Teck Resources Limited (TECKB) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Teck Resources 2021 Investor and Analyst Day Broadcast and Conference Call. [Operator Instructions] This conference call is being recorded on Tuesday, September 21, 2021. I would now like to turn the conference call over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Sir, please go ahead.

Thanks, Matt. And now depending on where you're joining us from today, good morning or good afternoon to everyone. On behalf of the entire senior management team, welcome to Teck's 2021 Investor and Analyst Day. Our presentation is posted in the Investors section of our website at teck.com. Please note that this event is being video recorded, and the recordings will be posted on our website later this week. Before we begin, please note, today's presentation contains forward-looking statements regarding our business. Various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statements. Please refer to Slides 2 and 3 for the assumptions underlying our forward-looking statements. Throughout this presentation, we will reference various non-GAAP measures. Explanations and reconciliations regarding these measures can be found in the appendices of our presentations and our most recent filed quarterly press release on our website. Today's presentation is divided into 3 sessions: strategy, operations and ESG leadership. Don Lindsay, our President and Chief Executive Officer, will lead our strategy panel, which is focused on Teck's strategy to capitalize on our industry-leading copper growth profile as we rebalance our portfolio towards low carbon metals. The session will include a review of our key commodity markets, updates on our QB2 growth -- copper growth project and on our copper growth strategy and a discussion of our capital allocation priorities. Next, we will provide operational updates across our major business units, including the exciting progress on RACE21. The session will be led by Red Conger, our Executive Vice President and Chief Operating Officer. The third and final session will be with Marcia Smith, Senior Vice President of Sustainability and External Affairs. Marcia will provide an overview of Teck's commitment to ESG and our industry-leading performance. In order to make today's event as interactive as possible, we've allocated time for Q&A following each of the 3 panel discussions. We will wrap up the day with a final Q&A session and Don's closing remarks. Our presentation materials, including a replay of the webcast, will be e-mailed -- will again be made available on teck.com. [Operator Instructions] With that, let's kick off our first session on strategy. Don will begin with an overview. He will be followed by Réal Foley, Senior Vice President, Marketing and Logistics, on our key commodity markets. Next will be Red along with Alex Christopher, our Senior Vice President, Exploration Projects and Technical Services, with an update on QB2. After that, Nic Hooper, Senior Vice President, Corporate Development, will review our copper growth strategy. And finally, Jonathan Price, our Senior Vice President and Chief Financial Officer, will provide a summary of our financial strategy, including capital allocation. Don, with that, over to you.

Well, thanks very much, Fraser, and welcome everyone. Thank you all for joining us today. I'm going to begin with an overview of how Teck is poised for growth. These next couple of years are going to be a very exciting phase in our company's history. Then I'm going to go through an update on our health and safety performance and sustainability performance and some of the key changes to our management team over the last year. And then I'll go through the positioning that we have in a decarbonizing world and what we believe is an industry-leading growth profile in copper, and conclude with a review of our solid track record of returning cash to shareholders. So starting on Slide 2. As I said, this is a very exciting time for both our industry and for Teck itself. There are opportunities ahead as global growth and the transition to a lower carbon economy drive new metal demand, particularly for copper. Now we're also focused on delivering strong operating results and strong free cash flow by taking advantage of the current favorable commodity price environment, particularly with steelmaking coal prices that are actually around USD 399 per tonne on an FOB basis and over USD 570 per tonne on a CFR China basis. We believe that Teck is one of the best positioned companies globally to capitalize on the strong demand growth that we see for copper, with one of the very best copper production growth profiles in the industry. And in the process, we expect to continue to reduce carbon as a proportion of our total business, while continuing to produce the essential metals and minerals required for a low-carbon world. We're also continuing to strengthen our existing high-quality low-carbon assets through our RACE21 technology and innovation program, which is harnessing cutting-edge technologies to drive step change improvements in productivity, efficiency, safety and sustainability. And at the same time, we strive to maintain the highest standards of sustainability, safety and operational excellence in everything we do. And we have a leadership team with the right mix of skills and experience to deliver on our strategy. Turning to Slide 3. Health and safety is a core value for Teck. We continue to make progress in our health and safety and our sustainability performance, as you see on the slide. We have reduced our rate of high potential incidents by 80% since 2016 and by 38% year-to-date. As we work towards building a more inclusive workplace, we have enhanced representation and diversity across the company with women comprising 28% of the senior management team and 1/3 of all new hires. We are rebalancing our portfolio, as Fraser mentioned, towards low-carbon metals and have goals that address the climate challenges. We have made a commitment to be carbon neutral across all of our operations and activities by 2050 with an interim target to reduce our carbon intensity by 33% by 2030. We are serving the needs of our communities and indigenous peoples with 24% of our procurement spend with local suppliers and with 72 active agreements with indigenous peoples. And we are implementing innovative water management and water treatment solutions to protect water quality downstream of all of our operations, and all the time, reducing our water use. We expect to triple our water treatment capacity in the Elk Valley this year, and we have achieved a 13% reduction in freshwater use in our Chilean operations to date. At the same time, while we are proud of health and safety -- our health and safety performance and our sustainability performance, we do know there is more work to be done to keep pace with the expectations of our stakeholders. Now addressing key changes to our management team on Slide 4. We have had a significant renewal of our senior management team over the past year, including new hires, promotions, retirements and restructuring. We've had a number of recent changes, including Sarah Hughes was appointed VP, Assurance and Advisory, this past April, overseeing Teck's enterprise assurance program and the assurance and advisory team. Sarah joined us from Trevali, where she was VP, Risk and Assurance. And previously, Sarah held a number of senior roles at Goldcorp and was Group Internal Auditor for British Petroleum in London. Brianne Metzger-Doran was appointed VP, Health and Safety, in May, replacing Lawrence Watkins, who retired on June 15. Brianne joined us from Enbridge, where she was VP, Safety and Reliability, and brings to the role more than 20 years of experience in health and safety, continuous improvement and risk management and compliance. Don Sander was appointed VP, Planning and Innovation, for our coal business in November. He was previously the General Manager of our Elkview operation. And in his new role, Don is responsible for aspects of sustainable resource development and business improvement initiatives in the steelmaking coal business. Nick Uzelac was appointed VP, Legal, in November. Nick brings to his role nearly 20 years of legal practice experience with a focus on securities law and M&A. Dr. Joshua Tepper was appointed Teck's Chief Medical Officer in July, and Dr. Tepper is responsible for guiding the development and implementation of company-wide occupational health systems and medical programs which, of course, has had a significant focus on our COVID programs to date. Dr. Tepper brings extensive experience as a family physician and a health system leader, most recently, as President and CEO of North York General Hospital. And Helen Kelly was appointed Director of Investor Relations in September. She joined us from Aritzia where she was VP, Investor Relations, for the past 2 years. She brings more than a decade of Investor Relations experience to the role, largely in oil and gas and including both Suncor and MEG Energy. Next slide, please. So as I said at the opening, some very exciting time to be in this industry. The unprecedented global monetary and fiscal stimulus in response to the COVID-19 pandemic has increased demand for the minerals -- metals and minerals essential for a low-carbon world, including copper, zinc and steelmaking coal. And the forecast near-term economic recovery, as vaccine uptake continues, is expected to further increase demand at a time when inventories of many of these metals and minerals are at historically low levels. At the same time, long-term demand forecasts are strong, driven by decarbonization, population growth and a rising middle class. In copper, significant growth in demand is expected from power generation and grid infrastructure, storage, charging infrastructure and electric vehicles. And overall, CRU expects copper demand in these end users to grow at a 26% cumulative annual growth rate between now and 2030. Teck is well positioned to capitalize on this increase in copper demand. We expect to double our consolidated copper production by 2023 with the start-up of QB2. As shown on Slide 6, we believe that high-quality seaborne steelmaking coal will continue to be an essential input for production of the steel that's needed for infrastructure development, including that required to support electrification and decarbonization. Over the long term, demand for seaborne steelmaking coal is forecast to remain robust, fueled by growth in blast furnace steel production in regions such as India and Southeast Asia, which have limited scrap availability and little to no access to domestic or overland hard coking coal supply. The market share for seaborne steelmaking coal imports in these developing economies is forecast to increase from about 1/3 currently to more than half by 2050. And supply growth is clearly constrained, as shown in the graph on this slide. Without the addition of confirmed and unconfirmed greenfield and brownfield projects, there will be a significant gap to steelmaking coal demand between 2025 and 2030, which is not very far off. We recognize the need for the steel sector to decarbonize in support of global climate goals, and we have done a great deal of work to understand the long-term resilience of steelmaking coal demand in a decarbonizing world, both internally and with external experts. And you could find a summary of that work in the appendix of our marketing document, which is available in the Investors section of our website. Our analysis suggests that in order to meet the world's decarbonization targets, the steel industry is unlikely to converge on a single emission abatement technology, and it's more likely a range of technologies will need to be deployed as they become commercially viable. Of these technologies, blast furnace plus carbon capture utilization and storage, or CCUS, is the most cost competitive and commercially viable solution for large-scale adoption unlikely to be displaced at scale by any other technology this half century. It is also the only abatement technology capable of decarbonizing the steelmaking industry at the rate and scale that is required by 2050, and that drives continued demand for Teck's high-quality seaborne hard coking coal. Teck's premium hard coking coal also has properties that improve blast furnace efficiency and decrease CO2 emissions per tonne of steel, optimally positioning it for a decarbonizing future. On Slide 7, we believe that Teck's strategy will ensure that we remain well positioned now and in the future for the transition to a low-carbon world. In the near term, our focus on copper growth will rebalance our portfolio and make Teck a major copper producer. At the same time, it will reduce the proportion of our total business that is derived from carbon, including steelmaking coal. In the medium term, we plan to prudently grow our copper business as an area essential to the transition to a low-carbon world. In the process, we expect to reduce carbon as a proportion of our total business, while continuing to produce a high-quality steelmaking coal required for the low-carbon transition. In longer term, we aim to be the leading copper producer supplying essential metals for a low-carbon world. As I mentioned earlier, we have set a target to be carbon neutral by 2050 with interim goals for 2030. We intend to continue to progress carbon reduction initiatives that are already underway in our operations to achieve our carbon neutrality by avoiding, eliminating and minimizing emissions. These include transitioning to renewable power sources, switching to low-emissions mining fleets and implementing efficiency improvements, among other measures. Next slide, please. Accelerating capital-efficient growth in copper is the cornerstone of our strategy. By growing our copper business and leveraging our industry-leading copper production growth profile, we will become a major copper producer. As I said a few moments ago, we will rebalance our portfolio, making carbon, including steelmaking coal, a much smaller overall proportion of our business at the same time. We're also continuing to strengthen our existing assets through our RACE21 technology and innovation program, which Andrew Milner will speak to shortly. And everything we do is underpinned by a focus on disciplined capital allocation and maximizing returns of cash to shareholders. We will rigorously assess and balance future opportunities for growth with providing cash returns to shareholders underpinned by a strong balance sheet. And of course, we remain committed to leadership in ESG performance. We believe Teck is one of the best positioned companies globally to capitalize on the strong demand growth we see for copper. We're already a significant copper producer from our 4 existing mines, but more importantly, as shown on Slide 9, we have one of the very best copper production growth profiles in the whole industry. As I've already noted, by 2023, Teck will have doubled our consolidated copper production as we complete construction of QB2. And this compares to an average copper production growth profile of just 21% for our diversified mining peers and only 11% growth for our copper peers, and these numbers are according to Wood Mackenzie. So Teck provides investors with strong copper growth exposure at a time when copper demand is set to increase significantly. In addition to QB2, our well-understood resource base creates multiple growth options as illustrated on Slide 10. And these are high-quality resources in very attractive and well-established mineral districts, including Canada, the U.S., Mexico, Chile and Peru. These options also include approximately 22 million ounces of measured and indicated gold resources and a further 10 million ounces of gold in inferred resources. We are making prudent investments to further define the path to value for each asset, leveraging our exploration, development and commercial expertise with a strong sustainability and community focus. Our continued investment has resulted in a robust pipeline in copper, which is something that many of our peers simply do not have. Next slide, please. Everything we do is underpinned by a focus on disciplined capital allocation. We optimize how we deploy what we call available cash flow in our capital allocation framework, balancing between returning additional cash to shareholders and investing in copper growth. Jonathan Price will speak to this in more detail in just a few minutes. Teck has a solid track record of cash returns to shareholders with over $4.9 billion of dividends and buybacks from 2011 to 2020, as shown in Slide 11. I would be remiss if I did not highlight the significant potential for EBITDA generation from current steelmaking coal prices. We estimate our annualized EBITDA to increase by approximately CAD 1.5 billion for every USD 50 per tonne increase in the steelmaking coal price. In summary, on Slide 12, this is indeed a very exciting time for our industry and for Teck itself. There are opportunities ahead as global growth and the transition to a lower carbon economy drive new copper metal demand. And we have an industry-leading copper growth profile and a very attractive copper pipeline. We're strengthening how we operate, both through cutting-edge innovation to improve productivity as well as leading ESG performance. And we have a leadership team with the right mix of skills and experience to deliver on our strategy. And with that, I'll turn it over now to Réal Foley, our Senior Vice President, Marketing and Logistics, on the current state of affairs and outlook for our major commodities. So Réal, over to you.

