Teck Resources Limited (TECKB) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the 2022 Annual and Special Meeting of Teck Resources Limited. Please note that this meeting is being recorded. I would like to introduce Sheila Murray, Chair of the Board. Ms. Murray, please go ahead.

Thank you very much. Good morning, everyone. I'm Sheila Murray, the Chair of the Board of Directors of Teck Resources Limited. And I'd like to welcome, everyone, to the 2022 Virtual Annual Meeting of Shareholders. Before we begin, I would like to acknowledge that we are coming to you today from the traditional, ancestral and unceded territory of the coastal Salish peoples, Squamish, Tsleil-Waututh, Musqueam Nations. Following the business of the meeting, there will be a presentation by Don Lindsay, Teck's President and Chief Executive Officer, and an opportunity for Q&A. Questions may be submitted by shareholders through the Virtual Meeting platform. At Teck, we begin each meeting with a safety message. Today, I'd like to share some of the actions that we take as we return to in-office work, attend large public gatherings and generally shift to this new phase of the COVID-19 pandemic. First is continuing to diligently self-monitor for symptoms of COVID-19 or any other illness and staying home when sick. This means even if you develop mild symptoms, you should remain home to recover and to protect your colleagues. Secondly, I'd like to share the mask-friendly approach at Teck. Many individuals may continue to wear masks, even though formal requirements have lifted. Reasons can vary from personal choice, recent exposures, travel or other things such as having friends or family who are immunocompromised. It's important to support and be respectful of individual choices regarding mask wearing. Teck will continue to make mass and N95 respirators available in all locations for those who choose to wear them. By staying home when needed and being respectful of other choices, we can continue to work together to help keep those around us and ourselves healthy and safe. This meeting will now come to order. And I will ask Teck's Corporate Secretary, Amanda Robinson, to act as the Secretary of the meeting and Zabrina Evangelista of TSX Trust Company to act as scrutineer. The Secretary has confirmed that the meeting materials were mailed to shareholders in accordance with applicable laws on March 25, 2022. I direct that a copy of the declaration of mailing be attached to a schedule to the minutes of this meeting. I'll now ask the Secretary to read the scrutineers' preliminary report on attendance. Amanda?

I am pleased to report that there are 6,685,993 (sic) [ 57 ] shareholders holding 668,599,300 Class A common shares. Sorry, let's go backwards, for sure. And 382 shareholders holding 390,582,052 Class B subordinate voting shares, representing in person or proxy at this meeting. This represents a total of 439 shareholders holding 1,059,181,352 total votes, which is 81.24% of the 1,303,769,586 issued and outstanding votes as of the record date of March 1, 2022.

Thank you, Amanda. Having clearly determined that a quorum is present, I declare the meeting is properly constituted for the transaction of business, and I direct that a copy of the final scrutineers' report be attached as a schedule to the minutes of this meeting. Voting today will be conducted by way of ballot. Scrutineers have advised that the proxies deposited for the meeting have been voted overwhelmingly in favor of each of the items of business to be voted on at this meeting. Voting via the Virtual Meeting platform is now open and will remain open until after the last item of business has moved, following which, preliminary voting results will be announced. I'd like now to move to motion #1. The first item of business is the election of directors. 14 directors were elected -- sorry, were nominated for election in accordance with the provisions of general bylaw #1. However, following publication of our meeting materials, Mr. Toru Higo advised the Board that he is unable to stand for reelection. The Board wishes to thank Mr. Higo for his contributions to Teck over the past few years. As Mr. Higo has removed himself from consideration and no other nominees for director were submitted in accordance with our bylaw #1, there are now 13 director nominees who remain standing for election. They are Mayank M. Ashar, Quan Chong, Edward C. Dowling, Jr; Norman B. Keevil, the III, Donald R. Lindsay, Tracey L. McVicar, Sheila A. Murray, Kenneth W. Pickering, Una M. Power, Paul G. Schiodtz, Tim -- Timothy R. Snider, Sarah A. Strunk, and Masaro Tani. I will now entertain a motion that those nominees be elected as directors of the corporation.

So moved.

Thank you very much. The second item on the agenda is the appointment of the auditor. I'll now entertain a motion to appoint PricewaterhouseCoopers LLP as auditor of the corporation and to authorize the directors to fix the auditor's remuneration.

So moved.

Thank you. The third item on our agenda is the advisory vote on Teck's approach to executive compensation. Consistent with past practice, the Board has determined to put before the shareholders an advisory say-on-pay resolution as described in the Management Information Circular for this meeting. I will now entertain a motion to approve the advisory resolution on the corporation's approach to executive compensation in the form set out in the Management Information Circular for this meeting.

So moved.

