Teck Resources Limited (TECKB) Earnings Call Transcript & Summary

Good afternoon. I'm Sheila Murray, the Chair of the Board of Directors of Teck Resources, and I'd like to welcome everyone to the Virtual Annual and Special Meeting of Shareholders of Teck Resources Limited. Before we begin, I would like to acknowledge the ongoing challenges related to the COVID-19 pandemic, and thank all of our shareholders for assisting Teck and safeguarding the health of our employees, shareholders and communities by attending this meeting virtually and voting by proxy. Following the business of the meeting, there will be a presentation by Teck's President and Chief Executive Officer, Don Lindsay, and an opportunity for questions and answers. Questions may be submitted by shareholders through the virtual meeting platform. At Teck, we begin each meeting with a safety message. Today, I would like to discuss Teck's copper and health program. As many of us know, copper is naturally antimicrobe -- antimicrobial, pardon me, and have self sanitizing properties. At Teck, we've been expanding our copper and health program, partnering with transit authorities and health agencies. We know that copper continuously kills up to 99.9%. [Technical Difficulty] I'm still on. May I continue? We know that copper continuously kills up to 99.9% of all bacteria and viruses, including SARS-CoV-2 and those with high antibiotic resistance. During the pandemic, and while most of us have been working from home, we have been installing antimicrobial copper throughout our Teck workspaces on high-touch surfaces like door handles and reception desk, to help make them safer as we prepare to welcome more and more people back into our office spaces in the coming months. The meeting will now come to order, and I will ask Teck's Corporate Secretary, Amanda Robinson, to act as secretary of the meeting; and Francine Mbvoumbo and Leanne Branston of Broadridge Financial Services, Inc. to act as Scrutineers. The Secretary has confirmed that the meeting materials were mailed to shareholders in accordance with applicable laws on March 23, 2021. I direct that a copy of the declaration of mailing be attached as a schedule to the minutes of this meeting. Management will be pleased to answer any questions arising from Teck's annual report during the question period following this meeting. I will now ask that the Secretary read the Scrutineer's preliminary report on attendance. Amanda?

[Technical Difficulty]

Ladies and gentlemen, we do apologize. We think we're experiencing some difficulties. If you can just standby, please.

Ms. Murray, it's Peter Rozee speaking. I can read the Scrutineer's report into the record.

Thank you, Peter, if you would.

I'm pleased to report that the there are 163 shareholders holding 6,342,544 Class A common shares and 66,778 shareholders holding 365,407,648 Class B subordinate voting shares represented in person or by proxy at this meeting. This represents a total of 66,941 shareholders, holding 999,662,048 total votes, which is 76.9% of the 1,299,620,685 issued and outstanding votes as of the record date of March 1, 2021.

Thank you, Peter. Having determined that a quorum is present, I declare the meeting is duly constituted for the transaction of business and direct that a copy of the final Scrutineer's report be attached as a schedule to the minutes of this meeting. And now on to the business at the meeting. Voting today will be conducted by way of ballot. Scrutineers have advised that the proxies deposited for the meeting have been voted overwhelmingly in favor of each of the items of business to be voted on at this meeting. Voting through the virtual meeting platform will remain open for all 4 items of business following presentation of the matters, following which preliminary voting results will be announced. The first item of business is the election of directors. 12 directors have been nominated for election in accordance with the provisions of General Bylaw #1 of the corporation. They are: Mayank M. Ashar, Quan Chong, Edward C. Dowling, Eiichi Fukuda, Toru Higo, Norman B. Keevil III, Donald R. Lindsay, Tracey L. McVicar; Sheila A. Murray, Kenneth W. Pickering, Una M. Power, and Timothy R. Snider. I will now entertain a motion that those nominees be elected as directors of the corporation.

So moved.

Thank you, Peter. The second item on the agenda is the appointment of the auditors. I will now entertain a motion to appoint PricewaterhouseCoopers, LLP, as auditors of the corporation and to authorize the directors to fix the auditors remuneration.

So moved.

Thank you. The third item on our agenda is the advisory vote on the approach to executive compensation. Consistent with past practice, the Board has determined to put before shareholders an advisory "say on pay" resolution. On the basis of fees received in advance of this meeting, although the resolution will pass with an approximately 80% support level, overall, we've seen a significant drop in support from holders of our Class B shares for this "say on pay" resolution. We take the views of our shareholders very seriously. And while we expect that the vote is in large part a result of a recommendation which was received from ISS. And that's a recommendation, which we believe has some serious flaws. We intend to reach out to our shareholders to discuss and understand any concerns that they may have, and we'll be doing that in the coming months. However, I still will go ahead with the vote of course and entertain a motion to approve the advisory resolution on the corporation's approach to executive compensation.

So moved.