Thank you, Don, and good morning or good afternoon. In my presentation today, I will provide an overview of the markets for steelmaking coal, copper and zinc. And what I can say is what a difference a year makes. So starting on Slide 2, the steelmaking coal prices diverged with the China import ban on Australian coal as shown on the far right of the top chart. And as Don said, China CFR prices are at an all-time high around USD 580 per tonne today. And the current FOB Australia price is above USD 390 per tonne. So the market is definitely very tight. The global increase in demand for steel is one of the main drivers for the coal prices. Global crude steel production is up by around 125 million tonnes at around 2 billion tonnes year-to-date annualized, and the crude steel increase ex China is more than double the China increase. Steel production remains high to capture record high steel prices and strong margins. The iron ore price lost about USD 100 per tonne since peaking in May this year, leaving steel mills with capability to pay for coal. Steelmakers ex China continue to run on local stocks, and customers are trying to secure supply for Q4 ahead of the rainy season in Australia. We're also receiving inquiries from customers who have not purchased from Teck recently, again illustrating supply tightness. On the supply side on Slide 3, the main price drivers are: China's ban on Australian coal imports has been relatively absorbed by the global market, but has continued to impact China. Previously, Australia exported around 30 million to 35 million tonnes per year to China. It took around 6 months for trade flows to rebalance, as we suggested back in November 2020. India, Japan, Korea, Taiwan and Southeast Asia reflect the largest year-over-year increase in Australian coal imports, as seen on the top chart. The increase in steel demand globally helped move the Australian coal, but left the Chinese market undersupplying by around 13 million to 20 million tonnes, as shown on the bottom chart. China planned on increased domestic mine production and also increased imports from Mongolia and seaborne imports to offset the losses from Australia. While domestic mine production in seaborne imports increased year-over-year, Mongolia is down a further 9 million tonnes year-to-date annualized following a 10 million tonne drop in 2020. China domestic production continues to be challenged by safety inspection, with increased production now expected to be half of forecast at the start of 2021. And at the same time, port inventories are low and end-user inventories are at multiyear lows. COVID is continuing to impact Mongolia exports to China. China's seaborne August year-to-date annualized coal imports ex Australia are running at record high levels, exceeding the previous record high in 2013. Ex Australia continued to divert tonnes to China to capture the record-high CFR China prices. Keep in mind that in 2013, China crude steel production was around 780 million tonnes. So that is more than 300 million tonnes below the current production level, which clearly shows that the core market is very tight. We're hearing rumors that some suppliers are sold out through October or longer. While we can't be certain of the length of time that this pricing environment will continue, indications are that the ban on Australian coal will continue into 2022. And what is certain is that the market is very tight. July year-to-date annualized coal production by the key seaborne exporters is down around 17 million tonnes versus the pre-COVID 2019 levels, while crude steel production is up around 125 million tonnes over the same period. Looking at the medium to long term on Slide 4. Steelmaking coal, and particularly, hard coking coal demand will be supported by expansion and builds of blast furnaces in Southeast Asia and India. Asia has already committed to 20-plus years of traditional steelmaking technology. And the chart on the right shows a country split with India representing around 60% of the brownfield and greenfield expansions. As Don mentioned, steel production will be critical for global efforts on decarbonization. It's use in almost all green energy and storage projects will increase in coming years. And while the world makes every effort to decarbonize, efficient technology has not been developed yet to replace the primary steelmaking capacity using the traditional blast furnace and BOF. The steel industry will look at several alternatives to transition to a low-carbon environment, including carbon capture usage and storage to reduce carbon emissions. Scrap will also be a factor in reducing emissions, but it's not a silver bullet as we're seeing today in this year. Scrap has not been able to keep up with demand despite record high steel prices. Now shifting to base metals on Slide 5 with copper. Copper is an essential element in the reduction of carbon emissions globally. The rapid expansion of green energy, energy storage and emissions-free transportation are adding to the demand for -- demand growth for copper. A number of mining projects will come online in 2023 and 2024. That could temporarily meet this demand projection, but the supply response is falling short per the top chart. Note that 80% of the projects were sanctioned prior to the pandemic and prior to the rapid escalation in the move forward in green energy. Demand for copper is forecast to grow by more than 12 million tonnes in the next 10 years to meet accelerated IEA targets. In the last 20 years, by comparison, during the economic transition in China, copper mine production only grew by 7 million tonnes. And currently, only 2.4 million tonnes have been committed out of that 12 million tonnes required in the next 10 years. So demand for copper continues to accelerate as more companies move to lower emissions. Automakers, for instance, in the last 3 months alone have raised or brought forward their 5-year targets for EV fleets by 8% per the bottom chart. This is an 8% increase in end-use demand versus what was projected only 3 months ago. Many industries are now struggling to keep up with the rapid pace of change. It is estimated that the current electric grid will require over 10% increase in capacity just to meet the near-term targets of global 40% EV penetration. Turning to the zinc market on Slide 6. The market continues to underestimate the changes taking place. Chinese mine production continues to underperform expectations. We expect Chinese zinc mine production will remain relatively flat in the coming years, with some expansions offset by lower grades and lower production at other mines. This will result in an increase of imported concentrate into China per the light blue bars on the top chart. In the short term, energy restrictions impacted some smelter production, offset by continuing logistic issues in South America, including the shortage of vessels and containers. The zinc concentrate market remained tight this year with treatment charges stable in the USD 70 to USD 90 range, and the zinc metal market also exceeded expectations in 2021. For instance, premiums in the American market are now in the USD 0.0875 to USD 0.11 per pound range, levels last seen a number of years ago. Global galvanized steel is increasing with galvanized sheet prices hitting record highs despite a slowdown in auto production due to a shortage of computer chips. We see this pent-up demand continuing well into 2022, but some suggesting auto prices could remain high into 2023 on supply shortages. As mentioned earlier, decarbonization will require steel. Galvanized steel extend the service life of steel and reduces scrapping, and thereby, carbon emissions. With that, I'll turn it over to Red Conger and Alex Christopher to provide an update on our near-term copper growth project, QB2.

Thanks, Réal. I'm Red Conger, Executive Vice President and Chief Operating Officer, and I'm joined today by Alex Christopher, our Senior Vice President of Exploration, Projects and Technical Services. We're going to take the next 10 minutes or so and talk to you about the significant progress we've been making at QB2 and give you a snapshot of our current construction and commissioning focus. We won't repeat what Don has highlighted or reiterate much of what you already know regarding the quality and attractiveness of Quebrada Blanca as one of the world's premier, undeveloped copper deposits. Before I start with the update, I wanted to remind you of the size and scope of the infrastructure that we are developing at this brownfield site where we expect to produce 316,000 tonnes of copper equivalent and concentrate annually over the first 5 full years of operation. We're constructing 143,000 tonne a day conventional copper concentrator, a tailings facility with a capacity for a 28-year mine life, 165 kilometers long concentrate and water pipelines, a port facility that includes a desalinization plant and concentrate filtration plant as well as supporting infrastructure such as power lines, electrical substations and roads. Now over to Alex to take you through progress in key focus areas.

Okay. Thanks, Red. So starting on Slide 2. The overall construction is advancing very well across the project. We continue to gain steady progress surpassing 60% overall project progress in early August. And absent another significant wave of COVID, we remain confident we'll achieve first copper production in the second half of 2022. The project's team response to the significant second wave of COVID in Chile in the first half of 2021 was nothing short of exceptional. Our focus on vaccinations and our strong COVID protocols including extensive proactive testing continue to be very effective and have been key to the successful advancement of the project. Chile has cited our efforts as a model for managing workplace health and safety during these unprecedented times. And Bechtel indicates that QB2 is one of their best-performing projects worldwide for managing the spread of the virus. The capital estimate remains unchanged at USD 5.2 billion before COVID impacts. And our estimated COVID capital cost impact, as highlighted in our most recent quarterly conference call, is USD 600 million. I'm proud to say that as of this morning, the work -- the project workforce is currently over 82% fully vaccinated, with over 90% of the workers having received at least 1 dose. So with COVID cases in Chile declining, coupled with the higher rates of vaccination in the country and in the project workforce, we're aggressively ramping up the workforce levels with a focus on delivering to the project's key milestones. And we're doing this in a coordinated fashion by collaborating with Bechtel and the various construction contractors to build on our ramp-up and construction success to date. This includes initiatives and incentive programs to continue to drive behaviors that will successfully deliver results and keep major project areas on track to achieve our targeted first production date. The project's focus and critical path remains the grinding circuit at the concentrator. The photo you see here on the right of the slide shows the coarse ore stockpile area back in June, but we're well advanced with the dome foundation, stacker structure and reclaim tunnels. And we are also maintaining a strong focus on other important construction areas, including the port-to-pond infrastructure, which will provide water for commissioning the concentrator. So moving on to the next slide. Given the advanced stage of construction with first copper rapidly approaching, we have considerable efforts directed on operational readiness and commissioning to ensure a successful start-up and a seamless transition to operations. As a major new project, QB2 is being built from the ground up to incorporate leading technologies and innovation, including our state-of-the-art integrated operation center, which will drive value by making people, process and workplace design. The facility has been designed so that multidisciplinary operations teams, including our integrated planning group, value chain optimization, process control and reliability will have real-time visibility and tools to remotely manage operations at QB2. Our operations leadership team is already in place, and we're actively ramping up the operations workforce as we undertake pre-commissioning and commissioning activities on systems as they turned over. Each of the operational areas listed here has multiple systems and subsystems that need to be commissioned and operated with a number of these starting just this year. Our operations and commissioning teams are working closely in collaboration with our construction and corporate groups to ensure successful delivery and startup. So in the foreground of this July photo on Slide 4, you can see our progress in advance in our project for both onshore and offshore work fronts. In the background, you can see the construction activities on the desalination plant, pump station, facilities for receiving and loading the concentrate on to ships and our electrical substation, which we'll start commissioning later this year. The desalination plant will be one of the first facilities that will be commissioned in order to deliver waters to the tailings management facility and support commissioning of the concentrator. Construction of the linear works, which includes the pipelines, pump stations, 23-kilovolt substations and 220-kilovolt power transmission lines are in full swing, and these facilities are all well advanced. Slide 5 shows a starter dam at the tailings management facility, where we continue to raise the dam in preparation for storage of the desalinated water that we'll be using for commissioning and operations. But the tailings management facility work is ongoing on the tailings transport system as well as other work areas related to tailings deposition and water recovery. It's important to note here that we're using our new Cat 794 truck fleet to deliver the materials to the dam, and the fleet is performing very well. This is effectively commissioned a portion of the QB2 fleet ahead of pre-stripping and other mining activities. In addition, we're well advanced in the commissioning and testing of the autonomous haul system in advance of pre-stripping activities later this year. Slide 6 provides a view of the concentrator grinding area, which we're continuing to progress very well, and which remains the critical or longest path for the project. All 6 mills are in place, and we continue to advance the structural, electrical and mechanical components as well as piping and cabling. There are several discrete systems and subsystems at the mine and mill area, which are required to be in place over time to support the commissioning and ramp-up of the concentrator. And these include the flotation circuit, which is well advanced with all the tanks now in place. Other systems such as the primary crusher and ore delivery systems as well as the concentrate and tailings thickeners are well advanced and the associated mining area facilities, including both the mine loop and the truck shop are planned for completion and commissioning later this year. The critical -- this critical work front is progressing well, and we're working to ensure that these systems -- that the systems are in place to support the commissioning of first copper. So moving on to Slide 7. We're committed to achieving first copper as quickly as possible. And to summarize the prior 3 slides, there are 3 key systems required for first copper: the desalination plant; sufficient water storage capacity at the tailings management facility; and the Line 1 crushing, grinding and flotation systems. Commissioning of the desalination plant will provide water to be pumped through the pipeline for placement in the tailings management facility, which will be used for commissioning to produce copper concentrate. And the project team is laser-focused on ensuring these 3 systems are delivered and commissioned on schedule. The keys to successful delivery of first copper remain our partnership with Bechtel and ensuring alignment of the construction, commissioning and operating teams across Teck, Bechtel and contractors. Going forward, there are 2 key major focus areas: execution on the critical path of the concentrator and delivering the port-to-pond infrastructure that are key to enable the commissioning and startup. The push to finish is all about first copper as soon as possible in the second half of 2022. So with that, thank you, and I'll turn this over to Nic Hooper to speak to you on our copper growth strategy.

Thank you, Alex. Good morning or good afternoon. As Don highlighted in his introduction, accelerating copper growth is the cornerstone of our strategy. By leveraging our leading copper growth profile, we will become a leading copper producer. Teck is well positioned to realize value from a robust and diverse pipeline of copper-dominant base metal projects. Everything we do is underpinned by a commercial value-focused approach combined with disciplined capital allocation. In the next few minutes, I'm going to highlight that we have the right approach, the right assets and the right team to achieve our copper growth aspiration. On Slide 2, our approach to the developments of QB2 illustrates how we are thinking about our copper growth pipeline. In the lead up to QB2 development decision, we derisked the project from a technical, permitting, social and environmental perspective. We rightsized our balance sheet through the repayment of USD 4 billion of debt and regained our investment-grade credit rating. We returned CAD 1.9 billion to shareholders in the form of dividends and share buybacks. We reduced our project equity funding exposure through the USD 1.2 billion partnering transaction with SMM and Sumitomo Corp and a competitively priced $2.5 billion project financings. As we did in QB2, recognizing investors focus on cash returns and free cash flow yields as part of adhering to our capital allocation framework, we will seek to reduce on an opportunity-by-opportunity basis, tax equity requirements for future growth through partnering, streams, infrastructure carve-outs and project financing. Let me repeat, we will adhere to our capital -- our rigorous capital allocation framework to balance growth and cash returns to shareholders. On the next slide, I want to stress, that is, by design, Teck is in this fortuitous position to have such a robust pipeline of growth projects. The long-standing corporate goal has been to consistently invest, cycle in, cycle out in large, high-quality ore bodies, and thereby, sustain Teck for the following generation. This approach is one where we constantly strive to increase the quality of the portfolio by methodically advancing our medium-term and future growth options. As this slide illustrates, Teck's copper growth profile -- portfolio is supported by extensive studies that have been completed over the last 5 years. Alongside technical analysis, we have pursued a comprehensive and considered approach to community relations and permitting. This foundational work provides the basis upon which Teck can recognize value from these options. Ultimately, our competitive advantage is a result of actively advancing our portfolio of copper growth options over the last 5 years or so, while the rest of the industry hasn't. The end result is that Teck is extremely well positioned, perhaps better than any of our competitors to maximize value from our -- from copper demand growth well beyond the ramp-up of QB2. On Slide 4, our portfolio -- Slide 4 shows our portfolio of copper growth options from a relative risk and return perspective. We have a suite of copper projects, which vary by demand type -- deposit type, scale, jurisdiction and stage of advancement. As Red articulated, QB2 is in execution and set to deliver value in the near term. Zafranal and San Nicolás are nearing the point where value can be realized. QB3 and Galore are attractive medium-term options, which we will systematically advance in the coming years. NuevaUnión, Schaft Creek and Mesaba are future options with compelling scope, scale and value-improvement potentials. Details of these projects -- these future options are included in the appendix to the Investor Day presentation, which can be found on the website. On Slide 5, we provide an overview of the key attributes of Zafranal, which is located in Southern Peru. A feasibility study and subsequent value-added study was completed in mid-2019 and early 2020, which substantiated Zafranal as a quality, midsized, capital-efficient, proper gold development opportunity with a 19-year mine life and mine life extension potential. Zafranal distinguishes itself from other development opportunities in Southern Peru due to its favorable location to infrastructure and moderate elevation. Good grade, supergene, enriched mineralization in the early mine life, roughly about 2.5x the grade at the end of the mine life, allows for rapid payback about 2.5 years, attractive cash costs and investment returns. In August of this year, we submitted the SEIA, which, upon approval, will increase our ability to realize value from Zafranal. Leading up to the SEIA submission, we strengthened our community engagement at the local, regional and national levels while establishing and maintaining a high level of collaboration and coordination with the proven regulators. Our focus over the next year will be to secure the SEIA and make prudent investments to improve capital and operating costs and realize mine life extension opportunities. As the review of the SEIA continues, and once COVID constraints are reduced, we will consider our value realization options at Zafranal. Slide 6 provides an overview of San Nicolás project located in Central Mexico in Zacatecas state, one of the country's key mining states. A prefeasibility study was completed in Q1 2021 that demonstrates San Nicolás as a high-quality, midsized copper, zinc, massive sulfide development opportunity, with robust economics tied to high average copper and zinc grades to the 15-year mine life. San Nicolás has a favorable location, which results in very competitive development and operating costs. Initiation of the feasibility study and submitting -- and submission of permitting applications are expected to be made in the next quarter or so. In addition to initiating the feasibility study and advancing permits, we are considering a range of development options, including partner -- including partnering that will improve our ability to advance the development of San Nicolás in a prudent, capital-efficient and timely manner. On Page 7, we highlight our 2 medium-term corporate development projects, QB3 and Galore. Both are underpinned by high-quality, large resources with compelling production, operating cost and competitive capital efficiency profiles in attractive jurisdictions. Social engagement for both assets is well advanced, and we'll strengthen these as these projects evolve. The QB hypogene resource base allows us to consider potential increases to QB2 production by 50% up to 200% with corresponding incremental increases in QB2 EBITDA. Capital intensity is expected to be low to medium due to QB2 brownfield environment and related economies of scale that will improve cost competitiveness. The sequence and timing to realize the full potential of the significant resource base in QB will be a key component of the QB3 prefeasibility study. At Galore Creek, work is underway to complete a prefeasibility study by the first half of 2023. The high-grade copper, gold, silver resource of this porphyry deposit is one of the key contributors to an attractive operating costs and capital intensity. It is worth noting that QB3 benefits from a contingent payment from SMM and Sumitomo Corp. and Galore Creek is a 50-50 partnership with new ones. In both cases, this will reduce Teck's equity exposure and development risk. Any future development decision on these projects will be based on completion of a thorough development studies focused on derisking each investment from a technical, permitting, social environment perspective and will be subject to our rigorous capital allocation framework. Any decision will favor the most compelling investment opportunity. And like we did when QB2 was sanctioned, include considered returns of cash to shareholders prior to a development decision being made. In closing, I want to stress that in addition to having the right approach and the right asset to realize value from our robust pipeline of corporate growth projects, we have the right team with the necessary technical, project development, ESG, commercial and leadership depth and experience. Executing QB2 is adding significantly to our development experience and mindset which will enhance delivery of our copper growth strategy. With that, I'll hand it over to Jonathan Price, our Chief Financial Officer, who will outline our financial strategy.

