Teck Resources Limited (TECK) Q4 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to Teck's Fourth Quarter 2011 Results Conference Call. [Operator Instructions] This conference call is being recorded on Thursday, February 9, 2012. I would now like to turn the conference call over to Greg Waller, Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Thank you, Valerie, and good morning, everyone, and thanks for joining us this morning for our fourth quarter 2011 earnings conference call. Before we start, I'd like to draw your attention to the forward-looking information slides on Pages 2 and 3 of our presentation. This presentation contains forward-looking information regarding our business. Various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statement. And at this point, I'd like to turn the call over to Don Lindsay.

Thanks, Greg. Good morning, everyone, and thanks for joining us. I will start with a review of the results for the quarter and then turn the presentation over to Ron Millos, our Senior Vice President, Finance, and CFO, to address some more in-depth financial topics. And I should say that a number of the other members of the management team are on the call this morning, and they're available to answer your questions and they're a bit spread around the world today from Anchorage to Santiago. So I look forward to hearing from them. Turning to Slide 5. We're very pleased with the results for the year. We set a new record for revenues this year at over $11.5 billion, 25% higher than last year. We also set records for gross profit at $5.8 billion and bottom line profit at $2.7 billion, up 47% from last year. And EBITDA is -- at $5.5 billion was also a new record. We set a new company record for copper production of 322,000 tonnes, and a record for material moved in our coal operations, which is, of course, a good sign of production to come. And this banner year is a reflection of the strong fundamentals of our business, particularly in coal and copper. Slide 6 shows our adjusted profit for the year, which removes unusual items and is also a comparison to last year. Record adjusted profit of approximately $2.5 billion, or $4.16 per share on a fully diluted basis, is 64% higher than adjusted profit per share last year. Turning to Slide 7. Q4's revenues stood at about $3 billion, up over 9% from Q4 2010, and gross profit before depreciation and amortization was over $1.4 billion. Fourth quarter profit was $637 million, which was 95% higher than last year's fourth quarter but there was a large unusual item last year associated with debt repurchase, so it's more appropriate to look an adjusted profit. And fourth quarter adjusted profit was $613 million, which was up almost 20% from last year's fourth quarter, while over the same period, EBITDA was $1.3 billion. On Slide 8, we show our view of normalized or adjusted profit for the quarter. Profit attributable to shareholders before adjustments was $637 million. We had a few unusual items in this quarter in the form of foreign exchange and derivative losses, onetime labor settlement charge and minor asset write-downs. Adjusting for these items, profit was $613 million for the quarter or $1.04 per share. Now turning to our operating results for the quarter on Slide 9. In our coal business, production was up 11% year-over-year at 6.7 million tonnes. The average realized price for the fourth quarter was USD $253 per tonne, again about an 11% discount to the benchmark price of $285 for premium quality coal. Fourth quarter 2011 unit site costs were $65 per tonne, and distribution costs came in at $33. That gave us combined costs of CAD $98, or USD $96, per tonne. And quarter-over-quarter, we've seen our costs decline by approximately 7%. Turning to Slide 10. This chart shows both total material moved in the blue bars and clean coal production in the red line. The advances we've been making in terms of adding equipment and plant capacity and people are paying off, and in 2011, we moved a record amount of material and coal production continues to increase. So we're particularly pleased about that. It's important to note that during the fourth quarter, we were producing at an almost a 27 million tonne annualized run rate. As we move more material, we expose more raw coal, the raw coal then makes its way to our standard and upgraded wash plants. And that sequence is key to our ongoing growth in coal production. In our copper business unit, on Slide 11, overall production was up versus Q4 of last year, with cathode production declining but concentrate production increasing. Production of copper and concentrate was up 9,000 tonnes primarily due to higher ore grades at Carmen de Andacollo, Highland Valley Copper and Antamina. The increase was slightly offset by lower production from QB as it continues to transition from a higher grade heap leach operation to a lower grade dump leach operation. Slide 12 highlights some of the activities of our copper business. Fourth quarter production was at a 356,000-tonne annualized run rate. This is a good indication of our progress to the 400,000-tonne run rate that we're targeting by the middle of this year. At Antamina, the ball mill number 4 was successfully commissioned and is operating at 100% of capacity, and the new SAG mill has actually received its first ore just a couple of days ago. In the floatation areas of the project, good progress is being made towards final commissioning of the copper and zinc flotation in March and the moly circuit in June. And we expect to see higher production rates here by the middle of the year. Andacollo produced copper at an annualized rate of 70,000 tonnes in Q4 as it continues to ramp up to full production. On Slide 13, I would like to draw your attention to the reported costs at Highland Valley because as they appear, it looks like they have increased a lot this quarter. But in fact, direct site costs were down 7% this quarter at $124 million. From those costs, we deduct the capitalization of stripping costs, which are less now as a result of the completion of the pushback at Valley pit midyear. We continue to capitalize some costs as we're now working on an expansion of the Lornex pit as well. And since we sold more copper than was produced, there is a positive inventory change, which increases reported costs. And then in addition to that, we had the onetime labor settlement charge of $44 million in the quarter. That results in reported costs being much higher. But in fact, as I said at the start, our site costs were actually lower this quarter, and we expect to see the benefits of the lower costs start to come through in lower unit costs, particularly as production continues to increase with higher grade. Turning to our zinc business in Slide 14. Zinc concentrate production for the quarter was down slightly compared to last year. At Red Dog, higher throughput resulted in a 4% increase in production. In Antamina, zinc production declined due to a lower proportion of copper zinc ore. Copper zinc ore declined to 28% of the mill feed versus 37% last year. And as in previous quarters, I should note that even though we show Antamina's share of zinc production in these figures, the financial results of Antamina are reported in our copper business. Lead concentrate production was almost 30% higher than the fourth quarter last year as the initial ore from Aqqaluk impacted grades and recoveries. And at Trail, revenues were up mainly due to higher silver production and silver price. Higher zinc and lead volumes were offset, though, by lower prices. Slide 15, and continuing with the theme of new records, I am very pleased with Red Dog's record throughput this year at 3.7 million tonnes or 3% higher than 2010. And that record was set while dealing with the challenge of transitioning into the Aqqaluk ore body, and we're very pleased with that accomplishment. We also successfully commissioned 2 Isamills in the zinc regrind circuit. And as we optimize the milling [ph] operations for the Aqqaluk ore, that's important. And at Trail, improved plant performance contributed to higher zinc and lead production. I'll now turn the call over to Ron Millos to address some of the financial issues.

