Teck Resources Limited (TECK) Q1 2012 Earnings Report, Transcript and Summary

Gregory A. Waller - Vice President of Investor Relations & Strategic Analysis Donald R. Lindsay - Chief Executive Officer, President, Non Independent Director and Member of Executive Committee Ronald A. Millos - Chief Financial Officer and Senior Vice President of Finance Timothy C. Watson - Senior Vice President of Project Development Robert W. Bell - Chief Commercial Officer of Coal and Vice President Ian C. Kilgour - Senior Vice President of Coal Roger J. Higgins - Senior Vice President of Copper Peter C. Rozee - Senior Vice President of Commercial and Legal Affairs

Meredith H. Bandy - BMO Capital Markets Canada Sohail Tharani - Goldman Sachs Group Inc., Research Division Orest Wowkodaw - Canaccord Genuity, Research Division Greg Barnes - TD Securities Equity Research Garrett S. Nelson - BB&T Capital Markets, Research Division Oscar Cabrera - BofA Merrill Lynch, Research Division John Hughes - Desjardins Securities Inc., Research Division David Charles - GMP Securities L.P., Research Division Kerry Smith - Haywood Securities Inc., Research Division Brian MacArthur - UBS Investment Bank, Research Division Terence S. Ortslan - X-Ore Resources Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Teck's First Quarter 2012 Results Conference Call. [Operator Instructions] This conference call is being recorded on Tuesday, April 24, 2012. I would now like to turn the conference over to Greg Waller, Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Thanks so much, operator. Good morning, everyone, and thanks for joining us this morning for our first quarter 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 package. This presentation does contain 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.