Thank you, Nick. I'm going to focus today on Teck's financial strategy, central to which is our capital allocation framework. In doing so, we will review Teck's strong balance sheet and liquidity. We will dive into our largest ever capital investment, QB2 and look at both the QB2 funding model and the terms of the project finance facility. And finally, we will look ahead to our potential cash flow position once QB2 is operating, it is stated potential to highlight the returns that might be available under a range of scenarios. I'll begin on Slide 2 with a recap of our capital allocation framework, which I'm sure many of you are familiar with. It all starts with the inflow of the cash we generate from our operations. We maximize this through running our operations as safely and productively as possible, supported by our tireless efforts and continuous improvement in the RACE21 transformation program. In terms of the cash outflows, we first take care of the sustaining capital that underpins the integrity and reliability of our operations, including equipment replacement and maintenance. In addition, we provide for our committed growth capital, which in 2021 includes QB2, Neptune, spending on our studies for future growth options and investment in our RACE21 activities. Next, we check the health of our balance sheet or capital structure, which for us means keeping our net debt at a level that will see us maintain a solid investment-grade rating through the cycle, and we pay our annual base dividend of $0.20 per share, which is distributed quarterly. Once these uses of cash have been deducted from our operating cash flows, we are left with our available cash flow. Of this, we pay out at least 30% as distributions to shareholders, with the remaining amounts available for growth projects or for further shareholder returns. Therefore, the framework allows for a minimum of 30% and up to 100% of available cash flow to be returned to shareholders. These returns can take the form of dividends or buybacks or a combination of both, and this will be determined based on consultation with major shareholders and having regard to the expected returns generated from buying back our own shares. As I'll explain in the coming slides, one of the most anticipated benefits of bringing QB2 online is the additional cash flow we expected to generate and the optionality that this could give us around balancing ongoing growth and shareholder returns. Next slide, please. Our current strong balance sheet will be a key enabler of our ability to balance prudent, future growth in copper, with attractive returns to shareholders, and this is very much by design. We've kept a conservative level of long-term debt on the balance sheet with no significant maturities until 2030 and many extending beyond 2040. We also have access to over CAD 6 billion of liquidity. Finally, our existing production portfolio has substantial leverage to rising commodity prices. The chart on the upper right-hand side of this slide shows that, for example, a USD 50 per tonne increase in the price of coal per year could add approximately $1.5 billion to our EBITDA based on 26 million tonnes of annual production. Now on to Slide 4 and the funding model for QB2. Looking back to January 2019 and running through to the end of 2022, at which point the construction of QB2 is expected to be complete. Before getting into the detail, the eagle-eyed among you will notice that the ownership percentage shown here only sums to 90%. This is because we've excluded the 10% of [indiscernible], given they don't contribute to project CapEx. As most of you know, we have a USD 5.2 billion QB2 capital budget, which provides for both escalation and contingency, and our spending remains in line with this budget. This excludes the COVID capital that we have highlighted to you over the last several quarters. Of this USD 5.2 billion spend, USD 2.5 billion will come from our project finance facility with the remaining being contributed by Teck and our Sumitomo Partners. In terms of the contributions from our Sumitomo Partners, we've reflected here the full buy-in as well as the subsequent proportional capital contributions, all being attributed to the stated capital budget. As such, the historical contributions from Teck from 2019 through 2021 are a balancing item. Now looking ahead to 2022, we expect to draw the remaining USD 300 million of the project finance facility with equity contributions totaling USD 1 billion, split 2/3, 1/3 between Teck and our Sumitomo Partners, respectively. Finally, worth noting that while Teck retains a 60% interest in QB2, our contributions to project capital have been minimized through a [ volatile ] funding and partnership model. Next slide, please. Slide 5 provides some further details regarding the project finance facility. These are important as you think about modeling our debt guarantees as well as our debt repayment post QB2 completion. The facility requires that we fund debt equity at a 37% to 63% ratio. We and our partners contributed a significant amount of equity upfront, which meant that after the closing of the project finance facility, we use primarily debt to fund QB2 construction for an extended period of time. This past spring, we had drawn enough on the project finance facility to achieve the required debt equity ratio. And therefore, we and our partners began contributing equity to the project once again. The project finance facility is guaranteed on a pro rata basis before the project is complete. But these guarantees fall away after we achieve various industry standard operational completion tests and becomes nonrecourse. Importantly, the project finance facility will begin to amortize no later than June 15, 2023, at about USD 300 million a year. This is made up of semi annual amortization of the payments of USD 147 million each. We are also required to repay some debt as QB2 pays dividends up to its equity partners. I highlight this to show that there is a decent amount of natural deleveraging built into our project finance facility, and this will augment our goal of disciplined debt repayment after QB2 is complete. Now we know that there's a lot of anticipation in the market about the project coming online. As such, we put together some illustrative scenarios on Slide 6 and 7 to give you a picture of what our cash flows and capital allocations might look like once QB2 is operational. Important that I emphasize that this is not guidance. As you know, we don't give cash flow or EBITDA guidance. So to construct this, we've taken actual first half numbers and flexed them based on our publicly disclosed commodity price sensitivities and combine this with our current guidance in other areas. The point is to give you all a better sense of how transformative QB2 could be for our cash flows and how much optionality that will then give us with respect to both shareholder returns and growth. But I'll explain briefly how we've arrived at these scenarios. To start, we annualized first half 2021 EBITDA. As a reminder, our average copper price in the first half was $4.13 a pound. Our average zinc price was $1.29 a pound, and our average steelmaking coal price was $137 per tonne. Next, we adjust this annualized first half EBITDA for a higher FOB steelmaking coal price of USD 199 per tonne, which is a combination of August year-to-date pricing and the spot price when we constructed these scenarios. We used this same coal price for all 3 scenarios, and the adjustment is based on our publicly disclosed EBITDA sensitivities that I mentioned earlier. Next, we flex the copper price based on these same sensitivities to show hypothetical adjusted EBITDA from the current portfolio at $4.50, $4 and $3.50 copper. Finally, we had QB2 EBITDA based on 290,000 tonnes of annual production, a C1 cash cost of USD 1.28 per pound and the copper price in each scenario. With these EBITDA numbers as a basis, we deduct key cost items, cash taxes, cash interest and lease payments to determine operating cash flow. Next, in accordance with our capital allocation framework, we deduct sustaining and growth capital as well as capitalized stripping and our base dividend. For these deductions, again, we either annualized first half 2021 numbers or base them on our public guidance for 2021. And then finally, we subtract our project finance facility amortization of roughly CAD 400 million. And I'll note that this does not include additional debt that would be repaid alongside dividends for the restricted payments clause of the project finance facility. Next slide, please. So the outcome of these scenarios is that depending on the copper price, once QB2 is operating as planned, we could generate between $2.2 billion and $3.1 billion of available cash flow, which is roughly between $4 and $6 per share. As you will recall, the first 30% of this is returned to shareholders while the balance of 70% could also be returned to shareholders or can be deployed to additional growth options in the portfolio or a combination of the 2. And as the metrics at the base of the slides show, we could do all of this while maintaining a very strong balance sheet. So based on what I've shared here, I hope you can see why we're so excited about the near-term potential of the business and specifically the contribution of QB2. We're getting ever closer to a major inflection point as we transition from significant cash outflows to fund the development of QB2 to the potential for significant EBITDA generation from a world-class copper operation. These cash flow scenarios highlight the potential for increased capital returns coupled with prudent growth of our copper business. And with that, I will pass it back to Don. Don.

Well, thanks very much, Jonathan. Now before we go to Q&A, I do want to make a brief comment. Most of you, in fact, not all of you, will have seen the rumors report last week considering the possible sale or restructuring of our coal business. I want to say that, we do not comment on market rumors or speculation, and we are not going to address those rumors or other questions about specific potential transactions in connection with our coal business today at all. I will say, though, that conversations about the composition of our portfolio and the role of carbon in the portfolio are not new nor are they news. We've been quite public that we are looking to reduce the proportion of coal in our portfolio over time. And while we like the long-term fundamentals of the coal business, of course, we always evaluate alternatives to improve our portfolio. So with that, over to you, Fraser to start the Q&A.

Okay. Thanks, Don. Joining me for this Q&A on strategy we have Don of course will be our moderator. Réal, Red, Alex, Nic and Jonathan also. So Matt, over to you to open up for questions, please.

Thank you, Mr. Fraser. [Operator Instructions] The first question is from Orest Wowkodaw of Scotiabank.

Don, I appreciate your comments here a second ago about not wanting to address some of the media reports about the coal business. But maybe I could frame it a different way in that -- has the Board determined at all what the ideal mix is from a commodity perspective? And how coal fits into that? Is there potentially a target of trying to dilute the coal to, say, I don't know, sub-20% of the portfolio or anything to that matter?

Okay. Well, thanks for the question, Orest. Short answer to your question is, no, there's no specific threshold that's been said by the Board. We looked at a whole range of alternatives. And it continues to get intense focus, but target as such has been set. But if you run your own models, you'll see that just with what we're doing with the bringing on QB2 next year that it will drop quite significantly with the doubling of the copper production.

And is that then likely to continue as you bring on some of those near-term copper growth projects, San Nicolás, Zafranal, I mean, just looking at your sort of copper growth strategy would appear the coal is going to be a significantly lower part of the portfolio by, call it, end of decade. Is that fair?

Yes, that's fair. And I would hope that it is sooner than the end of decade because each of those projects that you mentioned can come on before 2030.

The next question is from Craig Barnes of TD Securities.

A couple of questions on QB2. One, peak workforce, are you there yet, and or when do you expect to achieve it? And two, I just want to hear from Reg -- from Red and John, Christopher, about the strategies for ramp-up in terms of how you are going to integrate the production team from the construction team? How that handover is going to happen and what the strategy is?

Okay. Maybe the first one over to Alex and then Red for the second.

Sure. Okay. Thanks, Greg. In terms of peak workforce, so we are very close to our peak workforce number. And in fact, as we progress various different disciplines and as we move away from civils into other mechanical and electrical pieces, we continue to add workers and turn them over. But we will stick with this peak workforce through the fourth quarter here as we work through the various areas of the project.

The next question is from Lucas Pipes of B. Riley Securities.

Sorry, operator, we weren't finishing that answer to the previous question. So I'll just turn it back to Red on the ramp-up question, and then we'll go back to Lucas.

Greg, so we've got a ramp-up schedule that we're executing. We're hiring and training people. Now as Alex mentioned in his presentation, some of the work that we're doing on the tailings management facility is actually being self-performed by our mine operator personnel. So we're operating the new truck fleet. We've got additional mining equipment coming in, being assembled and running through all kinds of drills every day on start-up. One of the advantages of this integrated operations center that we've put in is, you can actually simulate operating the plant. So we're running through simulations with operators, with supervision. We're also taking personnel to Carmen de Andacollo which is our other operating entity in Chile and getting hands-on experience there. So ramp-up for operations is going on a variety of fronts right now, and we're working day in, day out on having a successful startup.

Back to Lucas.

Don, I vaguely remember that in prior cycles of met coal, you commented on one of these calls or it may have been earnings call, Investor Day that you're receiving daily updates on the new met coal projects that are being announced and monitoring the situation very closely. Now you fast forward a few years, I'm not seeing a lot of projects out there, but wondering if you're still getting daily updates, maybe they're weekly now, but what is included there? Where are you seeing new met coal supply coming from? And obviously, as it relates to Teck, I assume, given the preceding questions, there's no interest in changing things on the supply side, but would be curious how that global supply picture could, in any way, affect your decision on that?

Okay. Well, thanks for the question, Lucas. And before I turn it over to Réal to give his comments on new supply or lack thereof. The way I would answer your question is, well, it may not be daily, but part of that is because there isn't much being announced other than projects being turned down in both Australia and Canada and elsewhere in the market. So I mean Grassy Mountain is a very high profile one here, but there have been others that have been turned down in the permitting process. So I mean, it's tough to bring on new supply in steelmaking coal. It's tough to bring on new mines anywhere, but it's still making coal is going to be tough to see that grow. But Réal, what do you think?