I'm on Slide 17 and we've summarized our changes in cash for the quarter on that slide. Our cash flow from operations were just over $1.2 billion in the fourth quarter, which is up 21% from the same period last year. Capital expenditures and investments were $698 million for the quarter, and you should note that we acquired for cancellation approximately 4.8 million Class B subordinate voting shares for $171 million as part of our normal course issuer bid that we announced in June of last year. And after allowing for the effect of exchange rate changes and other items, our cash increase in the quarter was about $145 million, and we ended the quarter with over $4.4 billion in cash. Slide 18 shows our final pricing adjustments for the fourth quarter. Again, starting in 2011, we've moved our pricing adjustments out of revenue and included them in nonoperating income. This is a presentation change only. There's been no change to the methodology on how we calculate the pricing adjustment, and we have restated our comparative figures for -- to allow that comparison. Total adjustments for the quarter were a positive $4 million on a pretax basis. Copper experienced a positive settlement adjustment in the quarter due to the increase in the copper price, and the approximate 5% change in the copper price on the sales outstanding resulted in $29 million positive settlement adjustment. On the other hand, we experienced negative settlement adjustments in zinc, lead and silver with the declining prices there. And just to remind you, that when you're analyzing the impact of price changes in the adjustment, you need to consider refining and treatment charges. Canadian-U.S. dollar exchange rate must be included in your calculations. And when trying to analyze the impact on our net earnings, you need to consider taxes and royalties as well. Moving on to Slide 19. We've summarized our production guidance for the year. 2012, coal production guidance is in the range of 24.5 million to 25.5 million tonnes, which would be approximately 7% to 12% higher than the rate we produced at in 2011, and annual site costs on average to be between $72 and $78 per tonne. Copper production is expected to be up in the range of 350,000 to 375,000 tonnes, and that's up 10% to 15% from our 2011 production levels. Zinc and concentrate production is expected to be between 580,000 and 610,000 tonnes, which includes Red Dog and our share of production from the Antamina mine in Peru. Zinc production will be down at Antamina as it continues to transition to less copper zinc ore and move to more copper-only ore. Refined zinc production at Trail is expected to be similar to last year between 280,000 to 290,000 tonnes. Our capital expenditure guidance is provided on Slide 20. Overall, our sustaining and development capital expenditures are expected to be approximately $2.3 billion. Spending on our development projects includes $340 million for Quintette, $325 million for Quebrada Blanca Phase 2 and $300 million for Highland Valley mine life extension. And as always, the amount and timing of actual expenditures is dependent on numerous factors, including the actual costs, permitting, delivery of equipment. We also expect to invest approximately $220 million as our share of costs for the Fort Hills oil sands project, which is accounted for as an investment. The $260 million energy also assumes that the acquisition of SilverBirch closes as expected in April of this year. Turning to Slide 21. I'd like to highlight the guidance we have given for our sensitivity to changes in prices and exchange rates for the year. Our EBITDA, not including all the unusual items we had in 2011, was $5.5 billion. The slide shows our EBITDA sensitivity to our key products. And for example, in coal, our EBITDA sensitivity is about CAD $25 million for each $1-per-tonne change -- USD $1-per-change tonne in the coal price. In copper and zinc, our sensitivity is $7 million and $10 million, respectively, for each $0.01-per-pound change in the metal price. And our sensitivity to changes in the exchange rate is $85 million for each $0.01 change in the Canadian dollar versus the U.S. dollar. In addition to these price sensitivities, you need to consider volume and cost changes relative to our production levels in 2011 if you're trying to estimate EBITDA for 2012. And with that, I'll turn the call back to Don Lindsay.