Thank you, Greg, and good morning, everyone. Thank you for joining us. I will start this morning with a review of the results for the quarter, and then I'll turn the presentation over to Ron Millos, our CFO, to address some more in-depth financial topics. A number of other members of the management team are on the call this morning and available to answer your questions. Starting on Slide 5. This is our best first quarter ever with record revenues and gross profit. Our coal production was good, considering the fact that it was the first quarter. And normally, we get difficult conditions in the first quarter, although this one was better than most. We produced 6.3 million tonnes for an annualized rate for over 25 million tonnes. We ended the quarter with a cash balance of about $3.8 billion, and after using some of our cash for dividends and debt refinancing transactions in the quarter, that was a good number. Subsequent to quarter end, we completed the acquisition of SilverBirch Energy to give us 100% control over the Frontier oil sands project. And finally, during the quarter, we completed the highly anticipated QB2 feasibility study, which we will talk more about later on the call. Turning to Slide 6. Our record first quarter revenues were over $2.5 billion, up over 8% from Q1 2011. And it was a record first quarter gross profit before depreciation and amortization of over $1.1 billion. Q1 profit of $218 million was impacted by a financing charge of $329 million associated with the debt refinancing transaction, so it is more appropriate to look at adjusted profit. First quarter adjusted profit was $504 million, which was up 12% from last year's first quarter, while over the same period EBITDA was $781 million. We show our view of normalized or adjusted profit for the quarter on Slide 7. Profit attributable to shareholders before adjustments was $218 million. The most significant adjustment is due to our debt refinancing, which resulted in a $329 million after-tax charge. Other unusual items were derivative gains and onetime labor settlement charges related to new collective agreements in our Quebrada Blanca and Andacollo operations in Chile. Adjusting for these items, profit was $504 million for the quarter or $0.86 per share. Turning to our operating results for the quarter on Slide 8. In our coal business, production was 6.3 million tonnes. The sales were 1 million tonnes lower as we have come through a weak point in the global steel production cycle. We certainly see the market improving now, though. The average realized price for the fourth quarter was USD $223 per tonne, about a 5% discount to the benchmark price of $235 per tonne for the premium brands of coal. Usually, the average realized price is about a 10% discount to the benchmark price due to the mix of our products, including some lower value PCI and thermal coals. First quarter 2012 unit site costs were $70 per tonne and distribution cost came in at $34 per tonne. This gave us combined costs of CAD $104 per tonne. Year-over-year, we have seen our costs decline by approximately 8%. On Slide 9, we continued to move towards our 28 million tonne production target from our existing 6 coal operations. As I mentioned, our 6.3 million tonnes of production equates to an annualized run rate of over 25 million tonnes. Total material moved in the quarter, combining raw coal production and waste rock, increased 15% on a year-over-year basis, and it's stabilizing at the rate necessary to achieve our production target. At our Elkview operation, the plant upgrade is now successfully commissioned and running at the forecast 6 million tonne annualized run rate. So we're pleased with that. And finally, the feasibility study for the reopening of the Quintette mine is progressing and is expected to complete this quarter. In our copper business unit on Slide 10. Overall production was up versus Q1 last year, with cathode production steady and concentrate production increasing. Production of copper in concentrate was up 6,000 tonnes, primarily due to higher ore grades and better recoveries at Carmen de Andacollo and Antamina. In addition, Antamina's mix of mill feed during the first quarter increased to 63% copper-only ore versus approximately 54% during the same period last year, as we continue to transition to a higher copper production. Quebrada Blanca continues its transition from a higher grade heap leach operation to a lower grade dump leach operation. The overall production was up almost 7% at QB versus last year. Offsetting the increase, however, lower feed grades at Highland Valley Copper resulted in a 6% decline in production. We expect production to increase this year in each of Antamina, Andacollo, Highland Valley and QB. Slide 11 highlights 2 of the most significant sources of production increase this year expected in our copper business. During Q1, the Antamina expansion project achieved significant milestones, with the commissioning and operations of the SAG mill #2 and ball mill #4, as well as the expanded flotation circuits for both copper and zinc recovery. With the effect of the expansions starting to kick in, mill throughput averaged approximately 112,000 tonnes per day, and March in particular was noteworthy with mill throughput averaging approximately 131,000 tonnes per day. In Andacollo, copper production increased 8% to an annualized rate of over 70,000 tonnes in Q1 as it continues its ramp up to full production. We are in the process of commissioning the new 20,000 tonnes per day pre-crushing plant, which we expect will allow Andacollo to reach the 55,000 tonnes per day ore throughput design rate. And finally, we are pleased to have ratified new labor agreements during the quarter at both Carmen de Andacollo and Quebrada Blanca. Turning to our zinc business on Slide 12. Zinc concentrate production for the quarter was down about 11% compared to last year. At Red Dog, lower mill throughput due to harder ore and lower ore grades resulted in lower production. At Antamina, zinc production declined due to a lower proportion of copper-zinc ore. Copper-zinc ore declined to 37% of the mill feed versus 47% last year, as well as due to lower ore grades and recoveries. 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 over 10% higher than the first quarter last year, as both grades and recoveries improved. And at Trail, production was generally higher, but revenues were down mainly due to lower prices. Overall profitability in the business unit was impacted by lower lead and zinc prices in the quarter. And I'll now turn the call over to Ron Millos to address some of the financial issues.

Thanks, Don. I'm on Slide 14 where we've summarized our changes in cash for the quarter. Cash flow from operations was approximately $1 billion in the quarter, which is up 14% from the same period last year. The buildup in working capital used, $351 million of cash, was mainly due to increases in coal inventories and the timing of our royalty and bonus payment. Capital expenditures and investments were $487 million for the quarter. We also completed another liability management transaction in the first quarter involving the refinancing of approximately USD $1 billion of debt, and I'll speak to that on a later slide. And finally, also of note in the quarter, in January, we paid the $0.40 per share dividend totaling $241 million that was declared in October last year. And after allowing for the effect of exchange rate changes and other items, our cash decrease in the quarter was about $605 million, and we ended the quarter with about $3.8 billion in cash. Slide 15 shows our final pricing adjustments for the first quarter, which are included in our other operating income expense on our income statement. Total pricing adjustments for the first quarter were positive due to rising prices during the quarter, resulting in a $94 million gain on a pretax basis. We've also shown the outstanding receivables for our copper and zinc sales, which will be final priced in the second quarter of this year. And remember, when analyzing the impact of price changes, refining and treatment charges and the Canadian-U.S. dollar exchange rate must be included in your calculations. And in addition, when trying to analyze the impact on our net earnings, you need to consider taxes and royalties. Slide 16 shows the maturity profile of our outstanding notes and some of key credit metrics. As mentioned earlier, during the quarter, we completed another liability management transaction. We redeemed USD $1.05 billion of high-yield notes, replacing them with debt of longer maturities and lower average interest rates of 4.2%. And this reduces our annual interest expense by approximately $80 million per year. This refinancing resulted in a $329 million after-tax charge to earnings in the first quarter. We've taken advantage of these historically low interest rates and our investment-grade credit rating to further reduce our all-in interest rate and extend our average term to maturity. As you can see, we built a ladder of debt maturities across the yield curve, with maturities over the next 10 years in the $500 million to $700 million range, which should be easy to either refinance or pay off when they come due. And the average term to maturity -- or economic maturity on our debt is now just over 14 years, and the average coupon rate is approximately 6%. We've also noted the key financial ratios used by the credit rating agencies, and you can see that our balance sheet is in very good shape. I should also mention that we inadvertently posted an incorrect version of our news release on our website for about 2 hours this morning. The market wire version was correct, and we have now posted the correct version on our website. The disclosure on Page 15 pertaining to the production guidance at our Andacollo operation remains unchanged from the guidance we provided in our fourth quarter report, at between 70,000 tonnes to 75,000 tonnes of copper in concentrate and 5,000 tonnes of copper cathode. We apologize for any inconvenience that this may have caused. And I'll now turn the call back to Don Lindsay.