Is there any discussion on any of the items of business? Shareholders may submit questions through the meeting platform. You should be aware that sufficient votes have been cast by proxy to ensure the passage of each resolution. We're also happy to engage with shareholders outside of the formal meeting in accordance with our shareholder engagement policy, which can be found on Teck's website.

There are no shareholders who have submitted questions.

Thank you very much, Amanda. So there being no discussion, the voting remains open for a short period. Any shareholder who has not yet voted may do so by clicking the voting button on the web portal and following the instructions there. Shareholders who have already voted do not need to take any further action. All right. Now that everyone has had the opportunity to vote, I declare the polls for the Teck 2022 Annual and Special Meeting are closed. I'll now report the preliminary voting results. The 13 nominated directors have been elected and each of the other items of business have been approved. I direct that the final results of the poll on each matter before the meeting be included with the minutes of the meeting. We will issue a press release with the voting results in accordance with TSX rules and detailed voting results will be filed on SEDAR for those who are interested. We've now reached the end of the formal business portion of this meeting. There being no further business to come before the meeting, I declare the meeting to be terminated. And I'll now turn the meeting over to Teck's President and CEO, Don Lindsay. There'll be an opportunity for questions following his remarks. If you have a question, please submit it now through the Virtual Meeting platform.

Well, thank you, Sheila, and hello, everyone. And thank you for joining us today for the Teck Annual Meeting. 2021 was an exceptional year for Teck, as our people demonstrated incredible resiliency and strength in the face of some unprecedented challenges. I learned a few new terms this year, terms such as heat dome, an atmospheric river and these things, of course, were tremendous challenges for all sorts of people here in British Columbia. Through heat waves, wildfires, floods, freezing and of course, the ongoing pandemic, our team once again went above and beyond to deliver record results and to advance our copper growth strategy. And I want to thank our employees for their commitment and their perseverance. I'd also like to thank Sheila Murray and the Board of Directors for their steadfast leadership and guidance. And I would like to take this opportunity to welcome 2 new members of our leadership team, Sarah Hughes, who's Vice President, Assurance and Advisory; and Brianne Metzger-Doran, Vice President, Health and Safety, both of whom joined us last year. Now before we start, I would like to draw your attention to the caution regarding forward-looking statements on Slide 9. This presentation does contain forward-looking statements regarding our business. This slide describes the assumptions underlying those statements, and various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statements. I will also refer to various non-GAAP measures in these remarks, and you can see how we define those measures and how they reconcile to our accounts in our most recent quarterly filings and in Teck's latest Investor Presentation in the Investors section of teck.com. So starting with our health and safety performance in 2021. I'm pleased to report that we achieved our lowest-ever high-potential incident frequency. It was down 38% compared to 2020 and lost-time disabling injury frequency was also reduced by 11%. However, we were saddened by a fatality that took place in January of last year at our Red Dog operations. And in response to the incident, we carried out an in-depth investigation to identify root causes and have implemented measures to prevent a reoccurrence. We also continue to implement comprehensive COVID-19 response measures all across our operations throughout the year, which enabled us to continue operating responsibly, maintaining jobs and helping to protect our employees and communities. And that included strongly encouraging and supporting employee vaccination. And we expanded our Copper & Health program, supporting the installation of antimicrobial copper coatings on high-touch services at post-secondary institutions, hospitals, in public transit and in other high-traffic public spaces. Turning to our annual performance results, as shown here on Slide 11. Driven by strong commodity prices and supported by solid operational performance in the face of unprecedented challenges, we set a number of financial performance records in 2021. And this included record adjusted EBITDA of CAD6.6 billion, which was more than 2.5x 2020. Further, in accordance with our capital allocation framework and concurrent with our fourth quarter 2021 results this February, we announced CAD267 million in supplemental dividends, representing 37% of available cash flow. And that was in addition to our annual base dividend of CAD0.20 per share. So in total, we returned CAD337 million to shareholders through dividends in the first quarter of this year. And the Board also made the decision to raise the base dividend by 150% to CAD0.50 per year and authorized up to CAD100 million in share repurchases, which have already been executed. And as you may have seen, last night, we announced our intention to repurchase a further USD500 million worth of Class B subordinate voting shares. And this demonstrates both our confidence in the outlook for our business and our commitment to balance growth with shareholder returns. And going forward, we will consider additional buybacks in the context of market conditions at the time. I'm pleased to say that we have very strong liquidity, liquidity position of CAD8 billion as of April 26, 2022, just yesterday. And we've kept a conservative level of long-term debt on the balance sheet with no significant maturities until 2030. We also actually reduced some of the debt. We redeemed USD150 million of our maturing 4.75% term notes in the first quarter of this year. And as we just announced in our first quarter results, we've had our third record quarter in a row. And Q2 is shaping up pretty well also. Turning to our execution against strategy on Slide 12. If you cast your mind back to early 2020, at the outset of the pandemic, we knew we were facing a very difficult road ahead. At the time, I described it, as we were descending into a deep valley. We didn't know what the pandemic was all about. It was all new to us. We knew it would be difficult to manage safely through the challenge of COVID-19. No question about it. But we didn't realize that we'd also be facing other unprecedented challenges such as record heat waves and wildfires and flooding and record cold temperatures decreases. We didn't know how long that dark valley would last. But we did know that if we stayed the course through that valley, the other side was very likely to be bright, lush and green. Central banks were coordinating activities all over the world, flooding the global economy with capital, and that would ultimately result in growth returning and that would be good for commodities. And in that context, we set out a 4-pillar strategy to ensure that we emerged even stronger coming out of the pandemic and create long-term sustainable shareholder value. First was delivering on our industry-leading copper growth potential, starting with strong execution on our QB2 project, which I'll provide more detail on in just a minute. Second, we're strengthening our existing high-quality assets, which we have achieved on a number of fronts, including completion of the Neptune Terminal upgrade project, which has proven to be enormously valuable to us, and then also through our RACE21 technology transformation program. Third, we took a disciplined approach to our balance sheet, with a focus on balancing growth with cash returns to shareholders. And fourth, we have continued to focus on excellence in our environmental, social and governance performance, our ESG performance. I'll provide a bit more detail on how we're delivering successfully on each of these pillars. Starting with copper growth on Slide 13. Significant growth in copper demand is expected to continue from