Thanks, Ron. Turning to Slide 23. And before we close, I'd like to update you on the status of several of our development projects. In our energy division, the Frontier project regulatory application was submitted to regulators in the fourth quarter of 2011, 9,000 pages long. The review and approval of the application is anticipated to take up to 3 years. Since quarter end, we announced an offer to acquire SilverBirch Energy to get full control of that project. And this will enable us to add value by moving the project to fully permitted status as quickly as possible. In coal, the feasibility study for the restart of the Quintette coal mine is proceeding with additional work revolving around water management plans. We expect the feasibility study in the second quarter of 2012. We expect that the mine could be in production in the latter half of 2013, ramping up to an annual rate of about 3 million tonnes per year. In Quebrada Blanca, a full feasibility study commenced in early 2011 and is expected to be completed by the end of this quarter -- first quarter of 2012. A positive feasibility study could potentially result in a decision to undertake project development with production in early 2016. At Relincho, we have moved forward into full feasibility study, and we expect it to be complete now by the end of the first quarter in 2013. Finally, at Fort Hills, we expect to have an engineering update sometime in late 2012 and anticipate a project sanction decision by the partners in 2013. So we have lots of exciting growth opportunities coming. I look forward to reporting on the development status of these projects in the coming calls. So in summary, record revenues and record gross profit, record copper production, record material moved at our coal operations, not to mention the Q4 annualized run rate of almost 27 million tonnes. We increased the semiannual dividend to 33%, so it's now $0.80 annualized. And lastly, we bought back shares. So with that, I would like to turn the call over for questions.

[Operator Instructions].