Thanks, Ron. I'd now like to update you on the status of the many development projects we have underway on Slide 18. 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 this quarter, and the submission of the permit application as well. We expect that the mine could be in production in the latter half of 2013, ramping up to an annual rate of 3 million to 4 million tonnes per year sometime in 2014. At Relincho, we continue to move forward with the feasibility study, and we expect it to be complete by the end of the first quarter in 2013. In our energy division, the Frontier project regulatory application was submitted to regulators in the fourth quarter of 2011. Review and approval of the application is anticipated to take up to 3 years. The acquisition of SilverBirch will now enable us to add value by moving the project to fully permitted status as quickly as possible. At Fort Hills, Suncor continue with the work required to get to a project sanction decision expected in 2013. And at Quebrada Blanca, the feasibility study for the Phase 2 development is now complete. And as part of the work planned for 2012, the social environmental impact assessment is expected to be submitted to the Chilean authorities sometime during the second quarter. And I would like to spend the few minutes to tell you more about our view of the project. The study estimates that capital costs for the development of the project of about USD $5.6 billion, of which our funding share would be USD $4.75 billion. Over the 39-year mine life, QB2 is expected to produce approximately 200,000 tonnes of copper and 5,000 tonnes of moly per year. During the first 10 years, annual copper and moly production is anticipated to be about 240,000 tonnes and 6,000 tonnes of moly. And over the first 5 years, annual copper production is expected to be about 250,000 tonnes and annual moly production expected to be about 6,000 tonnes. So this is very good for getting our initial payback. A key highlight from the feasibility study is the considerable change in QB2's principal resource. The underlying reserve and resource at QB2 has increased significantly, up almost 30% within the design pit alone and has almost tripled when looking outside the pit design. The 2 charts on Slide 20 help put QB2's resource into perspective. The chart on the left compares QB2's resources to a list of already developed and producing mines. And from this list, QB2 ranks among the Top 15 mines. Similarly, the chart on the right compares QB2 to a list of undeveloped projects currently on the drawing board. QB2 ranks #4 on this list. The takeaway in plain terms, QB2 is a large world-class resource that ranks among leading current producers and is arguably one of the best projects available for development in the near term. And finally, in addition to the feasibility study, approximately 19,000 meters of additional drilling has been completed since the data cut-off date for the feasibility mine plan. We currently expect the results of that drilling, when incorporated, will support the reclassification of additional tonnage from the inferred mineral resource to the measured and indicated mineral resource category. Slide 21 summarizes some of the key design elements. QB2 contemplates the construction of 135,000 tonne per day concentrator using desalinated seawater for processing. The concentrator and related facilities will be connected to a new port by a 165-kilometer concentrate and desalinated water pipeline. The 165-kilometer water pipeline will have a diameter of about 36 inches and will require 5 pump stations to reach the 4,300 meter elevation. The gravity-based concentrate line will measure about 8 inches in diameter, and beyond that, there will be approximately 60 kilometers of pipeline that will serve as a reclaimed water line connecting the tailings to the mine. The tailings facility's 2 billion tonne capacity is sufficient for QB2's entire life of mine plan, while port infrastructure will include concentrate filtration, storage and shipping. Power for the mine will be delivered by a third-party supplier, and those negotiations are ongoing, but we expect supply in early 2013. The table on Slide 22 splits the mine plan into 3 different time periods. The first 5 years, the first 10 years and the 39-year life of mine. The life of mine strip ratio hovers around 0.48, but as low as 0.10 in the first 5 years. We have made this point in the past, but it is worth repeating: mining the supergene has in essence pre-stripped the QB2 mine, and this results in a markedly lower strip ratio, particularly in the early years. Cash costs, and including by-products over the life of mine are anticipated to be around $1.35 per pound. But -- and this is important, they will be as low as $1.07 per pound in the first 5 years and $1.12 per pound over the first 10 years. So again, that helps for a payback. I'd now like to turn the next couple of slides over to Tim Watson, our Senior Vice President, Project Development.