Yes. Thanks, Don. Thanks, Lucas, for the question. Yes, you're correct. I mean there's very little new projects being announced, if any, especially sold for high-grade hard coking goal. I guess you will have seen the news a while ago now that, what is most significant is Anglo restarting both Moranbah North and also applying to restart the Grosvenor mine. So that is around 12 million to 13 million tonnes of annualized production. That's what they were running at prior to the mine accidents and incidents that shut them down. Other than that, there is very little out there, either in terms of new projects or expansion. And I think, it is related to the fact that capital is less attractive maybe to the steelmaking coal than it was in previous cycles.

The next question is from Jackie Przybylowski of BMO Capital Markets.

I know you mentioned this earlier in your presentation that some of your satellite assets Zafranal, San Nicolás are getting closer to the position where you could realize value or monetize them maybe. Can you give us a bit of an update on the timing as to when you may see an announcement on an asset sale? How close are you?

What I would say is, it's more important to do it right and get the right partner and right structure of a deal than it is to do it quickly. So it is true that we are in discussions with potential partners and -- there's a variety of groups that we could go to at least, but I don't anticipate this happening in the very near term. I'd say it's more in the medium term. If we could come to a landing on it by the end of the year, that would be great. But we're not going to rush it. We're going to trying to get it right. We really -- as Nic highlighted in his presentation, the model we use for QB2 with Sumitomo Metal Mining, Sumitomo Corporation, these are 2 fabulous partners and the structure of the deal really worked in terms of derisking the project financially, allowing us to continue to return capital to shareholders. We'd like to do something with those principles behind it as well so that we enhance our growth beyond QB2, while at the same time, protecting our ability to return cash to shareholders. So -- that's sort of a long answer without much clarity for you, but that's how it is.

I appreciate that. If I could ask one other question. You talked about Galore Creek as being one of your medium-term priorities or medium priorities, I guess served on par with QB3 and the head of NuevaUnión, it looked like, can you maybe give us a bit of an update on how aligned your time line is for Galore Creek and NuevaUnión with your joint venture partner. Are you guys boasting the same in terms of which of those 2 assets is the higher priority?

Well, let me start by saying that Teck and Nueva have a really strong working relationship, and we have 50-50 joint ventures, not just at Galore but NuevaUnión's law. But for a more specific answer, I'll turn it over to Nic Hooper.

Jackie, I would say that at the moment, the focus is very much on the Galore Creek prefeasibility study. Work is continuing. Optimization work is continuing on NuevaUnión. And in terms of -- so both of us are aligned on that approach.

The next question is from Emily Chieng of Goldman Sachs.

Just a couple of follow-ups on the coal segment there. I think Teck's longer-term coal production outlook was roughly 26 million to 27 million tonnes. With the start-up of Neptune and some of the sort of infrastructure debottlenecking activities, is there potential that, that number creates a little higher?

And the short answer to that is, no. The investment in Neptune, expanding the port capacity was done for several key reasons, but one of the really important one was having the flexibility and freedom to deliver our coal or product to the customers when they want it. And we had found that there were constraints to that before in one quarter actually cost us $200 million of EBITDA in one quarter, when we didn't have access to delivery that we needed. So I look at that as having more flexibility in the whole logistics system rather than giving us increased capacity to take that 26 million to 27 million tonne number higher. So we anticipate it staying in that range for a while. We're always going to review the portfolio, as I said earlier. But to the extent that we've said that we're reducing the proportion of carbon in the portfolio, it is unlikely that we would grow production out of [ BEV ].

That's very clear. And just a quick follow-up around the QB2 $600 million of COVID capital cost estimates. Is there an estimate as to how much has been consumed so far?

I'll turn that back to Red or Alex.

Emily, thank you for the question. We have not incurred a large sum of that. Those are all forecasted completion and cost estimates. So it has to do with schedule effects and those kinds of things. So most of that remains out in front of us yet to be consumed.

The next question is from Dalton Moretto of Canaccord Genuity.

Can you hear me now?

Yes.

Don, another portfolio question for you here. Just given Teck's history in terms of changing the commodity mix in the portfolio, as you look to reduce the proportion of carbon going -- sorry, going forward, what's the Board's thinking right now in terms of potentially adding new commodities to the mix, things like uranium or lithium or even nickel?

We look at those commodities as just part of our ongoing review of the industry. Nic has the whole team that analyzes transactions and others are doing other opportunities that are out there so that we are knowledgeable about them. And obviously, at different times, we've looked very closely at nickel. But at this stage right now, we don't have any particular opportunity in front of us that we're focused on in those other commodities, but that's not to say that we wouldn't, if we saw the right thing coming out.

Okay. And then just maybe a follow-up. This is on QB2, but not directly. Can you let us know what you're hearing in terms of the latest in the changing Chilean fiscal and royalty regime?

Okay. I think for that one, what I'm going to do is ask Amparo Cornejo, our Vice President in Chile to give you the latest on that question and Amparo actually on our behalf testified in front of the Senate committee that was reviewing it. So Amparo, over to you.

Okay. Thank you, Don. Maybe the most relevant and a news information on the process is that the Senate, a Mining committee approved to legislate in relation to the mining royalty deal that was previously approved by the Chilean Chamber of Deputies. The Senate Committee has spent a lot of time providing opportunity to different players to present ideas and to provide the perspective on the bill and the mining industry was part of that. And what has happened after that is that, this committee has approved the idea of legislating, and we expect that the Senate will approve that process. The next step is that, within the next couple of weeks, we are waiting and expecting to know what are going to be the indications that the committee will present, so at that moment we will know exactly what are the changes that the Senate has introduced to the original bill that was approved by the Chamber of Deputies. So waiting that information that would provide a good context. And also, as you know, most of the mining companies in Chile have invariability tax agreements with the state of Chile. And in our case, we have those agreements, both for government and [indiscernible] and for QB2.

That's a great color. So just if I can clarify then. So in the next couple of weeks, we will hear from the Senate in terms of what changes have been made to the bill?

Yes. That's correct.

Okay. And is there any risk as the constitutions being rewritten that any of these DL 600 Tax Stability Agreements will be up for review?

No, we don't expect that the process that is taking place in relation with the constitution will have any impact on these DL 600 agreements.

The next question is from Carlos De Alba of Morgan Stanley.

So also on QB2. So just wondering, with all inflation that we're seeing across raw materials, what is the scope for a potential increase in the $5.2 billion CapEx for QB2? Or in other words, how much of CapEx is still exposed to potential changes that you may have to review later on? And then if you could maybe also comment on the other sort of build or a proposal that is in Chilean Congress, which is related to the Glacier? And how many projects may work with glaciers going forward. Any update there would also be very appreciated.

Okay. Red or Alex. Maybe start with Red.

Yes. Thanks, Carlos. We are -- we've purchased almost all of the material that we require to build the project and a lot of it's already on site. The most of the spend to go is in Chilean pesos, it's mostly labor. We do have some electrical rooms that are being assembled in Santiago. But again, we have most of that material and the expense to go on those is labor. And right now, the exchange rate is pretty similar to what we had forecasted in the numbers that we've been reporting publicly. So we don't -- from an inflation standpoint, we don't see a lot of pressure that way.

The next question is from Abhi Agarwal of Deutsche Bank.

Really appreciate the update. I have a couple of questions, please. The first one is on your growth projects. Could you please talk about the pecking order of your projects, which is the first project you think you would like to build?

I'll turn that one over to Nic Hooper.

Obviously, Zafranal has a prefeasibility study on it, and we're going through the permitting process. So that, by definition is a little bit further forward. How that fits into our portfolio is, as Don indicated, sort of a question of much internal discussion. And then obviously, after that, San Nicolás, because there's a prefeasibility study, but we're just starting the permitting process on that. So that's probably the right order, but things can change.

Got it. The second -- the second question I have is around the strategy around building new projects. Would you like to follow the QB2 model and partner or would you like to go alone -- or would you like to go alone, especially as the balance sheet becomes stronger, of course, QB2 ramping up to full capacity?

There's a couple of parts to the answer on that one. First is, we really are very pleased with the model we used on QB2. We think that just makes sense. And having partners is not just a financial undertaking. It also brings highly skilled and experienced people into the team and makes the team stronger and the likelihood of a successful project execution that much better. So I think throughout Teck's history, most of the key mines that Teck's has portfolio as being as a partner. We have looked at things. I mean San Nicolás, we own 100%. We bought out the partner there at that time. It was Goldcorp. But when we look at that and then we balance the resources that we're allocating to QB2, QB3 and others, and we know that we have to just stay laser-focused on executing those well, it did make sense or looked appealing to have another partner, build it with their people and their capital. It keeps us then totally focused on QB2 and QB3. And preserves our ability to return cash to shareholders, just like we did with the QB2 financing. So really, that's how we looked at it. On Zafranal, I should note that we own 80% of that. So we already have a partner in that circumstance, but we'll carry on with our discussions there.

Matt, it's...

Sorry, Abhi. No, it's Fraser. I think coming to the end of our allotted time for questions, we should probably move on here.

So with that, thanks, Don and thanks, team, for all those answers. We'll move on to our second panel at this point. Our second panel is on operations. Red Conger will begin with some introductory remarks. He'll be followed by Andrew Milner. Andrew is our Senior Vice President and Chief Transformation Officer. And Andrew will be joined by Greg Brouwer, Vice President of Transformation; and Andrea Leroux, our Director of Value Delivery for RACE21. And they're going to discuss some of the exciting progress that's been made on RACE21. After that, we'll be Shehzad Bharmal, our Senior Vice President, Base Metals, North America & Peru. And he'll provide an update on base metal business. Then Robin Sheremeta, our Senior Vice President, Coal, with an update on our steelmaking coal business. After that, Réal is back. He'll provide an update on logistics, brief update. And then finally, Kieron McFadyen, Senior Vice President, Energy will provide an update on Fort Hills. With that, Red, over to you.

Thank you, Fraser. Our team continues to successfully manage the challenges that COVID pandemic has brought us, keeping our employees safe and protecting our communities. Our safety performance has been equally commendable. We have excellent operating teams who have done an exceptional job maintaining solid production capabilities during the tumultuous market gyrations over the last 18 months. We have completed key enabling projects this year and achieved important milestones that our panel will provide updates on. Our mines are properly stripped and developed and our processing plants and mobile fleets are well maintained. Our business units are hitting their stride in the second half of this year as we recover nicely from wildfire disruptions in BC during July and August. This combination of execution focus, agility to respond to COVID and rapidly changing market conditions puts us in an excellent position. We are sprinting to the end of the year on our transformational RACE21 program. All operations in both mining and processing within our operations are logging impressive gains this year in spite of COVID-related logistics challenges. Our cost profile, production levels and current commodity prices bode very well for the remainder of this year. These are very exciting times for our operating team at Teck. And with that, I will turn it over to Andrew Milner on RACE21.

Thanks, Red, and good morning, everyone. We're now coming to the end of the RACE21 program. And although we are planning to report on the full results of the program at the end of this year, we felt now it's a perfect time to update you on the incredible journey we have been on. Before we do that, I want to remind everyone that RACE is Teck's digital transformation program that I announced to the market in 2019. RACE stands for renew, automate, connect and empower, which represent the 4 key areas of focus for our transformation. Renew involves the organization-wide upgrades to our infrastructure systems, LTE, sensors and numerous other aspects of our technology and data infrastructure. Automate is a holistic approach to automation across all facets but with an early focus on mobile equipment. Connect involves the linking of all aspects of our value chain via an integrated data platform. Empower acknowledges the most important aspect of our transformation, our people. RACE is having significant impact on our company, both in terms of value creation and on our culture. This has certainly been the most exciting initiative I've had the privilege to lead during my career. I'll now hand it over to Greg Brouwer, our Vice President of Transformation, bringing the delivery aspects of the program to elaborate on our exciting journey over the last 2 years.

Good morning, everyone, and thanks, Andrew. We're super excited to be here today to talk to you because it was only just over 2 years ago that Teck first embarked upon the RACE21 digital transformation. A tremendous amount has happened since then. We have built a digital capacity and capability that we feel is second to none in our industry. Our culture has embraced digital transformation, and we have seen significant value creation. And although RACE21 started as a program, we feel the capacity and capability that we have built, we will be leveraging going forward as a core competency in our company, just like we have relied on engineering, geology, metallurgy and other capabilities in the past. I get the opportunity to talk a lot about RACE21 and what we're achieving. And when people ask me why we are seeing the success as we are, I often point to saying that resonated with me a few years ago, which is that if you want to achieve great outcomes as a company, you need 2 things: a bold goal and not quite enough time. So when we started RACE21, we really embrace that philosophy. We set a bold goal to deliver an initial $150 million in ongoing value, and we said we would achieve that goal in only 6 short months. We were very conscious early on in the program that a lot of these digital transformation programs are not successful. In fact, we have heard that upwards of 60% to 70% of them fail after a short period of time. And so at Teck we have, from the very beginning, been very value focused and impact focused because that is where other organizations fail. They start to focus on the cool technology, not the impact that they can have on the organization. We also recognized in the beginning that there was some healthy skepticism of what digital could do at Teck. As a company, we didn't know what it was, and we weren't entirely comfortable with the impact it could have. And it was for these reasons that we established this concept of path to value, or PTV, when we set the initial target of $150 million, and we created a culture laser-focused on impact and value creation. We started by standing up 6 domains with an early focus on mining and processing. We also knew early on that there absolutely would be value in leveraging what is referred to as advanced analytics across these domains given what we have seen at other organizations that had gone before us. And because today we're going to talk a lot about advanced analytics, before we move on, I want to do a quick refresher of what that is. Simply put, advanced analytics involves taking a lot of data, sometimes referred to as big data from our company and streaming it to the cloud in real time. Then using the huge computing power that is available to us from Google and Microsoft to analyze that data, to find patterns in that data, and ultimately, and this is where the value is, predict what is going to happen in the future based on what is happening in that moment to then make a recommendation as to what we should change today to optimize value. With this technique in hand, we wanted to start off today by taking you back to how we were first thinking about one of our initial focus areas, what we call haul cycle analytics. With a vision and goal in place, the team hit the ground running, and we established Teck's first RACE digital squad. Now these digital squads as they're known embrace an agile methodology, which is a customer-focused, iterative approach to digital product development and quite different than the waterfall approach all of us here at Teck are used to using, for example, in the execution of our major capital projects. Agile focuses on rapid, continuous releases that incorporate operations feedback with every iteration. And although we have a general sense of the direction that digital product is going to go over time, we don't worry too much about planning for the ultimate endpoint at the beginning. We let the users and the process take us down the value or -- down the path, rather, that represents the greatest value opportunity wherever that may take us. One of the reasons we want to talk about haul cycle analytics first is that it illustrates the pattern that ultimately we would follow for nearly every single digital product we would develop over the next 2 years. We had computers onboard all of our haul trucks. We have the trucks well instrumented with sensors, generating an enormous amount of data, and we had WiFi networks in our minds to send that data to the cloud in real time. We just were not effectively using that data. And if you recall from a couple of minutes ago when I described advanced analytics, then, hopefully, you can see why this haul cycle space was so attractive to us. So with the start of RACE, we began asking ourselves what can we do with this data. And that was the inspiration for haul cycle analytics, one of the first products we developed. The team's initial diagnostics provided insights into significant opportunity to improve haulage productivity across the company that we just couldn't see before. They selected a couple of problems that needed to be solved to drive up truck productivity and rapidly developed and deployed initial products. As the team established its footing and ways of working, they then quickly expanded the scope to end-to-end haulage optimization, delivering an integrated suite of digital tools that were first piloted at our Fording River operation and subsequently have been scaled across all coal sites and HVC. It was rudimentary at first, but it had impact.