I'd just like to remind everybody that since we've got people dialing in from different locations this morning, it may take us a -- hopefully not much of a moment to respond to your question and coordinate who's going to respond. But we will respond to your question.

Our first question is from Meredith Bandy from BMO Capital Markets.

So my first question is on the outlook for the coal market. You gave a little bit of guidance in terms of the Q1 pricing. But if you can look at all beyond that, how is the visibility until later in the year? Have negotiations started for Q2? What's the color for that market?

Well, I'll turn that over to either Ian Kilgour or Bob Bell.

It's Bob Bell here. I think, as we've stated in our disclosure, we are seeing uncertainty in the markets, and we are seeing some caution on the part of buyers. There are some mixed signals. If you look at what's happening in the United States, we've actually seen -- their steel production has turned up. They -- in December, they reported the highest steel production in 4 months. So that's a positive sign. And we are hearing from some of our customers that they've seen the worst of this downturn. And it's a -- we've had some remarks from several customers about the second half of 2012 being better than the first half. So we are seeing uncertainty, and that's been reflected in what we said about our sales for the first quarter. But we've also seen some positive signs. So I guess we're hopeful that the second half will be better than the first half.

And Bob, there was a report earlier this week in McCloskey's that Teck had tabled a 210 bid on coal for POSCO. Can you comment that at all?

Well, we don't comment on our commercial discussions. We have not seen any reports of settlements for the next quarter's pricing so far.

Okay. And turning to a separate issue. There was a -- just a one sentence -- maybe this is for Don or Ron. One sentence in your press release this morning about $324 million of public investments in the quarter. Can you give us any color on that?

Well, we make investments from time to time in different public entities, but we don't comment on what they are and that would be in that category.

So was it just in the release because it was a relatively large number or...

It's just full disclosure.

Our next question is from Sohail Tharani from Goldman Sachs.

I have a question coal again. I just was -- wanted to have some more color on the cost, 2012 cost estimates you have given because the profile of the costs for the first -- for 2012 seems like it's been coming down consistently, and then you are jumping from $65 in the fourth quarter to $72, $78. What are you assuming in there which would increase significantly?

I'll turn it over to Ian Kilgour. We have experienced declining costs for the last few quarters from a relatively high number in Q1 when there were a lot of weather-related incidents and the strike and so on. But for more detail, Ian, over to you.

Likely, there's 2 factors here. The $65 level for quarter 4 was based on a coal production of 6.7 million tonnes, which was a record for the year. And so the fixed proportion of costs was logged [ph]. When we look at 2012, we're going to be maintaining a rate slightly lower than that over the year. So the fixed proportion of costs goes up a little bit. So that's one factor. And quarter 4 did not contain any shutdown costs. We obviously have our annual shutdown costs, which have to be incorporated into the full year. And as well, we have the pressure on diesel prices, explosives [ph]. And of course, we incorporate a lot of the settlements for the year. So they're the main factors in price -- costing going forward.

Our next question is from David Lipner from CLSA. David Lipner - Credit Agricole Securities (USA) Inc., Research Division: Can you explain -- with steel production in China down significantly from where it was a year ago, can you talk about -- and imports seem to be still going into in China. Are they cutting their coking coal production because you're up, some others are up? Where is the -- or are they just stacking inventory in China? I'm just wondering where all the coking coal is going?

Ian or Bob?

It's Bob here. I think important is that imports of -- into China of coking coal have stayed fairly steady in the final quarter. We saw about 5 million tonnes of imports in December, which included a fairly significant portion of seaborne imports. There's been a real sort of shift in production towards the coast and towards larger blast furnaces that benefit from seaborne coal. Production from the higher-quality areas within China, there's been reports of increased production. But overall, they still require imports, and that's why you see those numbers coming from Mongolia and also seaborne market. David Lipner - Credit Agricole Securities (USA) Inc., Research Division: Yes. The reason why I ask is because steel production right now has been running at about 615 million-tonne run rate, and they did 680 million, 690 million last year. So I was just wondering, that's a quite a bit of coking coal that they potentially would need right now starting up for the first part of the year. So I was just wondering where is -- and if everybody's running higher production numbers, where -- who's -- is somebody in China cutting again? Or is elsewhere -- is Australia cutting? Or is North America cutting? Where are the cuts coming from? Or are they just being stashed in inventory within China?