Thanks, Don. Looking at Slide 23, we have and we'll continue to take the necessary steps to reduce risks and minimize capital costs. By sticking with proven technology and established process methods, we can positively impact the startup phase, as well as limit recovery, throughput and permitting risks. The decision to use desalinated seawater processing is a good example of this strategy. The choice results in the use of lower-cost carbon steel materials that will be less expensive to purchase and quicker to install. The combination of these factors, as well as better metallurgical performance, was the key to the evaluation process. Likewise, the tailing dam uses proven cyclone sand dam technology that is in place at other Chilean mines and results in less upfront construction. The complete tailing system involves a reclaimed water system, has low environmental sensitivity due to use of desalinated water and is not near any communities. Turning to Slide 24. Capital cost risk is something that all new projects have to address, and for QB2, we have an extensive strategy that aims to minimize this risk. At the forefront, we elected to retain world-class and experienced engineering contractors. It is important to remember that we recently have ventured down the same path at Andacollo, so our ability to size up and assess scheduling and execution risk is relatively good. Also, early procurement of equipment provides needed visibility in terms of delivery time and price certainty, both of which help to minimize cost escalation. In addition, construction contractors with access to appropriate supervision and direct field labor will allow for flexibility and maximize our craft labor for field productivity. Don, back to you.

Thanks, Tim. So in conclusion, QB2 is a large low-cost operation in a stable jurisdiction. With a resource base of approximately 17 million tonnes of contained copper, QB2 is one of the largest potential projects in the world. An exceptionally low strip ratio, especially upfront, leads to attractive cash operating cost over the life of the operation. Furthermore, by sticking with proven technology and familiar processing methods, we have a strong understanding of the requirements needed to bring this operation online. Also, by being engaged at all levels, across contractors to communities, we maintain a clear strategy to minimize execution risks and costs. And finally, beyond the current landscape laid out by the feasibility study is the near-term possibility to further increase production by 50%. So with that, I'm very excited about QB2, and the progress we have made to bring this project closer to production. So in summary, record first quarter revenues and record first quarter gross profit. Coal production's increasing and moving towards our targeted growth at 28 million tonnes of production. We've lowered our average effective interest rate with our liability management program. We are increasing our contingent resource in the oil sands through our acquisition of SilverBirch Energy. And lastly, we're continuing to move ahead with Quebrada Blanca Phase 2, a large, long-life, low cost, expandable project. And with that, I'd like to turn the call over to questions.

[Operator Instructions] We do have a question from Meredith Bandy from BMO Capital Markets.

So Don, this is a very interesting presentation on QB2. And I'm looking at Slide 20, where you have QB2 #4 in the undeveloped projects. I think there was talk that you, Don, had been talking about a $2.75 copper. You have an 8% IRR on QB2. What do you think is the long-term copper price we need for some of these large projects that are obviously getting more and more costly?

