross profitbefore depreciation & amortization*
$ 1.4 billion
Profitattributable to shareholders
$ 577 million
EBITDA* $ 1.3 billion
Adjusted profitattributable to shareholders*
$577 million$1.00/share
Financial Results Overview
*Non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” section of our quarterly news releases for further information.
6.7 6.8
Q2 2016 Q2 2017
83
169
Q2 2016 Q2 2017
198
975
Q2 2016 Q2 2017
4253
0
34
36
Q2 2016 Q2 2017
13
Steelmaking Coal Results
Realized Price (C$/tonne) Revenue (C$M)
Gross Profit2,3 (C$M)Production (Mt)
Sales (Mt)
Unit Cost of Sales1,2 (C$/tonne)
51. Steelmaking coal unit cost of sales include site costs, inventory adjustments, and transport costs.
2. Non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” section of our quarterly news releases for further information.
3. Before depreciation and amortization.
Elected to advance annual plant maintenance shutdowns into Q2
7689
Site2
Transport
Total
86 918
777
Inventory
0.6
0.1
678
1,596
Q2 2016 Q2 2017
6.36.962
Q2 2016 Q2 2017
60
90
120
150
180
210
240
270
300
US
$ / to
nn
e
Argus FOB Australia Quarterly Benchmark Quarterly Index-Linked Price (M-1)
6
Coal Price Assessments
Source: Argus Plotted to July 26, 2017
Steelmaking Coal Market Stabilizing?
Negotiated quarterly benchmark replaced by index-linked pricing
mechanism for premium steelmaking coal from April 1, 2017
Q3 / 4 2016 Spike
• Price induced
closures globally
• Supply disruptions
• Inventory build by
mills
• Chinese policy
• Cyclone anticipated
April 2017 Spike
• Cyclone disrupts
Australian supply
• Irregular purchasing
Q1 2017
• Price induced supply
response
• Inventory drawdown by
mills
• Chinese policy
Currently
• Markets stabilizing
over past few months
• Good demand
From Mid-April 2017
• Australian supply
returns to market
• Price induced supply
response
91
70
Q2 2016 Q2 2017
92
69
Q2 2016 Q2 2017
2.15
2.58
Q2 2016 Q2 2017
517 562
Q2 2016 Q2 2017
1.34
1.26
Q2 2016 Q2 2017
206
253
Q2 2016 Q2 2017
Copper Results
7
Realized Price (US$/lb)
Gross Profit2, 3 (C$M)Production (kt)
Sales (kt)
C1 Unit Costs1,2 (US$/lb)
1. C1 unit costs are net of by-product margins.
2. Non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” section of our quarterly news releases for further information.
3. Before depreciation and amortization.
23
21
0.43
23%
Expect higher production in second half of the year
9%
Revenue (C$M)
0.08
0.85
1.18
Q2 2016 Q2 2017
21%
544
660
Q2 2016 Q2 2017
131
196
Q2 2016 Q2 2017
161
135
Q2 2016 Q2 2017
92 90
Q2 2016 Q2 2017
72 74
Q2 2016 Q2 2017
6974
Q2 2016 Q2 2017
27
22
Q2 2016 Q2 2017
28
33
Q2 2016 Q2 2017
Zinc Results
8
Zinc Realized Price (US$/lb) Revenue (C$M)
Gross Profit2 (C$M)Zinc Production (kt)
Zinc Sales (kt)
Lead Production (kt)
Gross profit2 up 50%1. Represents production and sales from Red Dog and Pend Oreille, and excludes co-product zinc production from our copper business unit.
2. Before depreciation and amortization. Non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” section of our quarterly news releases for
further information.
RefinedConc1
RefinedConc1 Refined Conc1
0.33
50%265
18 2
5
2
5
As at June 30, 2017.
Source: Fort Hills Energy Limited Partnership, May 2017.
Fort Hills First Oil End of 2017
9
• Construction >92% complete
• 4 of 6 areas turned over to Operations
‒ Utilities >95% complete
‒ Secondary Extraction first oil facilities
81% complete
• >90% operations personnel hired
Simplified Settlement Pricing Adjustment ModelOutstanding at
March 31, 2017
Outstanding at
June 30, 2017
Quarterly
Price
Change
Pricing
Adjustments
Mlbs US$/lb Mlbs US$/lb US$/lb C$M
Copper 131 2.66 122 2.69 0.03 3M
Zinc 123 1.27 100 1.25 -0.02 -9M
Other 3M
TOTAL -3M
Driven by quarterly change in key commodity prices
Settlement Pricing Adjustments
10
Q1 2013
Q2 2013
Q3 2013Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
-150
-100
-50
0
50
100
-$0.75 -$0.25 $0.25 $0.75
Pre
-tax S
ettle
ment
Adju
stm
ent (C
$M
)
Change in Copper & Zinc Price (C$/lbs)
0
500
1000
1500
2000
2500
Cash - startof quarter
Cash flow fromoperations
Proceeds fromsale of
investments &other assets
Repayment ofdebt
PP&E, incl.Fort Hills
Capitalizedstripping
Debt interestand financecharges paid
Dividends paid Other Cash - endof quarter
8258
Cash Changes in Q2 2017
Cash Flow
11
382
329
$ M
illio
ns
$536
$846
173
1,408
87
13
Current liquidity of >C$4.5 billion1
1. As at July 26, 2017.
0
1
2
3
4
5
6
7
8
US
$ B
illio
ns
Achieved Debt Reduction Target of <US$5B
1. As at June 30,2017
2. Our revolving credit facility requires a debt to debt-plus-equity ratio of <50%.
3. Non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” section of our quarterly news releases for further information.
Public Notes Outstanding
Current Debt Portfolio1
Public notes outstanding US$4.8B
Average coupon 5.7%
Weighted average term to maturity ~15 years
Debt to debt-plus-equity ratio2,3 26%
Net debt to debt-plus-equity ratio3 23%
Undrawn credit facility US$3.0B
12
Lowered debt to debt-plus equity ratio to 26%
Looking Forward
1313
• Generating strong free cash flow
• Five months to first oil at Fort Hills
• Solid financial position
Second Quarter 2017 ResultsJuly 27, 2017