Well, they've got -- of course, China is the largest producer of steelmaking coal and there's going to be a lot of sort of changes in flows. But one key factor is that earlier in 2011 when seaborne steelmaking coal prices were so high, there was a significant decline in imports from seaborne market in China. And then as you saw the decline in the seaborne price, then imports into China from seaborne coal began to increase. So I think that's a bigger issue, is the spread between seaborne pricing and domestic coal pricing. And I think that bears out in the December seaborne imports of -- or December total imports of about 5 million tonnes. So that's something you have to watch.

Our next question is from Oscar Cabrera from Bank of America Merrill Lynch.

Just to start with your -- excuse me. You are expecting a coal price for the first quarter of 2012 which is about 2% lower than the benchmark. And the question is, in terms of inventories carried over from the fourth quarter, is there any chance you can provide color on how much inventory is carried over? Or is this just a function of the mix having higher coking coal or, sorry, hard coking coal?

Bob?

The -- we don't give the specifics. Of course, all of that is wrapped up in the pricing. If you look at our price against benchmark, most quarters, if you look at the past 8 quarters, we're about plus or minus 90% of the benchmark price. It's a little higher in the guidance we've given for -- or not -- in the indication we have given for where we are quarter to date. That would reflect slightly higher amounts of seaborne [ph] pricing. And we are at slightly higher amounts of hard coking coal versus non-hard coking coal, but that's going to vary from quarter to quarter.

Now it's -- that's very helpful. But the spread historically had been about 10% of the benchmark, and now the spread is only 2%. So I'm wondering if there's anything out of the ordinary for the first quarter. Can we expect the same for -- I know you don't have a lot of visibility throughout the year, but should we expect the mix to go -- to revert back to the 90-10 that you referred to?

I would -- it's really because they -- when you look, there was quite a significant price movement from one quarter to the next when the price movement is less. And I'll think you'll see it more along the lines of what we've seen in most quarters in the past. So the quarters we have a huge price movement, then you see a differential from that 90%.

Oscar, it's really because a number of the deferred tonnages are now going into Q1 at the much higher prices from a quarter or 2 ago. And the disclosure we've given is that just at one point in time. As we continue to make sales, they'll be more in line with where current markets are and then you'll see the gap line.

Now that's helpful, Don. And then in terms of your development projects, I know that your feasibility study for Quebrada Blanca and Quintette won't be available until later on during the year. But would it be possible to provide us with a sense on the -- Quintette, we know it's going to be around $650 million, but the Quebrada Blanca hypogene, you're starting to spend in equipment. Just to give us a sense of the ranges that you're looking at so that we can include it in our models.

We haven't finished the feasibility. And in addition to that, we're having ongoing discussions with the other owners there. And I think it's just too soon to really release any of those numbers until we've pinned them down or reviewed it with our Board. So I understand your need to do the models, and I apologize that we can't give you more detail, but it'll come fairly soon. But we're just not there yet.

Our next question is from Jorge Beristain from Deutsche Bank.

My question is, given the production run rate that we saw in steelmaking coal in the fourth quarter, which would imply you're annualizing now towards 27 million tonnes, and your midpoint guidance for 2012 is 25 million, it would imply about a 2 million-tonne potential inventory build. I wanted to understand, is that what you're planning on doing for 2012, is, in fact, building inventories? And secondly, would there be any knock-on effect to the time lines on -- of some of your organic coking coal expansions because you may be carrying more inventory than normal?