That's an interesting question. I guess I'm conscious that the market has quite a wide range of copper prices that people have used. We haven't disclosed any one particular case. We usually start at a case of $2.50, I think the one you're referring to, rather than the $2.75. But then we do sensitivity analysis, as you might imagine. We've also done a lot of analysis of what copper prices are implied by the prices paid on other acquisitions of development properties, and most of those have been over $3 by other parties in the last year or so. But what we've done is we've left it for you, the analysts and large institutional shareholders, to choose your own price and analyze the project with your own set of parameters. You have the key capital and key operating costs and mine life and so on, and I guess you can come to your own conclusions. From our point of view, one of the most important things about QB is its doability, if you like. This is a project that we have a lot of confidence in the resource, the technology. It's a straightforward copper concentrator. There's a mine already there. So it's likely we can get permitted within a reasonable schedule, and it's in a very good mining country, Chile, where -- with some -- the country is very, very used to our industry and understands it and supports it. So compared to a lot of other projects around the world, where there's some question as to the doability of the projects, related to any one of a number of issues, this one looks pretty clean and that's why we liked it so much. If it were up to us -- and I don't want to pre-judge the board because we haven't put the question to our board to make a development decision yet, but I think Norman and I, if we owned 100% of it, we'd just go ahead and build it because that's how you build a great companies -- great mining companies, when you get long-life resources like this. But there are 3 owners, and we have to finish those discussions before we can make a final decision.

Okay. And if I could shift gears a little bit to met coal. You've seen it uptick a little bit on the spot price of met coal. Have you felt any difference in your clients in terms of their ability or willingness to take shipments?

Yes, we have. I'm glad you asked that question, but I am going to turn it over to Bob Bell.

Meredith, yes, we have seen just in the last while and perhaps this is because of some concerns over supply constraints out of Australia, plus we've seen increased steel production. The latest figures show actually a pretty interesting increase in March over February. So we are seeing increased interest from our traditional customers to advance some shipments.

So should we assume more carryover tonnage than usual or less? Or how should we think about that in the next few months?

Well, first of all, the pricing that we've shown on the tonnage that's already been settled, that includes what we understand to be the carryover during the [ph] next quarter, so that's already built in.

I just do want to make a clarifying comment about our disclosure. The last 3 quarters now, we have disclosed the actual tonnes that we have sold as of the date of our release, and this should not be confused with guidance. We've noted in a few research reports recently, and you know who you are, that you've been calling it guidance. And all we're doing is saying, here's how much we've sold as of this date, so you have the same information we do. From that point forward, we could sell more or we could have shipments reschedule. We don't know what will happen. So we haven't been giving guidance quarter-by-quarter in this market. So I just want to make sure that's clear.

The next question is from Sohail Tharani from Goldman Sachs.

Bob, I have a question on coal also. You mentioned that you have seen some interest. Is that to do with, you think, the disruption out of Australia or you think there's actually a demand increase around the world?

Well, we are seeing increased steel production. I think that's an important development. If you look at the world's steel numbers that just came out, they showed the top 10 producers have increased their production 10% in March over February. So we are seeing some signs of demand recovery. But yes, we also believe that a portion of what we're seeing in terms of advancements are because of supply concerns out in Australia.

And the next question is on the coal pricing you achieved in the quarter. That was modestly lower than what you had sold as of February, early February when you guided that you had sold 5.3 million tonnes at $230. And my understanding is the fourth quarter prices were actually higher, so I was wondering why prices went down at the end of the quarter? D.id you sell lower-priced coal towards the end of the quarter or in subsequent months?

There was a bit of impact -- so the 5.3 million tonnes is what we had sold at the time that we released our previous quarter results. We did sell some additional spot coal and we did have some delays in contract coal, so that caused a bit of a change in the weighted average pricing.

I just want to add that in addition to the global steel production numbers, which were up, that Bob mentioned, I think it's important to focus on what's happening in China. And the first 10 days of steel production in China in April were released, and they are running at an annualized rate of 740 million tonnes a year. And that's a long way from what market expectations were even just a month ago when people thought it was down in the 620 million range. So sometimes there can be a complete misread of what's really going on. There's clearly a strong production in China at the moment. And that's an all-time record, by the way.

The next question is from Orest Wowkodaw from Cannacord Genuity.

Two questions. The first one just on the coal, in terms of your unit costs. It was kind of lower than I expected in the first quarter at $70 a tonne for on-site costs. You're still guiding for $72 to $78 for the year. I'm just wondering what are you seeing out there that makes you think that costs are going up for the rest of the year?