What excites me about RACE21, while it has been the opportunity to push boundaries and unlock productivity benefits in areas we didn't think are possible. Fording River is a truck-constrained operation that for many years has continued to see cost pressures due to our deepening pits, increasing hauls and higher strip ratios. Considering the importance of truck productivity to maintain competitiveness and profitability, we leaned heavily on the RACE team to help the site find another step change in performance. The big stretch goal for Fording was to achieve productivity site has never seen by bettering system optimization and improving travel time and fixed time components. As RACE started to build capacity and add new capability, we soon realized we could gain access to new insights about our operation that we couldn't see before. These new insights have allowed our frontline leaders to make better and faster decisions to improve operational results. Road quality app is an example of how analytics has helped our frontline leaders make better decisions around fixing roads and allocating resources, something they've historically struggled with. Another great example has been the development and deployment of an advanced machine learning and optimization algorithm called truck allocation, which maximizes material movement while reducing overall system inefficiencies such as truck queuing. Using this tool in conjunction with our current fleet management system has allowed Fording River to achieve truck queuing times below 1 minute, something I never thought possible. I'm super excited to continue to work with enormously capable RACE teams and find and unlock the next level performance for Fording River and for Teck.

Most critically, these early wins gave the RACE team and ultimately Teck's leadership, the confidence and experience that enabled the rapid expansion into other domains, including processing. Like our truck leaks, Teck's wash plants and concentrators are data-rich, thousands of process variables, pump speeds, flow rates, et cetera, are recorded every second, the perfect start for advanced analytics. Advanced analytics uses this historical data to understand which control room operator decision in the past resulted in the best outcome. And using that information, we can build digital advisory systems that help us make the best decision every time going forward. Now some of the operators were initially skeptical, but were willing to take the lead. Their confidence grew in 2019 when we developed our first Minimum Viable Product, or MVP, as we call them, for the HVC flotation circuit, and we saw immediate success. Another area of the company to solve the potential early on was Red Dog, and like HVC, they very aggressively embraced that opportunity, installing significant instrumentation over a very short period of time at the end of 2019 that allowed Red Dog to start stabilizing and optimizing their circuit to an extent they had never been able to before. In the end, Red Dog and HVC concentrators were two of the greatest contributors to value creation in 2019, which brings us to the end of 2019. In less than 6 months, we met our goal and well over $150 million of direct annualized and ongoing value started to flow. The achievement of this milestone did 3 things for us. First, we really gained the critical buying from leadership and operations as to what digital was and what it could deliver. Second, we generated an energy and excitement across the organization. And third, this success was the catalyst that supercharged our culture ship, changing mindsets about what is possible at Teck through digital. We want to tell you now what has happened over the 1.5 years since that initial success. But before we do that, we want to talk about a very critical element that needed to be in place for all of this to happen. Everything we talk about here today only happens if one thing exists and that's data. Data getting to the cloud as fast as possible. Getting the sensors installed, the data pipelines filled. Without this foundational work done by Teck's digital systems group, none of RACE would have been possible, and none of the value would have been there. The excitement of achieving the PTV or Path to Value of $150 million milestone and supported by the rapid advancement of the foundational technology investments that we were making, propelled us into 2020. As I said earlier, one of the reasons we were seeing success is because we decided early on that we needed to be very value focused as a program. Core to establishing that culture was creating a team within RACE21 we call Value Delivery. Now this is a team that's actually quite unique to Teck. It doesn't typically exist in digital transformation programs, but we felt it was key to driving impact. The best way to think about value delivery is that they are the integrators between our digital teams and talent and our sites. They deeply understand both operations and digital so they act as a bridge. Today, Andrea Leroux leads that value delivery team. So at this point, I'm going to hand over to her to describe how things evolved with RACE in 2020 and 2021. Andrea, over to you.

Thanks, Greg. The role of Value Delivery in the RACE21 program is really exciting. It's our team's job to collaborate with operations to understand and interpret the business needs and to bring together diverse teams to solve really complex problems. And while value and impact can be measured in terms of reduced cost, increased production or ultimately free cash flow, there are impacts that are harder to quantify, but equally important to sustaining long-term value. So yes, Teck is building some really impactful technology. But above all else, RACE is a people and culture transformation program. It's about changing the way we look at our business, the way we use data to solve problems, the way we empower people at all levels of the organization to make important business decisions every day. In the very early stages of RACE, there wasn't a great understanding of what RACE was really about. The program was well received in 2019, but there was that natural skepticism. And so the RACE team was doing more of the pushing. But that all changed in 2020 as the broader organization's understanding and appreciation for the power digital tools group, and it was in early 2020 when the team first started to see that impact was occurring, that the culture was changing. A great example of leadership's growing appreciation for the power of advanced analytics was when in the spring of 2020, Robin approached the RACE team and asked a really pivotal question. He said, we have the teams in place and all this data related to our haul truck movements and operator behaviors, how can we leverage these teams and this data to reduce the risk of vehicle interactions on our sites? RACE pulled the team together in a week, partnered with people from the coal business unit and corporate offices, and through ideation, diagnostics and road mapping, the team came up with RACE's first digital safety tools. Too often when we have incidents and investigate causes, we learn that the key contributing factors are behavioral. People are not making good decisions. They're becoming complacent or not following protocols. So when it comes to heavy and light vehicle interactions, we've created almost complete transparency into how our people are operating haul trucks and vehicles on our sites. Through digital scorecards and safety alerts, we've enabled supervisors and trainers to have the right conversations with the right people at the right time. We're changing behavior so that all of our people can go home safe and healthy every day. As our first integrations of digital safety tools were emerging, our haul cycle analytics team was by mid-2020 well established and the impact of haul cycle analytics on truck productivity was evident. Our coal business unit had already been on a journey of improving truck productivity and by mid-2020, the digital tools that were first developed and piloted in partnership with Fording River operations, as we heard from Richard Whittington a few minutes ago, had now been scaled across all of Teck Coal, providing our mining teams across the business unit with access to insights that they just didn't have in the past. Through this partnership, Teck Coal's standard haulage model continued to rise to over 105%. This represented record truck productivity across the business unit. The processing analytics team also made great advancements in 2020. Tools like the mill and flotation optimizers leverage years of data combined with predictive analytics to optimize set points for pump speeds, flow rates, chemical levels, et cetera, resulting in reduced variability, increased throughput and recovery, and overall improved concentrator performance. Highland Valley Copper was the first adopter of these models. And by 2020, these tools have been deployed to every base metals concentrator and cold wash plant across Teck with the exception only of Elkview, which in 2020 was progressing the 9M plant upgrades. In 2019, feedback features only apps collected comments from operators that indicated a hesitation to trust the tools. Operators were clearly skeptical. But by the end of 2020, the operators were bought in. They are now the first ones to escalate if the application is down. They want those applications available 24/7 as a critical tool in the way they work. The development of these products would not have been possible without the strong support from all of the operations team. That said, one of the greatest influences driving team collaboration, adoption and ultimately results is strong leadership support. One of the things we learned early on from other organizations that have attempted digital transformation was the criticality of senior leadership engagement. The leadership from Shehzad and Robin has been outstanding. So a lot of the successes we're highlighting today have really been enabled by the top-down leadership support we've experienced. Through the initial months of RACE, we intentionally focused on mining and processing because we knew there was significant value creation potential in those areas. And in doing that, we learned just how broadly applicable advanced analytics was to addressing bottlenecks and operational challenges in similar situations in sustainability space. We have ambitious goals, complex challenges and a lot of data. We can use the same thinking and tools and techniques to help us in our decision-making around sustainability. Standing up the sustainability domain and targeting the cold regional water quality model is an extremely significant milestone in our journey. It's a critical example of how we can aim Teck's new internal capability to solve some of our most complex and dynamic challenges. How we can approach a problem not with a solution but with the acknowledgment that we don't know what we don't know and dig in to learn and to improve so that future business decisions, such as where to place our stockpiles or where we should be treating water in the future, are informed by the most up-to-date information and most powerful advanced analytics tools available. So now that we've shared a few highlights of what we did as we scaled in 2020, I want to take a step back and talk to you about that internal capacity that we built over the last 2 years. Our digital teams are made up of people with diverse roles, backgrounds and experience levels that need to be organized in a specific way to be able to build these digital tools that, in many cases, are leading-edge technologies. Our digital squads include developers, data scientists, data engineers, user experience designers and others. Teck now has this in-house capability and these established ways of working that enable rapid product development and deployment. And our digital team members are building strong relationships with operations teams so that overall, our organizational digital literacy is increasing from the boots on the ground operators to our senior management team. So let's rejoin the storyline in 2021. And as a reminder, the program originally started with focused bespoke products, but we knew all along that eventually these products would start linking together, integrating across the value chain. And by 2021, the focus on integrated operations is growing. A significant achievement in the integrated operations domain was the development and implementation of supply chain reliability tools. For a long time, we relied on our people to be able to understand and interpret significant volumes of complex information in order to make the best decisions for the company. But given the complexity of the supply chain, it's always been extremely difficult for anyone to know exactly what the optimal solution is. And that's why this is such a game changer. Because when we take all that data and bring in predictive analytics, the computer can understand all the permutations and options that we have, and it can help teams across coal and logistics make the optimal decision every single time. We've developed a suite of tools to support our coal logistics team over the past 6 months, and we're seeing really great results from these tools with some key performance indicators already exceeding targets. This effort is not complete. We will continue to develop, mature and enhance these tools in partnership with the business, and we remain very excited and optimistic on the value this will unlock for the company. This takes us up to today. I'll now hand it back to you here, Greg.

Thanks, Andrea. Hopefully, from our overview today, you have started to get a sense of how impactful RACE has been to Teck and the incredible value it is now unlocking. To finish off, we want to share a summary of the breadth of that impact. Today at Teck there are over 450 RACE initiatives that are underway, supported by over 100 digital products across 6 domains. We have a team of approximately 40 digital squads that are actively working with sites on those products. We are seeing broad value creation across the company. And finally, and most importantly for me, we are seeing our culture change. Our organization today is recognizing where digital can create value, and we are rapidly bringing new tools to help solve our most complex business problems and optimize in a way we have never been able to before. Thank you, everyone, and I'll now turn it over to Shehzad.

Thank you, Greg. Starting on Slide 2. We are very excited about the near-term growth in our base metals business, which will build on our quality copper and zinc asset base and our continued focus on operating discipline and improvement. QB2, which is expected to start production in the second half of 2022, will double our consolidated copper production by 2023, and it is expected to be a low-cost operation, providing substantial cash flow for decades. To illustrate the EBITDA potential of our base metals business once QB2 is operational, we are using the construct that Jonathan Price presented previously, isolated for the copper and zinc business units only with QB2 EBITDA based on 290,000 tonnes of annual production and a C1 cost of USD 1.28 per pound. At a copper price of USD 3.50 per pound, this calculation gives us an illustrative EBITDA from base metals alone of $3.8 billion, and you can consider the substantial upside of what this looks like at current spot prices. Again, as Jonathan mentioned, this is not guidance but provides an illustrative scenario. At our current operations, our RACE21 program is a core part of driving significant improvements and achieving a high-performance operating culture. We have made exciting progress and improvements and I will highlight a couple of examples shortly. Slides 3 and 4 show that our growing base metals business compares favorably to our peers providing high production and earnings growth within the next 2 years. Our copper equivalent production is expected to be more than 850,000 tonnes in 2023 following the completion of QB2. I should note that the projected 2023 production figures for Teck and peers are based on Wood Mackenzie information. We have substantial high-quality resources and these are located in very attractive mineral districts and stable jurisdictions with operations in Canada, the U.S., Chile and Peru. This provides a balanced distribution of exposure across countries and an ability to allocate capital where risk-adjusted returns are highest. On Slide 4, if you benchmark our base metals business across leading copper and base metal peers, which we encourage you to do so, you will find we have industry-leading growth, comparable production rates and attractive unit costs. The yellow dash marks represent attributable copper equivalent production. Our size and cost position highlight that earnings generation potential within the base metals business alone with rival peer companies in both estimated earnings metrics and, very importantly, in relative value comparisons. As a result of this, we are very well positioned to benefit from the expected strong demand for metals and minerals, driven by decarbonization and population growth. Looking at Slide 5, our copper portfolio is based on the foundation of stable, low-cost operations, which include Antamina, Highland Valley Copper and Carmen de Andacollo in Chile. The graph on the upper right shows that Teck's copper operations have consistently achieved gross margins before D&A between 45% to 55% over the last 5 years and a margin of over 60% in the first half of 2021 as we benefit from rising copper prices. QB2 should further strengthen our portfolio with strong operating performance due to a low strip ratio and expected second quartile all-in sustaining costs. Beyond the startup of QB2, Teck is positioned to continue realizing value from a robust pipeline of high potential copper opportunities that Nick highlighted, including both greenfield and brownfield projects. These opportunities continue to be refined through prudent advancement of both growth and extension options. It is important to note that these growth options are a result of intentional focus on developing this pipeline over a sustained period of time. And hence, Teck today has one of the best copper growth portfolios in the business. Now turning to our world-class zinc business on Slide 6. We have high-quality assets with first quartile cost position at Red Dog and recycling capabilities at Trail to support the growing circular economy. Teck has a unique position within the zinc market. As the largest net zinc miner, we are able to maximize market value from our products through effective and strategic integration of our mining and refining operations. Looking to the future, Red Dog remains a premier zinc district with high-quality mine life extension potential at Aktigiruq and Anarraaq deposits. In the graph on the lower right, the bar height is the size of the deposit and the yellow marker is the estimated grade. As you can see, our Aktigiruq exploration target, which is located just 12 kilometers from Red Dog operations and Teena in Australia have excellent grades when compared to other undeveloped zinc assets. Moving to RACE21. Since 2019, we have implemented numerous digital tools using advanced analytics at our operations that have resulted in significant improvements. On Slide 7, I will highlight 2 specific examples of different approaches and tools currently used within our concentrator operations at Red Dog and Highland Valley that Andrea and Greg mentioned. I'll go into a little bit more detail. At Red Dog, there have been historical challenges in pushing the grinding process beyond certain rates as in many cases, this led to process instability, creating a negative impact on recoveries for lead and zinc and thereby eroding value. Through a focused effort, leveraging advanced process control upgrades and significantly improved instrumentation, the control system optimizes the important variables in the grinding process, mill speed, water edition, ball charge, power, while adhering to safe operating constraints and preventing liner damage. The supercharge control system allows the optimization across 3 primary grinding mills to achieve increased combined throughput. And of course, the operators are fundamental to the success of such initiatives. The system is fully integrated with their interface, shown on the bottom right, and they have driven a 9% improvement in throughput at Red Dog and work continues today to further improve on the achievements to date. The second example focuses on machine learning and advanced analytics at Highland Valley where we focus on the flotation circuit. Within the flotation circuit where copper is separated from waste, there are hundreds of variables that can have an impact on the overall performance of the process, including fragmentation, ore types and operator decisions. Operations teams typically rely on past experience to establish set points within the process. This does create challenges due to information gaps, but also from the complexity of the process and hence, the lack of ability to readily determine the optimal settings. Site teams and RACE21 have developed machine learning models that have provided our operators with real-time data and operating recommendations in real time. These recommendations are based on numerous input variables that would have been very difficult to leverage together in the past. The image on the top right shows the 40-plus set points for the frontline operators and the recommended changes from the models shown in the red boxes. The acceptance rate of the recommendations remains high today and has -- and continues to improve as the models improve with more data over time. The improvement within the flotation process is one of the key initiatives that has contributed to a 7% increase in throughput and 2% improvement of recovery -- of copper recovery at Highland Valley. And please keep in mind that these are just 2 specific high-impact examples, and we continue to expand the applications within all our processing plants. And as Greg described earlier, similar work is ongoing in mining operations, including haul cycle analytics as well as other projects to improve safety and environmental performance. In summary, on Slide 8, the expansion of our base metals business is underway. And we are very, very well positioned to benefit from increased demand for copper and zinc, which are fundamental to the decarbonization efforts globally. We have high-quality copper assets, a world-class zinc business and continue to drive an operating culture, focused on discipline and improvements. With that, I will turn it over to Robin Sheremeta to discuss our steelmaking coal business.