power generation and grid infrastructure, storage, charging infrastructure and electric vehicles. The world is absolutely committed to decarbonization and decarbonization means electrification, which means copper. We're already a top 20 global producer today. Leveraging our industry-leading copper growth profile and our competitive cost profile, we have the potential to enter the top 10 and perhaps with a little more time, we'll be able to enter the top 5. And in the process, we will rebalance our portfolio to low-carbon metals. QB2 is our flagship copper growth project, and we have surpassed 82% completion now with more than 12,000 workers on site, which is the highest to date. Our capital cost guidance remains unchanged, and we expect first copper to be produced from Line 1 in Q4 of this year, assuming no further COVID waves or other major disruptions. QB2 will double our annual consolidated copper production once it's in full production. We are very proud of this achievement, especially in light of the notable increase in COVID-19 cases that we just had with the last wave of Omicron in Chile. And looking ahead, our pipeline of copper growth projects has the potential to add 5x the amount of our current copper equivalent production. We are making prudent investments to further define the path to value for each of our copper assets, leveraging our exploration, development and commercial expertise with a strong sustainability and community focus. Importantly, we plan to balance growth with returns of capital to shareholders by utilizing, what we call, a capital-light approach and optimizing the timeline to value. Our strategy is to focus on assets, which can deliver value-accretive growth in a timely manner, while maintaining our disciplined approach to capital allocation over the longer term. At San Nicolas in Mexico, we've been having detailed discussions with a number of parties, and we're getting closer to making a final decision there. We are optimistic that the project can be built in a relatively short period of time and add to our growth profile by 2026. For our Zafranal project in Peru, the feasibility study is complete. The permit application has been submitted, and we are now well into the technical review phase. And I had the opportunity personally to attend the public hearing portion of Zafranal's regulatory review at the end of March in Lima, Peru. And I was very impressed by the team's performance, incredibly professional. And in fact, the regulator said it was amongst the highest quality public hearings conducted for a mining project to Peru ever, which is a testament to the project and, of course, to the team. And then as the next step for QB2, we are advancing the pre-feasibility study for our Quebrada Blanca Mill Expansion project, what we call QBME. And that would add an average of 150,000 tonnes of copper equivalent production at QB over the first 5 years, which would increase our throughput by at least 50%. In addition to growing our copper business, we're also optimizing our existing high-quality assets to improve productivity and reliability. In 2021, we completed the steelmaking coal capacity upgrades at Neptune Bulk Terminals. The Neptune upgrades have greatly improved resiliency throughout our whole supply chain by increasing terminal loading capacity, improving our capability to meet our delivery commitments and also lowering our overall transportation costs. And the timing couldn't have been better with the recovery from recent logistics challenges and the current record high steelmaking coal prices. Those Neptune upgrades are proving their value every single day, with the facility recently performing at well above nameplate capacity, which is generating huge value at current coal prices. Elkview operations also set a new production record in 2021, with its first full-year of operations since its plant expansion to a capacity of 9 million tonnes per year. And we also continued to implement a range of initiatives under RACE21, our technology transformation program. From advanced analytics to machine learning and automation, RACE21 has built on our long-standing focus on technology and innovation to generate significant improved operational performance, safety and sustainability. The third pillar is our focus on balance sheet strength. I already covered our record fiscal results for 2021 and our strong position heading into 2022, and how we are continuing to prudently balance growth with returns to shareholders. But I also wanted to highlight how we are approaching an important inflection point at the end of 2022. With first production from QB2 in the second half of this year and the operation ramping up to full capacity, we expect to shift from a period of strong capital investment to a period of significant cash generation. And as shown on this slide, we will move from our projected 2022 capital spending on QB2 or a cash outflow of around CAD2.4 billion to an annual inflow of between CAD1.2 billion to CAD1.5 billion in net cash flows or even more at current copper prices, and that's with QB2 at full production and markets staying strong. This implies a cash flow swing of nearly CAD4 billion, increasing our capacity to fund growth and create additional opportunities to return capital to shareholders. Turning now to our ESG performance. Strong environmental, social governance practices are not just essential to our ability to operate. They are core to who we are as a company and to our purpose, which is why we are committed to the highest standards of sustainability in everything we do. In 2021, we continue to advance our short- and long-term targets with a focus on decarbonizing our business and reaching our goal of being a net 0 emissions operator by 2050. We also expanded our climate strategy earlier this year, adding an ambitious new goal to achieve net 0 Scope 2 emissions by 2025. That's not very far off. We also added an ambition to achieve net 0 Scope 3 emissions by 2050. And although we don't have direct control over our Scope 3 emissions, which occur in our supply chain downstream of our business, we will work to partner and accelerate decarbonization pathways by supporting the applications of technologies such as carbon capture to achieve our customers' net 0 commitments. And I'm proud to say that our strong sustainability performance continues to place Teck at the forefront of our industry. We are the top-ranked mining and metals company on the S&P Corporate Sustainability Assessment, formerly known as The Dow Jones Sustainability Index. We were also upgraded to AA with MSCI, something very few of our competitors can say. And we are in the top 10% of our industry on numerous other major rankings, including Sustainalytics, ISS and Moody's ESG. And while these results are encouraging, we know that we still need to remain focused on building on our strong track record to ensure that we continue to meet the expectations of our shareholders, our communities and society at large. Now looking forward, 2022 will be a transformational year for Teck. We'll significantly grow our copper business through the completion of QB2 and the advancement of assets in our growth pipeline. And in doing so, we'll make major progress in rebalancing our portfolio towards base metals. We will continue to balance growth with returns of capital to shareholders, as we transition from cash outflow for QB2 to significant cash inflow as we ramp up towards full production. And we will continue to put sustainability at the heart of everything we do, all of which will position Teck to create long-term sustainable value for our shareholders and for our communities, our people and for the world. In closing, I want to again thank Teck's resilient and dedicated people across all of our sites. This team has been put to the test over the last year and they have risen to every occasion, ensuring that we continue to operate responsibly in pursuit of our corporate purpose of providing essential resources the world is counting on to make life better while caring for the people, communities and land that we love. I know that this team will continue to go above and beyond to ensure that we deliver on these core priorities, strengthening our business, providing value for our shareholders and supporting the global transition to a low-carbon economy. Thank you.