Thank you, Peter. The last item of business is the approval of General Bylaw #1. I now entertain a motion to approve the resolution with respect to General Bylaw #1 as set out in Teck's management information circular dated March 1, 2021.

So moved.

Those are the 4 items of business to be dealt with at this meeting. There's a means on the port -- the web portal for shareholders to make a statement or ask questions with respect to any item of business. You should be aware, however, that sufficient votes have been cast by proxy to ensure that the passage of each resolution before this meeting. We're happy to engage with shareholders outside of the formal meeting to discuss any items of concern, in accordance with our shareholder engagement policy, which can be found on our website. The polls are now open for voting. Any shareholder who has not yet voted may do so, by clicking the voting button on the web portal and following the instructions there. Shareholders who have already voted do not need to take any further action. [Voting]

Now that everyone has had a brief opportunity to vote, I declare the polls for the Teck 2021 Annual and Special Meeting to be closed. I'll now report the preliminary voting results. All of the nominated directors have been elected, and each of the other items of business have been approved. I direct that the final results of the poll on each matter before the meeting be included with the minutes of this meeting. Detailed voting results will be filed on SEDAR and available for public viewing for those who are interested. We've now reached the end of the formal business portion of this meeting. There being no further business to come before the meeting, I declare the meeting to be terminated. And I'll now turn the meeting over to Don Lindsay. There'll be a further opportunity to ask questions following his remarks. If you have a question, please submit it now to the virtual meeting platform. Don, over to you.

Lets start with a video. [Presentation]

Thank you for joining us today and I hope you enjoyed the video. 2021 was certainly a year that challenged us all. And I continue to be impressed by the strength and resiliency of our team at Teck. I know that all of our employees have gone above and beyond during this unprecedented time, and I want to thank them all for their commitment and their dedication. I would also like to take a moment to really say thank you to Sheila Murray on her leadership since becoming Chair in February of 2020. Sheila, your guidance was critical during what turned around to be a very unusual year. I don't know how many board meetings we had, but was certainly a lot. We appreciate your leadership. As well, I would like to take this opportunity to thank 7 members of our leadership team who announced their retirements over the last year or so, and these were: Ron Millos, our former Senior Vice President, Finance and Chief Financial Officer, who is with Teck for over 25 years. Thank you so much, Ron. Dale Andres, our former Senior VP based metals, who was also with Teck for 25 years. Thank you, Dale. Andrew Golding, former Senior VP, Corporate Development, who is with us for 7 years. Thank you, Andrew. And Vice President, Chris Deckard, Scott Wilson, Mark Edwards, and Keith Stein. I want to thank each of you for your many significant contributions to our business. Thank you from all of Teck. Before we begin, I would like to draw your attention to the caution regarding forward-looking statements slide on Slide 6. This presentation contains forward-looking statements regarding our business. This slide describes the assumptions underlying those statements, various risks and uncertainties may cause actual results to vary, and Teck does not assume the obligation to update any forward-looking statement. So as always, we begin with safety and a summary of our health and safety performance last year. And I am pleased to report that 2020 was Teck's safest year on record. We achieved a 32% reduction in high potential incidents from 2019, continuing the track record of year-over-year improvement. However, we were deeply saddened by a fatality that took place in January 2021 at our Red Dog operations. And we extend our deepest sympathies to the employee's loved ones and coworkers. In response to the incident, we carried out an in-depth investigation, and we have implemented measures to prevent any reoccurrence. Turning to our COVID-19 response. When faced with the COVID-19 pandemic, I am pleased to say our team really rose to the challenge, demonstrating our strong health and safety culture. We quickly implemented comprehensive protocols and preventative measures at every site to safeguard our employees, our contractors and our communities. We made tough but necessary decisions to ensure safety, including temporarily reducing crew sizes, and pausing construction at our QB2 project to ensure that all necessary measures were in place. These steps allowed us to keep operating and to advance our priority projects safely, while maintaining jobs and providing essential metals and minerals for the world. We continue to build on these measures as the risk of COVID unfortunately remains still with us, as you all know. We've expanded prework screening programs to now include sites in all of our operating jurisdictions, and we are providing information and benefits to our employees to encourage vaccination. In addition, we established a $20 million COVID-19 response fund to support health care and community organizations, such as food banks in the communities where we operate. We have also expanded our copper and health program to increase the use of antimicrobial copper to fight bacteria and viruses, including COVID. This program is focused on improving the health outcomes for people and on demonstrating the benefits of copper and on raising awareness about the importance of metals in daily life. That work includes: partnerships with hospitals in Canada and Chile and to install copper-infused material on high-touch surfaces that make hospitals safer. And we're now doing that, in fact, in 8 hospitals with more to come. It also includes research to strengthen the case for broader use of copper, including a recent successful trial of copper coatings on Vancouver Transit, the first of its kind in North America. And also, it includes raising awareness amongst the public about organizations and governments about copper. Our efforts to raise awareness across all platforms in 2020 and 2021, including advertising and social media. And you can see some examples from our outreach work here on the slide. I'd also like to share another video that really highlights the work that we're doing to educate people and the very positive response we're seeing from the public to Teck's copper and health program. [Presentation]