Okay. Thank you, Shehzad, and good afternoon, everyone. If you can just go to Slide 2, I'm going to begin with a brief summary of the historical financial performance of steelmaking coal. Teck's a large, proven and reliable supplier of high-quality steelmaking coal. Our steelmaking coal business units delivered exceptional results over the past 12 years with an average impairment adjusted EBITDA margin of 49% and average annual impairment adjusted EBITDA of $2.2 billion. We have an extensive resource base in Southeastern British Columbia. Our integrated operations are supported by a dedicated logistics system, providing numerous value-accretive production scenarios to meet the demand of our diversified long-term customer base. We operate 4 fully integrated mines with a long-term stable strip ratio of approximately 10:1, and our long-term production rate is about 26 million to 27 million tonnes per year. With a history of over 50 years of continuous operations, we have a positive social license with a stable and highly skilled workforce and strong relationships with our unions and local communities. We're continuously driving innovation through integrating technology, optimizing coordination of our activities from planning to execution and from pit to port, all of which is underpinned by strong culture of safety performance. If you go to the next slide. This describes our operating strategy. Our 4 areas of focus are optimizing our supply chain, increasing margins, drive best-in-class productivity and asset utilization through continued innovation, and maintain and enhance our commitment to strong social and environmental performance. As you can see on the map on the right side of Slide 3 here our 4 steelmaking coal operations are located within 60 kilometers of each other in the Elk Valley of Southeastern British Columbia. This geographical concentration enables full operational integration to maximize planning and execution synergies to optimize the supply chain, improve market access and provide reliability and certainty for our customers. We have total proven and probable reserves of about 800 million tonnes all of which supports a long-term production run rate of about that 26 million to 27 million. We did make the strategic decision to close our Cardinal River operations in 2020, and we replaced that with higher cost -- or sorry, replacing this higher cost production with lower cost tonnes through the Elkview plant expansion. The focus of our strategy and steelmaking coal is not to increase volumes, as Don said, but to increase margins and our overall competitiveness. We aim to maximize and sustain strong cash flows through managing costs and sustaining improved productivity, supported by our digital transformation and innovation program, RACE21. As you've heard quite a bit now, RACE is driving operational improvements and helping to lower our unit costs. In fact, our haul truck productivities increased over 28% from 2012 to 2020, with 2020 being a record year. Importantly, we're committed to a strong social and environmental performance. We continue to build on our strong relationships with local communities and indigenous people, and we are aggressively pursuing decarbonization initiatives and are executing on the Elk Valley Water Quality Plan. Next slide, please. Briefly for those that might not be familiar, there's been over 100 years of mining in the Elk Valley. This has created a substantial legacy challenge associated with the large volume of waste rock that has accumulated over decades. That rock contains naturally occurring substances, such as selenium, an element that is essential for human and animal health in small amounts. When water flows through this rock, it carries selenium and other substances into the watershed and if presented in high enough concentrations, these substances can adversely affect aquatic health. In 2014, the Elk Valley Water Quality Plan was developed to address this challenge, and it was approved by the BC Ministry of Environment. It establishes short, medium and long-term water quality targets to maintain the health of the watershed. And this year marks a major milestone in the plan as after years of work, we are commissioning a substantial volume of water treatment that will materially improve water quality. We currently treat some of their water in active water treatment facilities, which uses a tank-based biological treatment process. Going forward, we expect to treat water using saturated rock fills or SRFs. And this is where old mining areas are backfilled with rock, saturated with water to remove selenium and nitrate using a naturally occurring bacteria. You may recall our team research and developed SRFs which are less costly and a more of effective form of water treatment. And in February, we successfully commissioned our first 1 the LQ SRF, which was under budget and ahead of schedule, and is now delivering about 20 million liters per day of treatment capacity and achieving near complete removal of selenium and nitrate. Between it and Line Creek's active water treatment facility, we're now treating up to 27.5 million liters of water per day. I'm also pleased to tell you that the Fording River active water treatment facility is now completed and it's being commissioned. We will add a further 20 million liters per day capacity. We also expect to complete Phase 1 of our second SRF facility at Fording River this fall, allowing us to treat an additional 7 million liters of water per day and next year, we'll expand that facility to 30 million liters of water per day. So to recap, we started the year with 17.5 million liters of treatment capacity and will finish 2021 with a capacity of more than 50 million liters or triple the treatment capacity of today. And this will grow to 70 million liters next year. We've included a summary of our guidance for capital and operating costs related to water treatment in the appendix. In summary, after years of work, we expect to see a material improvement in water quality throughout the watershed. Turning to Slide 5. Our steelmaking coal business is well positioned to achieve carbon neutrality. We're committed to improve energy efficiency and reduce emissions. We're currently developing a carbon reduction technology road map in support of tech's commitment to be carbon neutral across all of our operations by 2050. Notably, the greenhouse gas intensity for Teck's steelmaking coal production is amongst the lowest in the industry as shown by the graph on the right, which includes Scope 1 and Scope 2 emissions from our operations. Our high-quality steelmaking coal contributes to cleaner steel production due to the high coke strength of our products, which helps ensure stable and efficient blast furnace operations and results in lower carbon dioxide emissions per tonne of steel. A significant advantage of our operations in BC is the electricity provided through hydroelectric power, which is obviously a low carbon source. We continue to evaluate renewable and alternative energy sources and introduce efficient and emissions-free fleet technology, and Marcia will be speaking to our carbon neutrality objectives shortly. Turning to Slide 6. Just wanted to summarize the operating philosophy in steelmaking coal. It's critically important to understand the relationship between operating costs and coal pricing. Our objective is to maximize cash flow in any market. So when the price of coal is high, we aim to maximize production in order to drive cash flow and EBITDA generation. While costs remain a key focus, we may choose to strategically spend to generate additional production and increase margins to meet market demand. Under this scenario, we will often use higher cost equipment where necessary, we'll utilize contractor labor to ensure we have high availabilities in our plants and with the equipment, we may increase over time and we'll look at strategies like intersite processing. We invest in reducing risk to production, and we take steps to mitigate potential issues. A good example of this, we just recently supplemented the Fording River haulage fleet with low-cost used truck capacity to maximize rock coal availability from the mine going forward. In a low coal price environment, our focus shifts to cost reductions and deferrals to deliver, again, maximum cash flow for our shareholders. We demonstrated our ability to do this effectively in the downturn of 2013 to 2016 and through this period, we implemented a hiring freeze, reduced contractors and idled the high-cost equipment. And as a result, we were able to deliver strong cash flows despite a very challenging environment through that period. This recent period of very high premium pricing to China is unique in our history. Our target of 7.5 million tonnes or 30% of our sales to the Chinese market this year reflects our margin strategy for high price environments and our operational flexibility. Our steelmaking coal business has demonstrated we can quickly respond to any market condition and deliver strong returns by focusing on the levers that maximize cash flows and value for our shareholders while meeting our customer commitments. Slide 7 illustrates that our operating margins are competitive relative to industry peers, as shown in the chart on the lower right. Our Neptune port upgrade project is complete, Réal will speak to the project in our logistics chain in a moment. The Neptune upgrade secures a long-term, low-cost, reliable steelmaking coal port access for our supply chain for the long term. Our logistics costs are lower through Neptune than through Westshore Terminal or Ridley Terminal with a lower cost base and strengthened supply chain, our steelmaking coal business is well positioned for the future. And as you've heard quite a bit of, our RACE transformation is ongoing. There are numerous initiatives in mine operations, maintenance and processing underway and implemented. Due to the innovative nature of these projects, some will generate strong upside, while others may prove out -- may not prove out or require more time than anticipated to achieve target objectives. However, on balance, we're seeing our unit cost inflation and COVID-19-related productivity impacts have been notably mitigated by our RACE21 initiatives compared to our peers through this year. Our costs and production profiles are predictable and stable as our long-term strip ratio remains constant. We continue to achieve best-in-class truck productivity and asset utilization levels. And further, we expect the gap between our cost and that of our primary competitor is going to widen because they're guiding for a cost increase of over 20%, and our costs are expected to remain relatively stable. Finally, as mentioned earlier, we've got a diversified long-term customer base and integrated operations, including a dedicated logistics system. This supports our extensive resource base providing numerous value-accretive production scenarios to meet market demand and deliver strong returns in any price environment. And with that, I'll turn it over to Réal to provide an update on our logistics chain supply.

All right. Thank you, Robin. Starting on Slide 2. The coal logistics chain is performing really well, actually the best it ever has showing the benefits of port and rail optionality and related resilience. The sound commercial arrangements with Raven ports and the increased capacity as Neptune ramps up improve the reliability of the coal supply chain. For instance, we moved over 350,000 tonnes through Ridley Terminals during Vancouver rail closure caused by the unfortunate BC wildfires, and that movement through Ridley Terminals helped us to partially mitigate impact to sales and mine production. The Kamloops rail interchange between CN and CP is performing well, moving product to the port efficiently. Mine inventory is at good levels, providing options for loading trains and flexibility at the mines. As Andrea highlighted earlier, RACE21 technology is also assisting the coal supply chain continuous improvement, supporting coordination between mines, rail, ports and vessels, and reinforcing the efficient and optimal utilization of capacity. Neptune is performing well with equipment, demonstrating design capacities with over 300 trains dumped and over 60 vessels loaded since April this year. Terminal-wide system integration and ramp-up is going as planned and targeting over 18.5 million tonnes annualized rate in Q4. We thought we'd share a few photos of Neptune on the following slides. Next slide, please. So Neptune is a world-class terminal with modern control rooms for remote vessel loading and train dumping, state-of-the-art visibility and collision avoidance systems ensure safe and efficient operation. Next slide, please. First coal was put through the tandem dumper on April 19 as previously reported. This is what you see on the photo here, the actual tandem dumper in action. The train dumping is performing well with the new tandem dumper and the upgraded single dumper. Next slide, please. Neptune's yard system includes new stacker reclaimer and conveyors, allowing efficient train unloading and vessel loading. Next slide, please. This is the new high-capacity west ship loader. And on the next slide, this is a view of Neptune's 2 ship loaders in action, loading the largest vessel ever for the terminal and also showing the benefits of the Neptune upgrade. The high-capacity west ship loader is at the top of the photo, and the upgraded east ship loader is in the foreground. And with that, I will turn it over to Kieron McFadyen on energy.

Réal, thank you. Good morning, everyone. Good afternoon, everyone. So my aim today is to provide a Fort Hills update and brief outlook. But I want to emphasize really upfront absolute short-term focus is on ramping up Fort Hills and maximizing asset utilization. Let me start with a short recap on Fort Hills, the asset. Next slide, please. Fort Hills is a long-life, high-quality asset both in terms of its scale and/or quality. And in terms of scale, at nameplate capacity of 194,000 barrels a day, the asset provides stable free cash flow for over 30 years. It operates in a stable jurisdiction with a high-quality workforce and high-quality supply chains generally. And I do want to stress that from a greenhouse gas point of view, Fort Hills production is one of the lowest in oil sands. So to summarize, Fort Hills is a long-life, low-cost, high-quality asset located in a progressive jurisdiction. Next slide, please. So I want to begin by saying that the operators have done a commendable job managing COVID. There have been no significant business impacts as a result of COVID. Now in our Q2 2021 news release, we referenced several operational issues at Fort Hills related to contract overburden stripping, main water inflow and main slope instability. I want to note that none of these issues are long-term structural issues that and are not of any impact on 2022 operating plants. The operator is absolutely focused on overburden stripping to explore sufficient ore to maintain and indeed sustain production at full rates. Overall we are seeing clear signs of improvements in main productivity with the recent operational performance, and we are well positioned to ramp up production heading into 2022 with a clear focus on maximizing asset utilization, as I said. And across state, the operators have been actively working to understand that the partnership can further reduce costs. And the partners are working together in a constructive manner to support these efforts. And clearly, as production ramp-ups also provides an opportunity for us to improve our cost structure overall from a unit cost point of view. Next slide, please. So as we stabilize production, we expect to see a significant improvement in Fort Hills EBITDA. As you can see in the chart on the right, the EBITDA has a potential to increase by over $0.5 billion. This assumes production at nameplate capacity and operating cost that actually we have achieved already. But please note that in December 2018, we produced over 200,000 barrels a day. We are well above nameplate and operating cost below CAD 23 per barrel. So this, in part, gives us the confidence in the financial potential of the Fort Mills asset. Importantly, this confidence is further underpinned by recent improvements in global benchmark energy prices. We're also seeing steady Canadian differentials, which are forecasted to improve further with Enbridge Line 3 expansion expected to be in service early in Q4. In fact, we expect to see it coming online next month. Added to that, we expect to see Trans Mountain, TMX expansion to come into service late 2022, '23. Next slide, please. As noted in previous analyst presentations, we have not lost sight of significant debottlenecking opportunities at Fort Hills. We believe there's something in the range of 20,000 to 40,000 barrels per day debottlenecking opportunities at Fort Hills. But we also recognize that we first need to run the asset at full rates for 12 to 18 months to fully understand and validate the constraints. However, we do believe that there are opportunities with upside EBITDA potential. This is best illustrated in the chart on the right with the incremental EBITDA potential of $150 million. Moreover, there may be regional synergies that could provide further significant cost improvement opportunities. Finally and crucially once built and commissioned assets like Fort Mills, provide steady free cash flow for decades. And with that, I'll pass back to Fraser.