Yes. The costs came in pretty much expected in the first quarter. However, most of our maintenance, for example, and our preparation plans happens in quarter 2 and quarter 3, so we expect to see those seasonal variations throughout the year.

Okay. So you still expect to get to that guidance?

Yes. We're still expecting to meet our guidance, which was between $72 and $78.

Okay. And then just shifting gears to the balance sheet. Your net debt to net debt plus equity is extremely low at 15%. I'm just curious, strategically, where management is thinking right now in terms of acquisitions given that we've seen a lot of depressed equity prices out there and sort of what -- if you could remind me again what your target net debt to net debt plus equity ratio would be, in the event that there was something attractive out there.

Well, our target really is the debt to debt plus equity ratio, which we like to keep it in about the 30% level. And then the amount of cash that we like to keep on hand at minimum would be sort of the $500 million at the low end of the range. As we're building up the cash balance, we're looking to prefund some of the development projects that Don mentioned in his comments on the slides earlier in the day. Strategically, from an M&A perspective, we're always looking at various items. We will compare them to what we have on the docket and if anything looks better than what we have in the development pipeline, we would certainly consider potential activities in that area.

Okay. And so what does it imply in terms of how much debt you could add right now to get to that 30% threshold if you wanted to?

We don't have a lot of room right now to get to the 30%. Our sort of debt equity ratio in the high 20s right now, so very little room at this stage.

The next question is from Greg Barnes from TD Securities.

I just wanted to return back to QB. And a couple of questions: one, sustaining capital, what kind of number are looking out for that?

Greg, we're just looking through some pages here, between Tim Watson and Roger. Can we get back to you on that in a moment?

Yes, okay. Don, what about the expansion? You said double production. Do you actually mean going to 400,000 tonnes a year for copper?

What we said in the presentation was looking at a 50% production. Certainly, the resource is there to be able to do that over time because remember, what we've disclosed today is only a part of overall resource. But right now, we're going to stay focused on getting the first phase in.

So when do you think...

Roger's going to comment on this as well.

Greg, it's Roger Higgins. I'll comment qualitatively, but just point out a couple of things. The mine at Quebrada Blanca already exists, and we have a mix of some relatively new equipment in there as well as some that's a little bit older. But we don't have a great demand for sustaining capital out at the mine because we are not -- because we had something operating there, so there's nothing here in the first few years of any significance, 2 or 3 trucks. And of course, a new concentrator means that we don't have anything great in that area either. We will have some work to do around relocation of facilities as the pit expands over the first 5 years or so because it does expand through some of our existing facilities, such as truck shops and camps and offices. So there will be some of that later on. But in the short term, the sustaining capital requirement is modest, but I can't actually give you a number. We will have to dig something up for you.

Okay. And Don, I guess Meredith's question was to what would make you move ahead on this project. It kind of implies you already would. But what target IRR do you need to justify the project, either leave it or unleave it?

Thanks for the question. As you know, we don't usually disclose that. But I'll put it this way, that we looked at -- we did a number of scenarios, different financial runs at different commodity prices, and generally using a threshold discount rate of 8% real just to see what the resulting NPV was. And as I've said before, if you use $2.50 copper, it's positive, but it wasn't that exciting. But if you use $3 copper, it's just fantastic. So that kind of tells us that it wouldn't take much -- many years at a reasonable price to earn quite a good IRR on it. One of the things I had noticed in this recent period of weakness, the lowest copper got was $3.06. It's currently still over $3.70, and geologically, it seems fairly challenged around the world. The top 5 publicly listed copper companies all had reductions in production last year, despite the fact that copper was over $4 a tonne for 9 months of last year. The country of Chile, the largest copper producing country in the world, it's production was down last year by 4%. And meanwhile, demand worldwide continues to increase, sometimes at larger rates, sometimes at smaller rates, but continues to increase. So we think the outlook for copper is pretty good. And we know this, that in the commodity business that it never actually runs as a flat-line, straight IRR calculation. It's a very cyclical business, and you tend to get all of your money back in 2 or 3 good years. And you never know when those 2 or 3 good years are going to be. Is it when the mine opens up? Or is it 5 or 7 years later? But you do know that if you have a 39-year mine life, and I suspect much longer given that we've got more resources, that you're going to have several cycles when you get those 2 or 3 good years. And when you do an IRR calculation using that, this looks very strong.