We have maintained a strong financial position coming out of 2020 and into 2021, which is the key as we plan for the future. We have maintained a strong balance sheet with no significant debt maturities prior to 2030 and with at least $6 billion of liquidity throughout the pandemic. As well, having investment-grade credit ratings from all 3 rating agencies throughout the pandemic. We have controlled costs exceeding our cost reduction target in 2020 and realizing more than $1 billion in savings at year-end. We also continue to provide value for our shareholders in 2020, returning $106 million in dividends and completing $207 million of share buybacks. And as of April 27, 2021, despite finishing Neptune, finishing the Elkview plant expansion, finishing the Elkview SRF and most of the Fording River active water treatment plant and 50% of QB2, we still have $6.3 billion of liquidity. While we focus on managing the risks around COVID-19, we are also continuing to operate responsibly. Advancing our prudent growth strategy, which is focused on what people are now calling green metals and, in particular, copper. Under this strategy, we aim to fund and accelerate our copper growth by maximizing cash flows from our other operations. And this will effectively rebalance our portfolio, making carbon, including steelmaking coal a smaller proportion of our business. We're also continuing to strengthen our existing high-quality assets through our RACE21 technology and innovation program. RACE21 is harnessing cutting-edge technologies to drive step change improvements in productivity, efficiency, safety and sustainability. Everything we do is underpinned by a focus on disciplined capital allocation. And of course, we remain committed to strong environmental, social and governance performance where we are ranked #1 in the world in our industry by several notable independent agencies. Slide 13 shows how we are accelerating copper growth. The graph on the left starts with our solid base of current copper operations, including Highland Valley, Antamina, Carmen de Andacollo and Quebrada Blanca. As illustrated, QB2 is expected to double our consolidated copper production by 2023. We also have a significant copper growth pipeline of options for the future, illustrated on the right graph, and this includes the vast QB2 ore body. Currently, we have a little over 8 billion tonnes of reserves and resources in this ore body, which represents an increase of 20% in the past year, and it's headed to over 10 billion. We also have multiple copper growth assets including the project satellite assets, Zafranal, San Nicolás, Mesaba, Galore Creek and Schaft Creek as well as NuevaUnión. QB2 is expected to be a top 20 copper producer initially with potential to increase to a top 5 copper producer in the future as we further leverage that past ore body. QB2 only uses around 18% of the 2020 reserve and resource tonnage, and the ore body is open in multiple directions for potential increases in reserves and resources. Construction work is progressing well across all areas of the project. I'm very happy to say that this month, we passed the halfway mark for project completion, and we are on track for first production in the second half of 2022. We also continued to improve our steelmaking coal business in 2020, lowering costs and strengthening our logistics. The upgrade of our Neptune steelmaking coal terminal will increase loading capacity and improve our capability to meet our delivery commitments and lower our overall transportation costs. Commissioning is now underway, and ramp-up is continuing as planned. To date, 18 vessels have already been loaded using the new outbound system. And in addition to all of the work at the port, at our mine sites, we reduced our costs with the closure of higher cost Cardinal River operations replacing this production through the plant expansion at our lower cost Elkview operations. Collectively, these improvements position us well to meet steelmaking coal demand in the recovery ahead. We are also continuing to strengthen our existing high-quality assets through our RACE21 business transformation program. Despite the challenges of COVID-19, RACE21 had significant positive impacts across our operations in 2020, as shown on Slide 16. For example, at Highland Valley Copper, advanced analytics in the plant, together with drill to mill optimization and blasting improvements, resulted in an improvement of approximately 7% in throughput and approximately 2% in copper recovery. And across all our Teck sites with major trucks and shovel fleets, including all 4 steelmaking coal operations and Highland Valley, RACE21 innovations contributed to record haul truck productivity. As always, sustainability underpins everything we do, and 2020 was a milestone year. We updated our sustainability strategy to meet changing global expectations with ambitious new long-term goals, such as becoming a carbon-neutral operator by the year 2050. And we have made great progress towards our environmental goals. We finalized 2 renewable power purchase agreements in Chile, which, in total, will eliminate over 1 million tonnes of greenhouse gas emissions per year. And that's the equivalent of taking 210,000 cars off the road. We completed our Elkview Saturated Rock Fill expansion, which will double the treatment capacity to 20 million liters per day. And by 2021, we expect to nearly triple our 2020 treatment capacity to 54 million liters per day, and there's more to come after that. Teck's strong sustainability performance continues to place us at the top of ESG rankings, as I mentioned, with major ratings firms. We are the top-ranked mining and mills company on both the S&P Dow Jones Sustainability World Index and also on Sustainalytics. We have an A rating and are in the top quartile for mining on MSCI, and we were recently named to the Global 100 most sustainable corporations list by Corporate Knights. These rankings are encouraging, but we do know that we need to remain focused on continuing to build on that track record to ensure that we meet the expectations of our shareholders, communities and society. Looking ahead, our focus is on continuing to operate responsibly while safeguarding the health and safety of our employees and communities. We will continue to progress our green metals growth strategy, which is focused on completion of QB2 to double our copper production. We have a whole range of initiatives underway as part of RACE21, which will transform our business for the better, and we are maintaining a strong financial position. And most importantly, we have a team that is committed to delivering on our priorities while staying focused on sustainability and safety. As we move forward together, we will continue to provide value for our shareholders, support the global transition to a low-carbon economy and provide the Metals & Minerals essential for our modern world. Thank you. And with that, I'm happy to answer any questions.