We will now pause momentarily to allow people to submit any questions. Okay. Our first question is, what are your priorities for copper project development after QB2?

Thank you for the question. And I'm excited to be able to say that we have a lot of optionality in our copper growth portfolio. We actually have 7 different projects that we have been working on and funding and advancing over the last several years, 5 of which were under a project, we call Project Satellite. Within those 7, there are 3 that I consider to be near term. Now near term means that they could actually be in production by the year 2026. And those 3 are QBME that I mentioned in my remarks, the QB Mill Expansion, Zafranal in Peru and San Nicolas in Mexico. And each of those are moving along. QBME, we are working on the pre-feasibility study. It would be finished by the end of this year. It's a project, as I mentioned in my remarks, that would expand QB2 by 50% and add another 150,000 tonnes of copper and concentrate production. That can be in production, we believe, by the year 2026. San Nicolas, we've completed the pre-feasibility and we're working on the final feasibility while we have discussions with potential partners. And we really do like the partnership model similar to what we did with QB2 with Sumitomo Metal Mining and Sumitomo Corporation because it derisks the project, both from a financial point of view and an operating and construction point of view and also market's point of view. Sumitomo has been a terrific customer and partner of ours for many years. And so we're delighted to be working with them. And following that model for both, San Nicolas and Zafranal, it's something that we think makes sense. At Zafranal, as I mentioned, we just had the public hearing last month. It went very well. We got a very strong reception from actually the regulator there. We own 80% of that project, and we have MMC as a 20% partner. There could be room for another partner within that as well. And that's something that towards the second half of this year, we'll start to look at again. So terrific to have that optionality. And stay tuned, you'll see our announcements on some of the things throughout the year.

There are no further questions at this time. We'll just pause briefly in case there are any last questions. As there are no further questions that have been submitted, we will conclude the meeting for today. Thanks, everyone, for joining us.

Thank you for attending today's meeting. You may now disconnect.