Maybe just a quick comment then over to Ian. We're very proud of the fourth quarter, but we're not there yet where we could go at an annualized rate of 27 million tonnes. I do know that 6.7 x 4 gets close to that, but -- and we're encouraged, but we're not quite there yet. But Ian, over to you.

The coal core of 6.7 do not contain any shutdowns for our annual maintenance shutdowns. So when we look at it on a full year, we basically take 10 days average out of each prep-plant to carry out the required shutdowns. And also, in March, we'll be shutting down our Elkview plant for around another week to actually finish our expansion there. So the average for the year will not be the average of quarter 4. And in terms of inventory, we started fairly low at the start of quarter 4. We won't be intentionally building inventories. We'll be selling at -- to our capability to what the market will bear and carrying on with our production at our current capacity.

Fair enough. I guess that makes my -- the second half of my question a bit moot. And then on the -- Don, I just wanted to follow up on that earlier comment about the $324 million of public investment. Is this a transitory or a temporary portfolio investment that you're doing? Or could we expect, if you were to acquire more in that public company, that you'd have to increase your disclosure level? And should we read anything into that?

If you go back over our history at different times, we've made investments in more than one company when we thought the value was there. Clearly, in the last quarter, some good valuations appeared, and so we took advantage of that. I'm not sure what will happen in the future. We may sell them, as we've done in the past, and just take the gains. But we're very pleased with the position. Or we could add to the position depending on market conditions. So it's really just normal disclosure. I'm not sure you can read much more than that.

Our next question is from John Hughes from Desjardins Securities

Just a couple of quick ones. On the 25 million-tonne target on the coal, is that production or sales? And how much of that would be destined for China?

Ian?

That's a production number. And the sales number, obviously, is going to depend on the factors that we talked about earlier. And we're obviously hoping that the signals that we're getting about potential recovery in the second half of the year are carried through. In terms of how much goes to China, that's a number that varies from year to year. And it has been around the 3 million-tonne mark in the past, and we'll be seeking to increase that as we go forward, as we will with our other development markets, particularly India.

And just sticking on that maybe for the first quarter, I'm wondering what kind of level of spot sales that you might anticipate that would -- is it in the range of sort of 300,000, 400,000 tonnes type of thing?

We normally look for spot or development sales at around the 10% mark. They may be a little bit higher in this first quarter.

Sorry, 10% of?

Of our overall sales.

Okay, great. Two quick last ones. At Quintette, with the feasibility now targeted for the second quarter, can you sort of highlight just the expected timing on the receipt of permits and whether those permits are -- is there a selenium issue or is -- when are you going to sort of be in a position to give a full green light on the project?

So far [ph], we're working to submit our non-amendment [ph] permit application in the second quarter. That's going very well. We've got really good communications with the regulators on that. And we're, I guess, hoping that the approval period will be around 6 months. So somewhere around September, we would have the green light to be able to fully initiate the project. The key issues are water management, as you would expect. We've got a very well-developed selenium management plan, and we don't expect problems in that area. And so -- but we're fairly confident we -- we're discussing with all our stakeholders up in the area, including in the First Nations groups, and we're having very positive discussions and we are looking forward to that approval in September.

So that helps. And the last one, and again coal-related. But just in terms of that material moved the first quarter, I'm wondering, in Q1, are you continuing to, like on 1 million BCM [ph] rate, are you still hitting in the 70 million to 80 million tonnes a quarter type of thing?

Yes, our movement rates have continued, and we expect them to continue throughout the year. The quarter has been a relatively benign one in terms of winter conditions so that we haven't had any disruptions at all.

Our next question is from Greg Barnes from TD Securities.

Just on the copper costs. They we're pretty high in Q4. I'm wondering how those are trending into 2012.

Okay, Roger or Greg.

And we just got online here. If I take this off -- off mute and comment, if you're hearing me okay.

Yes, we can, Roger.

If you -- talking there, Greg, about the overall copper business about unit costs, the overall share on costs were around about $1.70 per payable pound, and thus sales exceeded production in the quarter. That was slightly higher than that on a per pound produced. For 2012, our estimate is closer around about $1.50.