We have a question submitted by a shareholder in advance. Teck has invested significantly to increase capacity at Neptune terminals. Is this investment the right use of capital?

Well, thank you very much for your question. And I must say that I had a chance to visit the Neptune port just on Monday, 2 days ago, and it is very exciting to see it in action. I got to watch the double dumper, dumping coal. We got to watch the new ship loader loading. We even climbed up on a ship to watch it loading in the hold. And it's clearly up and running and going to be a great asset for decades to come. So the business case remains very strong. The upgrade is expected to be enormously valuable for 3 main reasons: First, the operating cost will be significantly lower and much closer to the costs that are steelmaking coal competitors in Australia pay. Teck is moving the majority of the tonnage from what used to be at market rates from an independent supplier to now a cost of service model. And just to give you an order of magnitude, we know that had we not built this port that our costs at the former provider would have gone up, it would have continued to increase. Whereas our costs at a port that we own will be able to manage. So we think that there could be a difference of as much as $10 between what we would have been paying and what we're going to be paying now. We also are very confident that we'll be seeing 4 trains a day unloaded at the port at Neptune and then we have [indiscernible] ships and 4 trains a day adds up to about 22 million tonnes a year. So that means that we're going to be moving as much as 15 million, 16 million tonnes through Neptune that we didn't before. Multiply that by $10 a tonne and look at that versus our investment, and that's a pretty good return. But that's only the first part of the economic benefit. The second part is that we will avoid the opportunity cost, the losses that we used to have when we couldn't get our coal shipped. And there was 1 quarter, the particular quarter when we decided to make the investment, when we lost $200 million of EBITDA in one quarter, because 1 million tonnes wasn't shipped when margins were $200 a tonne. Over a 3-year space of time, we lost about 2.5 million tonnes of sales and the margin associated with that. So that alone can provide good payback. And finally, we will now be able to deliver much more consistent quality. Our high-quality hard coking coal will not be contaminated with lower quality thermal coal, and that's very important to our customers, and it'll be much easier for us to do that at the upgraded Neptune facility. So we think this is a great long-term addition to the coal business just makes it stronger for decades to come.

We have time for one last question. Can you comment on the future of the energy business unit?

Yes. So we're looking forward to Fort Hills getting back to full production. Suncor has announced that it is intending to get the second line up and running by midyear. And they're forecasting production back at 175,000 to 185,000 barrel a day rate by the third quarter. And that should take costs down significantly as well into the CAD 20 to CAD 23 per barrel range at the mine site. And at current prices, that would then start generating substantial EBITDA and free cash flow. And what we've said for more than a year now is that if at that time when Fort Hills is back at full production, we aren't getting paid for the value of that asset in Teck Resources shares, then the Board would consider looking at a transaction that would have Fort Hills and possibly the other oil sands assets, too held differently. And by that, we mean, it could be rolled into another company as part of a consolidation play and taking back shares. It could be spun out directly to our own shareholders. It could be sold for cash and the cash devoted to either reducing debt or our copper growth strategy. So we aren't there yet. We do need to see it get back to full production. Our largest shareholders have certainly made it very clear to us, they wouldn't want us to do anything until we can demonstrate just how valuable the asset is. Back in the last month when it was allowed to run at full capacity, and that was December 2018 before Alberta put a cap on oil production, its operating results were tremendous. It operated at 201,000 barrels a day at a cash cost of CAD 23, and we'd just like to see it get back to those levels. Again, and it looks like it's coming up fairly soon, probably by the third quarter. With that, I want to say thank you all for listening today. We look forward to the annual meeting in 2022 in April and to be able to report on 2021. We're looking forward to seeing further progress on QB2 and finishing it next year with first copper expected in the second half of next year. And that will be a very significant milestone for our company as we continue to further our growth strategy in copper, known as green metal these days. So thank you very much all for attending today.

This now concludes the meeting. Thank you for joining, and have a pleasant day.