That's great. Thanks, Kieron, very much. We'll now take questions on operations. Joining me for this panel is Don, of course, is going to come back and moderate for us. And then Red, Andrew, Shehzad, Robin, Réal and Kieron. [Operator Instructions] Otherwise, Matt, over to you to start the questions.

[Operator Instructions] The first question is from Carlos De Alba of Morgan Stanley.

So when the -- is there a time frame where perhaps you could reach the potential Fort Hills? And how much, for lack of a better word, maybe patience would the board have with this operation before maybe taking other steps?

That one goes back to Kieron, please. I'll do the second part of it.

Sure. Sure, Don. So thanks for the question, Carlos. As I mentioned in my commentary, our focus right now where the operator is to ensure that we get plans in place for the safe and efficient ramp up. We hope to start ramp up before the end of the year. The current one sees a full ramp-up in Q1. So that's early January, February. But we are working hard with the operator to bring it up to full capacity and read that as something like 175,000 barrels a day, something early next year, January.

Okay. And just on your second question, I mean, I can say that the Board is certainly frustrated, management team is frustrated, and I'm sure Suncor is frustrated as well. We would like to see this back at full production because what that does to the numbers is very positive for a company. But think about this, there's real pressure on Suncor because if we're losing over $0.5 billion in EBITDA, they're losing about $1.3 billion in EBITDA. So they have a real incentive to get it up to capacity as do we. We've had a very good dialogue with them. We work very well with them, sharing ideas and best practices and so on. But at the end of the day, they're the operator and the real pressure is on them right now.

The next question is from Dalton Baretto of Canaccord Genuity.

I'm just wondering if I can -- where we stand in terms of the HVC 2040 and the Antamina EVA 2 project.

Okay. Shehzad, over to you.

Thanks. For HVC 2040, we are completing our feasibility study right now and expect to submit an EIA and our focus really is on the EIA getting that in the process and getting it approved. And we do expect to submit that in the second half of 2022, and a 12- to 15-month approval time lines, that would be typical. And then there would be a time for a sanction decision at that time. With Antamina, EVA, our mine life right now is till 2028, and we have been working on a MEIA to be submitted in 2022 and expect approval in 2023 to extend that mine life till 2036. And also work is ongoing on other tailings facilities to look for that to get mine life extended past 2036, so.

Okay. Great. And just maybe switching gears to the Aktigiruq deposit. I remember when we were on site a couple of years ago, there was talk around doing a deal with NANA. Just wondering if that's still in the works.

Back to Shehzad.

Okay. Yes. NANA has been a strong partner with us for a long period of time. And remember, the Red Dog facility is -- and the ore body is on NANA lands whereas the Aktigiruq and Anarraaq are on state lands. So there's a different regime for that, and we are working collaboratively with NANA to get alignment. We don't have a signed agreement at this point, but that work is going on very collaboratively as we develop the resource in the short term.

The next question is from Brian MacArthur of Raymond James.

Sorry my question sort of bridges back to the first part as well. But there was a slide in the first presentation where you showed potential cash flows with QB2, and there were a lot of assumptions. My 2 questions are the following. You talked about how you adjusted the coal business for $199, I think, coal price, but you annualized the first half of this year's EBITDA. Does that mean we didn't put the benefit going forward in those numbers of the new logistics system? And secondly, I mean, did costs get adjusted given you're assuming a higher price in the first half? How did you actually address that? And my second part of this is very simple. Similarly, if I understand the assumptions, we used first half of oil and gas again, but that obviously wasn't particularly good this year. Did we adjust the oil and gas forecast in those consolidated numbers for everything you've been talking about in oil and gas here to get back to the potential of running it all out?

Okay. Well, thank you, Brian, for the question. The first to answer that would be Jonathan Price, our CFO. This being the operating section of the IR Day today. We didn't necessarily have him on standby. I'm just looking at the list to see if he is available. But if not, at the end of the day, we'll have a catch-all for remaining questions outstanding, and he could answer it then. So does anyone see Jonathan on the list, I don't so.

No, I'm here.

Yes, go ahead.

So on the second question, we haven't assumed all of the operating benefits that Kieron was talking to. We simply took the first half performance and carried that forward with the adjustments noted. We also didn't assume the full benefit of the Neptune facility in those future forecasts as well because we wanted to stick to the H1 performance. You can see, therefore, that there's still some upside in those numbers that we quoted. There's a bit of detail behind that, and we're happy to take that offline with Fraser and team, if you want to understand that further.

Sorry. That's very helpful. And I apologize for asking this now. I'm just on the line, so I couldn't see who is actually available. So I apologize for asking it now. I just didn't get it in the last time. But thanks very much. That's very helpful. I was just trying to get.

No problem.

The next question is from Matthew Murphy of Barclays.

There's a bunch of the RACE21 team on here. So I guess I'll take advantage of your presence to ask a question on it. I'm interested to hear a little bit of a sneak preview about what happens after 2021. I guess if 2021 was the acceleration phase, what's the constraint going forward? Is it capital? Is it people? Or is it all systems go already here? And also interested if Red Conger has any thoughts having come into the program in mid progress.

Okay. Well, we'll let Andrew answer the first part and then turn it over to Red. I will say, though, that when you look at these things, the RACE21 becomes a race in a second ongoing cultural transformation as I think you saw in the presentation. But Andrew, back to you.

Yes. Look, on the future, we see a similar trajectory going forward in terms of pace and value uplift. If anything, there's potential there to ramp up. And that's something we're looking at, at the moment. And clearly, we'll have to align decisions around that with capital constraints and other things. But one thing I would say, the initiatives we pursue in the RACE program have very short payback, and we have a rigorous approval process for each project we undertake. You saw on the slides, 450-plus initiatives. All of those have a rigorous review process that we undertake, and it's approved at the highest levels. It's reviewed by myself. And if it's an issue in base metals or in coal [indiscernible] that would be involved, we sit down, we discuss the merits of the initiative. And in a lot of cases, the IRRs on those is extraordinary, over 200%, 300% in short payback, as I say. So we're going to continue approaching the program on that basis. We have a large portfolio that we're continuing to expand. You would have heard about the domains that we talked about. We're expanding those domains. We're expanding initiatives, and we're moving into other areas. It's an exciting future, from my perspective, in what RACE can do with our decarbonization goals. I mentioned, on the Connect piece, the integrated platform. I mean ultimately, what we want to be able to do is look at our full value chain and it's about reducing variability across the value chain while leveraging data, et cetera. And that's all work that's underway, and we'll continue to reap huge benefits in the future. So that's going to be something we decide. The focus at the moment is clearly on getting to the end of this year. We've made some ambitious -- we've set some ambitious targets around where we want to be in this year. And I'm focused on the teams on getting to the end of the year. But certainly, there's a team also focusing on the future and what 2022 and beyond looks like. So stay tuned. I'm looking forward to announcing some of that in future calls. And with that, Red, I'll hand over to yourself for the next part of the question.

Yes. Thanks for the question, Matthew. There are things in the concentrator that Shehzad pointed out to us that I have experience with, that I'm familiar with. So I think what Teck is doing is cutting edge there and obviously delivering big, big results for us. The things that I've learned about in the past year that I was not familiar with prior, a myriad of other tools that Andrew and the team have developed. You saw some of them showcased here today with a haulage optimizer. Don and I have been out at the sites, in the field working with the people. We've actually used these applications out there. And the supervisors and field leaders have very excitedly explained to us how it changes their day-to-day responsibilities, helps them deliver better results for them that they can actually see and experience the benefit. So I think it's a great combination of all of the things that you pointed out. We're renewing systems, we're automating things and making significant improvements all the way around. So I'm excited to be a part of it and very impressed with what's been accomplished to date.

Thank you. We have no further questions on the line.

Okay. Thank you.

Sorry. Go ahead.

No, go ahead, Fraser.

My apologies. Thanks. Thank you. So Matt, and I guess, we'll start off the last session here, third and final session of the day. It's led by Marcia Smith, of course, our Senior Vice President of Sustainability and External Affairs. Marcia will provide an overview of Teck's commitment to ESG and our industry-leading performance. So Marcia, over to you.

Great. Thank you very much, Fraser, and good afternoon, everyone. So today, as Fraser said, I'm going to give an overview of Teck's ESG performance and our strategy for continuing to meet the evolving ESG expectations moving forward. So moving to Slide 2. I'll start with an update on performance and achievements in each of health, safety, environment and communities. I'm going to briefly review Teck's sustainability strategy and then provide a review of our climate-related performance, including the role of steelmaking coal in our low carbon future. And finally, I'll close with an update on the ESG resources for investors. So starting with the health component of health and safety. Throughout 2021, COVID-19 remained one of the most material issues facing Teck and the world. We have a comprehensive approach to managing the risks and impacts of the pandemic based around 5 pillars: prevention, employee support, aid for communities and public health organizations, business continuity and communications. So on the prevention side, we've continued to enhance protective measures. In addition to the protocols that we've put in place in line with health guidance, we've also implemented prework rapid testing programs across our operations and major projects. And as a result, we've been able to maintain operations and continue the ramp-up at our QB2 project. For employees, we've greatly expanded our mental health programs and also provided access to on-demand virtual health services. And we've launched programs to encourage vaccination as well as on-site vaccination clinics. And we provided a paid day off for employees to get vaccinated. We've also continued to support community and local health organizations through our $20 million COVID community relief fund. And throughout the pandemic, we have made close contact with our employees, our stakeholders, health authorities and unions to ensure that they understand and support the protective measures that we're putting in place. So moving to overall safety performance, as Don said, this is a core priority for Teck. Our company-wide safety performance in 2020 was the best on record for Teck, with performance in the first half of 2021 following similar downward trends in high potential incidents and lost time injury frequency. And we attribute some of this progress to the continued implementation of our high potential risk program, targeting potentially unsafe situations before any potential incident can occur. Now despite this progress, we were saddened to report one fatality in January 2021 at our Red Dog operations. We have carried out an in-depth investigation to identify measures to prevent a reoccurrence of such an incident, and we are sharing the results to help strengthen performance across the mining sector. So for these next few slides, I'll say a few words about Teck's approach in each priority area. So starting with communities. We engage with surrounding communities throughout the mining life cycle, from exploration to development, operations to closure and remediation to create lasting benefits for all. And this includes generating approximately $10.8 billion in economic benefits in 2020, which includes spending with local suppliers, payments to various levels of government and wages and prioritizing hiring from within the areas where we operate, with 72% local employment across operations. On our work with Indigenous Peoples, we focus on early engagement, and we work to achieve the free, prior and informed consent for Teck's activities in the traditional territory of Indigenous Peoples. An important part of that is establishing formal agreements, and we currently have 72 active Indigenous agreements in place covering all of our operations. We also work to advance reconciliation through support for numerous Indigenous-led organizations. And we focus on creating economic opportunities for Indigenous communities, including investing $192 million with Indigenous businesses last year alone. So moving on to water on Slide 6. We work to protect water quality and reduce our use of freshwater in water-scarce regions. Two of our major undertakings are the continued implementation of the Elk Valley Water Quality Plan at our steelmaking coal operations in British Columbia. And as Robin said, by the end of 2021, we plan to have capacity to treat more than 54 million liters of water per day in the Elk Valley, and that is nearly 3x our 2020 treatment capacity. And in Chile, we're focused on reducing the use of freshwater. That includes construction of a major desalination plant at our QB2 operations, which will be the first large-scale use of desalinated seawater for copper production in the Tarapacá region of Chile. On tailings management, we are committed to meeting global best practices for safe and responsible tailings facilities. And we're proud to have been part of the efforts to develop the Global Industry Standard on Tailings Management. And because of our existing mature tailings governance program, we already meet about 75% of the global tailings standards requirements at our sites, and we're in the process of completing full implementation. This is largely around developing stronger community engagement programs on tailings management, and our plan is to complete that work no later than August 2023. So moving to Slide 7, biodiversity and reclamation. We are working towards a commitment that we actually made back in 2011 to have a net positive impact on biodiversity. And this includes working in cooperation with groups, including Indigenous communities and others on conservation initiatives. For example, in January of this year, we signed a joint management agreement with the Ktunaxa Nation for over 7,000 hectares of land near our steelmaking coal operations that have been set aside for conservation. Further, in our effort to be a responsible producer, we continue to focus on reducing waste and pollution while increasing recycling activities, including recycling of electronics or urban ore at our Trail smelter to reclaim valuable metals with over 43,000 tonnes of urban ore recycled last year alone. On Slide 8, at Teck, we are working to foster a culture of equity, inclusion and diversity, ensuring that our employees feel valued and equipped for their roles today and into the future. And for example, we're working to improve gender diversity across the company. And to date, 20% of our total workforce are women, ahead of the industry average of 15.7%. Over 1/4 of all senior management roles are held by women today. And we're also committed to transparency and accountability in our governance practices. And this includes linking our compensation to sustainability performance through the integration into corporate business and personal components. So moving now from performance to strategy on Slide 9, Teck has had a comprehensive sustainability strategy in place for over a decade. We updated the strategy on a -- we update the strategy on a periodic basis, first in 2015, and we released a second major update last year. With the 2020 update, we set ambitious new goals in the 8 strategic themes shown here on the slide, from health and safety to tailings, to climate change. And under each, there are long-term objectives with short-term milestone goals to guide our progress. So there's a lot of detail on each of the goals available on our website. But for our time today, I want to focus on climate change. So on the next slide. Mining is, by its nature, as the audience would know, a GHG emissions-intensive business. And we recognize our responsibility to work to reduce emissions and support global action on climate change. Today, Teck is in an industry-leading position when it comes to climate action. The carbon intensity of our operations is already very low. And as shown in the graphs here on the slide, the intensity of our Scope 1 and Scope 2 GHG emissions for each of our major products are already in the first or second quartile in the industry. And in fact, as Robin pointed out earlier, Teck's hard coking coal is amongst the highest quality in the world with properties that improve blast furnace efficiency and decrease CO2 emissions per tonne of steel. And this has positioned Teck's seaborne steelmaking coal as a preferred product for steelmakers as they begin to face rising carbon prices. And finally, I will say that the majority of our business is already covered by carbon pricing and has been so for many years. So unlike many of our peers, the cost of carbon is already factored into our cost structure. So moving from this strong starting position, we are implementing a comprehensive climate strategy organized around 4 pillars. The first is to ensure Teck's portfolio is well positioned for the low-carbon economy. And central to that is, as Don discussed earlier today, rebalancing our portfolio towards copper and essential metal for the low carbon transition. Second, we support adoption of carbon pricing as an effective and fair method of driving climate action broadly when applied equitably. Third, we're working to reduce our own carbon footprint, including setting a long-term climate goal of being carbon-neutral across our operations by 2050. And our plan to achieve this 2050 goal includes several short-term milestone goals, including moving to renewable power for our Chilean operations and reducing the carbon emissions intensity of our operations by 33% by 2030. So we are continuing the implementation of our climate change policy, including working on our Scope 3 emissions through work with our customers and transportation providers to reduce downstream emissions. Finally, we are adapting to the physical impacts of climate change at our sites, incorporating climate scenarios into our project design and mine closure planning and increasing the resilience of our operations. So we have been working on a road map for how we will reduce our carbon intensity to achieve this long-term objective of being carbon-neutral by 2050. And so from now until 2030, our focus is on readily available cost competitive technologies. And our action in Chile to move towards renewable electricity reflects this approach, where we've been able to procure renewable electricity at competitive prices. We're also evaluating abatement opportunities across all of our sources of emissions with a focus on mobile equipment, which represents our largest sources of emissions. And today, we're piloting projects such as electric crew buses and other heavy-duty electric vehicle options such as concentrate haulers at Highland Valley Copper. And finally, we're also actively exploring early-stage adoption options for 0 emissions haul trucks. So moving to Slide 13. Beyond reducing the emissions of our own operations, we're also considering the resilience of our products in a low-carbon world, particularly steelmaking coal. And currently, the steel industry accounts for 7% to 10% of global greenhouse gas emissions. And as Don noted, many solutions have been proposed to decarbonize steel production. And we believe meeting global climate commitments will require deploying a range of steelmaking decarbonization technologies. Today, about 70% of steel is produced by blast furnace, which requires coke made from steelmaking coal. And adapting blast furnaces with carbon capture utilization and storage technology is, we believe, going to be at least in the short and near term the most cost competitive and commercially viable decarbonization solution, leveraging the more than USD 1 trillion of existing blast furnace capacity. And as such, we see continued strong demand for high-quality seaborne steelmaking coal through to 2050. So moving to Slide 14, I'd like to close by highlighting our approach to reporting and to touch on external recognition of Teck's sustainability performance. We have issued sustainability reports for 20 years in alignment with the GRI frameworks. We also report an alignment with SASB standards. And we published 3 TCFD-aligned reports, most recent of which we released just a couple of months ago. And finally, we have achieved industry-leading ESG performance, including being honored as the top-ranked mining company by both the Dow Jones Sustainability Index and Sustainalytics and maintaining an A ranking with MSCI. And on Slide 15, I invite you to access on Teck's extensive ESG disclosure as listed here, all of which are available through our website. So in summary, Teck remains focused on leading ESG performance. We are well positioned for the low-carbon transition with low-carbon intensity production of the metals and minerals essential to the clean economy. We have strong health and safety, environmental and communities performance with a focus on continuous improvement as guided by our sustainability strategy. And that strong performance has been recognized by a number of external ESG ratings and rankings organizations. And so with that, I will turn it back to Fraser, and thank you very much.