Okay. Perfect. Also, I guess this is for Don. On QB2, you seem to be struggling a bit on the project. And you mentioned power options in the press release this morning. Are there other issues that you're trying to sort out?

Not really. The power options are obviously very important to the project, so we want to get that right. So we're in detailed discussions with them. And then there are 2 owners, Antamina and [indiscernible], and we need to make sure that everybody's on site there with how the project would be financed. And these discussions just take time. So I wouldn't say we're struggling at all. We're actually quite excited about it. But we're not able to disclose much more at this point until the final feasibility at the end of the quarter. So we're getting there. It's pretty close, but not quite there yet.

Do you -- you had said you still think you can hit the 2016 production target date. But if you don't make a decision soon, you're going to run into the winter in Chile, and that, I would think, would delay getting into construction. Is that an issue for you, because you're pushing to 2017?

No, we do not anticipate that kind of delay. We're definitely, from Teck's point of view, carrying on at the schedule we've always talked about. So we don't anticipate those voids.

Okay. I'm going to take one further stab at the $300 million investment, Don. Was it 2, 3, 4, 5 investments or...

I appreciate the question. But as you know, we don't comment.

Our next question is from Brian MacArthur from UBS Securities.

I want to switch just to the zinc business. You made a comment that the royalty at Red Dog is going to kick up from 25% to 30% in Q4 this year. Is that on a production basis? Or will it actually go in 2013 because of the timing of when the sales go? I'm just not exactly sure what that means. Or it hits fourth quarter numbers, or it's delayed because of the cycling of when the con goes out?

Don, it's Ron. I can take that one on. It happens in Q4, and it's a formula based on the operating agreement that really is on the cash flow. So we look at receivables collected, when you pay your bills and stuff like that. So it's not a calculation that you can really take off the financial statement itself. But every 5 years, it goes up 5%, and that will happen in the fourth quarter, every fifth year, until it hits 50%.

So in Q4, though, for modeling purposes, I should put a 30% royalty is the way you do it on a sales basis, not a production basis?

On whatever you think. Probably the best thing to do would be the cash flow from that entity.

Right, but it's a big selling -- Q4 is usually a heavy selling quarter, right? So it's going to get -- the kick's going to come in on the bigger number, just not divided by 4 or anything?

That's right. It'll follow the pattern of sort of the operating profit -- of the operation is a good way of looking at it.

Our next question is from Dan Rohr from Morningstar.

You had mentioned in your release that the targets for coal production in 2012 would be contingent upon seeing some sort of demand improvement from 2011 levels. I was wondering, what sort of growth in, say, global crude steel output would we need to see in order for you guys to achieve the midpoint of your target, something on the order of, say, like 5%?

Bob, I'll turn over to you, but just a quick comment. I'm not sure that it's directly related to the number that you're asking for because it's much more customer specific and country specific.

Fair enough.

So I think it wouldn't be -- it would be difficult to answer based on that stat. But Bob, what color do you have?

Don, you covered it well.

Our last question is from David Neuhauser from Livermore Partners.

Essentially, I just wanted to ask Don. Stripping out the macro and -- issues at play, what are aspects of the business that you're not satisfied with where either you want to see further rationalization of the business units or increased production capacity, profits? It seems like, obviously, the company is running on all cylinders, but what areas would you see -- like to see improvement in?

That's a good question. Well, we are pleased with the results for the year, but there are a number of things where we didn't meet target and we'd certainly like to see improvements there in 2012. The target wasn't met in coal. But at the end of the year, a lot of the problems that we had during the year were resolved, and the 6.7 million tonne number was pretty good. And so we have a lot of confidence going into 2012 for the coal production side of it. On the copper side, we also didn't meet our targets, particularly at QB. But Andacollo had the ore hardness issue. And we haven't finished getting the new crusher, and it will be just a few weeks away, but that'll make a difference. Highland Valley, it took a little longer to get into the higher-grade zone than we had hoped, but we're getting there now. So we're really keen to see the copper business unit hit that annualized 400,000-tonne rate by the middle of the year, and there's going to be a lot of focus on that to making sure that -- because that's probably an area where we feel that we underperformed in 2011. And of course, that reflected on the costs as well, which is a question that's already been asked. So, both getting production up and the result in cost going down in copper is a real focus this year. The zinc division performed really well last year, and we think it will again this year. It's a very solid, stable business. And the investments we're making at Trail are going to help. And that's one of the reasons why our sustaining capital is a little higher than people probably anticipated, the $200 million for the asset plan and so on. In energy, of course that's a development business, but we're really pleased with the steps taken. And we look forward to the closing the SilverBirch deal because that gives us quite a resource and we're adding value to that resource, so -- with all the activities so that 3 years from now, we'll get the full permit at Frontier, that will be a much more valuable position than it is today. So we think we're creating good value there. So it's a long answer, just a review of the company. But I think if I just say one thing that we'd really like to see improvement on, it would be in the copper production and cost area.

Okay, that's a fair answer. And then, just again, in terms of overall with Teck, I mean, at this point, in the last few years, you're seeing strong growth, your balance sheet is almost pristine at this point where you've increased dividend, you're buying back shares. You're doing everything to see consistent performance out of the company. And at that point and with some of the consolidation and release [ph] valuations coming down with some companies, I mean, do you think Teck could be a target of consolidation by a larger player? And are you open to that? Or are you still -- you're at the point now where you're still essentially sort of like the wolf and you're hunting some smaller opportunities and you're going to be a -- you're going to be the consolidator?

So a 2-part answer to that question. First, we don't anticipate that we will be a target given our share structure, and we don't anticipate any change to that share structure. So that's just a straight answer to the first question. On the second question in terms of us being a consolidator and making acquisitions, we're always reviewing the acquisitions that are potentially out there and the ones that are in play. I mean, Ron Vance and his whole team, that's their mandate, that we want to know everything there is to know about any of these transactions whether we're interested or not. But I should point out that we have quite a good stay-the-course internal growth strategy between the copper side, where we have QB2 coming soon, and Relincho not that far behind. And this is not counting the sort of Brownfields [ph] expansions at Antamina, Andacollo and Highland Valley getting back into the high grade. And then we have Fort Hills, again, not that far off as well. So if we just stay the course, make no acquisitions whatsoever, when we get to 2016 you'll see both QB2 and Fort Hills starting up. And over a 5-year period, you'll see materially more copper production per share and coal production per share because we'll finish the expansion there. And then the oil sands division coming into production. So the stay-the-course strategy looks pretty good to us, and we're very pleased that we have that position that we can exploit. If we see another opportunity that looks like it could make the picture even better, then we will act. But so far, we haven't seen anything.

Okay. No, that's a fair answer. And then one last thing. I know I went sort of harping out a little bit regarding the investment this quarter, public investment, I guess maybe that's obviously some of my thoughts on part 2 of the question whether you're going to be looking for target companies out there, if you'd be doing so very sort of methodically and in a pattern of maybe acquiring shares and then maybe starting discussions and then maybe making to a bid. Or is that just not typically what your style has been in the past?

I think I'll just repeat what I said before, that if you look back over our history, from time to time we've taken positions for investment purposes. Sometimes, they turn out to be strategic. Other times, we just sell to make a profit. And that's all we're doing now.

Okay. Fair question, fair answer.

There are no further questions registered at this time. I would like to turn the meeting back over to you, Mr. Lindsay.

Okay, well, thank you all for joining us this morning. It was a very solid year in 2011 for Teck, and we feel that we're very strongly positioned for 2012. We look forward to the world sorting itself out in Western Europe and the like. But certainly, Teck's in good position to go forward into 2012. Thank you all. We'll speak to you in April.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.