Thanks, Marcia. We'll now take questions on Teck's ESG strategy, performance and reporting. Don will be back on, of course, to moderate. Don, Marcia and I will be joined by Red and also Chris Adachi, who is our Director of Climate Change; and Scott Maloney, who is our Vice President of Environment, Other members of the senior management team are also available on the line to answer questions. And as a reminder again, just anybody who wants to ask a question, please dial on with the conference center and limit questions to one. With that, Matt, please open up the lines for questions.

[Operator Instructions] And we have no registered questions at this time.

We may have worn everyone out. Why don't we then -- I mean we've got time slot at everyone whoever is still with us for Q&A on sustainability. And of course, we wrap up with Don. So general Q&A. On -- sorry, go ahead, Matt.

Yes. Sorry to interrupt. We do have one question that queued up if you would like to take it?

Well, absolutely, please.

The question is from Carlos De Alba of Morgan Stanley.

Sorry if I missed this, but could you make any comments on what are the key initiatives on Scope 3 for the coal business?

Go ahead, Marcia.

Sure. Maybe the first -- thanks, Carlos, for the question. And maybe the first point that I would make is that rebalancing our portfolio towards copper will shift our Scope 1, 2 and 3 intensity of our portfolio to one that is lower in intensity, since carbon has a lower Scope 3 emissions profile than the steelmaking coal business does. Having said that, as we've all talked about today, the steel sector is taking meaningful actions to decarbonize as they aim to deliver their own net 0 emissions goals by 2050. So in terms of Scope 3, we are committed to working with our customers and our logistics chain to better understand what options there are to decarbonize their business and to identify where we can help support their efforts. Maybe I would also just see if Chris wants to add anything there.

No, I think, Marcia, you hit the main points there. The only thing I'd add potentially is that we are looking at options as well in the supply chain. And I think there's some announcements that we anticipate in the coming months. But we are looking at all those options throughout the supply chain to see where we can support others.

Thank you, Carlos. Maybe, Don, I'll just say I -- I was just going to say there was a question earlier, and I'm sorry, Carlos, I don't know if it was from you, but there was a question earlier on glaciers, but I don't think we addressed. Someone asked a question. That was part of a multipronged question on glaciers. And I just wanted to say to whoever questioned that the glaciers that you're referring to in Chile, it does not have any impact on our QB2 or Carmen de Andacollo operations where we have no involvement with glaciers. So just to close that loop on that question.

Thank you. Please, if there's no more questions on sustainability, why don't we move to the final question session on anything and everything that people may want to ask that.

Absolutely. So we will do that the -- just before we do, I was going to mention 2 things for people for their calendars, so we don't do that at the very end. First, 2 events. First, we will report our Q3 results on 27th of October. The conference call, as usual, 11 a.m. Eastern, and all the details will be released a little closer to the time we report. Second, perhaps -- not perhaps, absolutely more exciting as we are going to host a QB2 virtual site visit on Monday, November 1. And we'll again have further details on that in the coming weeks. And so with that, then we go to the final Q&A. And we're going to have on screen Don, Red, Jonathan, Marcia and Nick. But of course, all the members of the senior management team are free to -- are available, excuse me, to answer questions. And so with that, Matt, I wanted to see if we have any other questions on any subject, including sustainability.

Yes. And we do have questions. The first question is from Lucas Pipes of B. Riley Securities.

Réal, a quick question for you on CFR prices in China. Obviously, Teck has some nice exposure there in the Pacific market, 7.5 million tonnes, if I recall correctly. How would you describe the CFR market in regards to how it translates to netback prices. major pitfalls that we should be aware of? There's always sensitive when prices run up so quickly that things can rise along the way to quality discounts, transportation, what have you. So just thought I ask that question, I would appreciate your perspective on that.

All right. Thanks, Lucas. Well, the current China CFR price is really high, for sure, as you're pointing out. I mean on average, it's sitting just below USD 580 per tonne. But to your question to work that back to an FOB price, the freight from Vancouver to China is currently in the USD 25 to USD 30 range. So you need to deduct that, call it, from $580 for round number. So that puts it in a very healthy USD 550 to USD 555 per tonne. Now what is supporting this and what are we watching on the seaborne supply side, supply is down, as I said in the presentation compared to pre-COVID, while steel production overall across the world is up significantly, 125 million tonnes versus 17 million tonnes lower on the steelmaking coal supply side. We're also watching, of course, the domestic supply in China. Domestic supply in China right now is running higher than last year. It is annualized at about a 9 million tonne increase versus last year, bringing it to 494 million tonnes compared to 485 million last year. And it doesn't seem -- like there's ongoing safety inspections at the mine. So it seems like doing any more than that would be difficult. Actually, the plus 9 million is probably a best case. And then, of course, we watch Mongolia. Mongolia year-to-date exports to China are down. They're down. Actually, if you annualize the number, they're down another 9 million tonnes year-over-year to annualizing around 15 million. That is down from 24 million last year and 34 million pre-pandemic in 2019. So supply overall is continuing to be very tight. And then we're seeing movement in the market by steelmakers in various markets, trying to procure additional steelmaking coal as they're continuing to produce at very high level to capture the record high or near record high steel prices.

Very, very helpful. I'll do a very quick follow-up. Many investors ask about the forward price for next year is still really healthy. Any interest in locking -- hedging out some of the coking coal price risk?

Yes. That's a good question, Lucas. But when you look at forward market for coal, it is still very thin, very small number of transactions. And if we were trying to hedge just one vessel alone, we could swing the market completely because the forward market is actually in very small clips of a few thousand tonnes compared to vessel sizes. If you take a Panamax, you're looking at 80,000, 85,000 tonnes. If you take a Capesize, you're looking at a minimum of 165,000 tonnes. So it is not an alternative. There is no forward market we need to hedge.

The next question is from Orest Wowkodaw of Scotia Bank.

You've outlined some potential development time lines for San Nicolás and Zafranal. I'm wondering if you can outline sort of what the time line could be for QB3 and specifically not just a development decision there, but also when Teck would actually be contributing significant capital to fund that expansion?

Okay. Several of us could comment on that. But why don't we start actually with Nick, if you could explain then how the deal works with Sumitomo Metal Mining, Sumitomo Corp. in terms of throughputs and capital win. And in terms -- and then ran it over to you on the time table related to pre-feasibility filing of the SCRA and final feasibility and so on?

The contingent payment is equal to effectively 8% of the NPV of QB3. And that goes in a similar manner to the -- their upfront payment did in the original transaction, which is, i.e., it gets spent first.

Okay. And Red?

Yes, Orest, thanks. So we're heading into pre-feasibility now on QB3, and there's -- it's a very exciting deposit. That's been another fun thing for me to learn about in the past year. It's got great expansion potential. We could add an additional SAG line pretty straightforward to that, but it would support much more than that. So the pre-feasibility is going to be looking at those options with a lot of focus on just adding one additional SAG line, which would be a 50% increase in the QB2 capacity to get to QB3. So you can imagine those different approaches would have different time lines, but still they're well out in the future the way that timing works when Teck would actually have to be putting cash in if we were to continue down that path and sanction something.

Just to take those 2 things together, if you think about it, when we first did the deal and people thought of long-term copper prices is around $3 at that stage, to the extent that people have a view, it might be $3.50 now, the value of the 8% of the NPV at that stage is much higher than we would have thought. And so the capital that Teck would have to come up with is, of course, that much lower. And so -- and then, of course, you have project finance that would come after that. So really Teck's equity commitment is probably 2027 or 2028, and it would be lower than what we otherwise would have thought, and that depends on which model of development is. So we'll have quite a few years of lots of cash to return to shareholders before putting equity into QB2.

Okay. As a follow-up, it looks like the CapEx for San Nicolás and Zafranal combined even on a 100% basis is only $2 billion. So if -- according to your time lines of potentially starting those in mid-'23, it does sound like there's going to be a multiyear window here of positive free cash flow. Is that the right way to think about it?

Yes. And then even more so, if we partner on those assets in terms of our R&D to put up capital becomes that much less.

The next question is from Greg Barnes of TD Securities.

I'm going to jump a gun a little bit, with coal prices where they are, it looked like that's going to continue into Q4. Is there a possibility of supplemental shareholder returns this year or early 2022? Or is it going to wait until QB2 is done?

No, I think if you do the math, you have to make your assumption on what, not just coal prices, but all coke prices are going to be. But certainly, anywhere near these levels, our capital allocation framework would produce a number -- a healthy number of available cash flow. And then Jonathan took the group through how that works. And so we would make a decision on that at the Board meeting in February when we have all the final results there. So I'm not going to predict what it is, but certainly, our models show that there would be available cash flow.

And next question is from Matthew Murphy of Barclays.

Another one on coal. Can you remind me on the contract volumes, which time of month do the assessments tend to happen? And is it a consistent time of the month, just given the rally, want to make sure I'm capturing that rate? And then does the price action that you've seen and your assessment of the market make you want to shift your volumes at all, trying to get more into China or vice versa?

Okay. Réal, back to you.

All right. Thanks, Matthew. I'll answer the second question first. Yes. We keep looking to maximize tonnes for our sales to China. But of course, we're continuing to supply into our long-term, highly stable and reliable customers that it took us years to develop. So currently, our target is over around 7.5 million tonne sales to China for 2021. We're well on track to do that. And there's good reason to do this, as you say, with the prices that we're seeing right now. Now in terms of our book, China at around 7.5 million tonnes is about 30% of our sales. The sales in China are priced around 4 to 6 weeks ahead of the start of the long port laycan for the vessels. So we're always kind of about a month to 6 weeks behind price. The other -- another 40% of our book is with our long-term customers where the price is calculated on the average of the FOB Australia assessments lag by 1 month. So what that means for the current quarter for Q3 is that the average -- the -- that price for the quarter has already been set. The average is at just under USD 203 per tonne. That compares to USD 117 per tonne in Q2, and it was USD 122 per tonne in Q1 this year. So we are seeing benefits in Q3 for those quarterly priced sales. But of course, the balance of our sales that are sold on the spot market, we're seeing benefits, like I say, 4 or 6 weeks behind actual price in the market as tonnes are reflected.

Okay. I understand that there are no more questions at this time. So I just want to say to everybody, thank you very much for joining us today. If we have missed anyone with questions, please feel free to reach out to Fraser and other members of our Investor Relations team. We'll be happy to get back to you. And we look forward to hosting our Annual Investor and Analyst Day in person next year. I certainly hope that comes to pass. Lastly, I want to say a special thank you to my team, to Fraser and Lori and Ellen and our newest addition, Helen, for working so hard to put this session together. Today. I think you've done a great job. And thank you to the rest of the senior management team for being available for these questions. We wish you all very well. Thank you very much. Bye now.