The next question is from Garrett Nelson with BB&T Capital Markets. Garrett S. Nelson - BB&T Capital Markets, Research Division: Your coal production was well ahead of sales for a second straight quarter. If I just take the Q4 and Q1 differences between production and sales, that implies an inventory build of about 2.1 million tonnes. Could you comment on your current inventory levels? Are you currently experiencing any storage issues or seeing any backup along the supply chain where you might have to dial back mine production? Or has customer demand improved in recent weeks on the Australian situation and strengthening in Asian steel production to where you're confident you won't have to moderate production?

Good question. I'm going to turn it over to Ian Kilgour, and then I'm going to have a comment after that.

Okay. Yes, our inventory levels are higher than normal. We have healthy inventories, both at the ports and the mines. But that actually puts us in a very good position at this time in the cycle, when we do see increasing demands from our customers. So we are managing that inventory, and we're going to be taking advantage of it as the year progresses.

And the only comment that I would add is, it is true we've had a couple of quarters where we produced more than we sold. I would venture to say -- and this is going out on a limb, but we do have our forward-looking statement slides, but it wouldn't surprise me if this quarter we sell more than we produce. That's sort of how it's unfolding right now. Garrett S. Nelson - BB&T Capital Markets, Research Division: Okay. I know we're only through one quarter, but given those inventories and your production rates over the last couple of quarters, through the winter months, it appears that your full year coal shipments could very well come in above the high end of your production guidance for the year, if in fact the demand is there. Would you say that's a fair assessment?

I don't think I'd want to venture out on that limb. That's just too far out, and we don't know. Garrett S. Nelson - BB&T Capital Markets, Research Division: One final question. Were Q4 -- I'm sorry, were Q1 coal shipments affected at all by maintenance at Westshore?

Oh, yes, absolutely.

Yes. Westshore had an outage for about the last 8 days of the quarter which extended into quarter 2, which is part of their expansion program to increase the capacity from 29 million tonnes annually to 33 million tonnes, a very important capacity increase. And as part of that they were required to shut down their dumping facilities to allow work on the chutes which convey the coal from the dumper to the ship loaders. So we were affected by that. Westshore is now back and operating at full pace and handling our coal well.

The next question is from Oscar Cabrera from Bank of America.

Just getting back to Quebrada Blanca. Don, if the board approves the project, and it sounds very positive, what would be the amount of CapEx that you guys need to spend to get the project started in 2016?

Well, you would start with the results of the feasibility study at the $5.6 billion, which is in dollars of January 2012. And then throughout the course of construction, there's going to be escalation of some sort. Hard to predict what the inflation rates will be, but make your own choice and put that into the model. There is a contingency within that $5.6 billion, of course, and we'll all be watching Tim Watson and Roger and so on, just trying to make sure they don't use it all. But you'd have to judge by experience on other projects as well. So the short answer is we don't really know, but those are the key parameters right now.

Do you think you'll do the traditional 20, 40, 40, 20 to get started? Would that be a fair assumption?

Oscar, is that by year? 20, 40, 40, 20?

Yes, on years, yes.

So they're building their model. They want to know how much to put in each year.

Roughly, yes that's...

Roughly, yes.

Yes, 20, 40, 40, 20.

We'll go with that. But we haven't been asked the question that way before, so next time we'll have a more specific answer.

Yes, that's fair enough. And then interested also in your comments about the statement you made in your release about the possibility of bringing a funding partner. Would that be an offtake agreement? Or can you expand on that, please?

Hard for us to expand right now. We're having detailed discussions with the 2 partners. Each have a different condition and kind of a different objective, and they have to make their own decisions on what they want to do. So we wanted to make sure in the disclosure that we covered the variety of options that could occur. And we hope we can get themselves in [ph] the next couple of months, but we don't know where they're going to end up. It's really up to them.

And then just lastly, can you remind me, would that ENAMI share be a carry? Or are you -- would you need to carry them? And what about your -- the private Chilean company?

Yes, that is correct. ENAMI has a 10% carried interest, so we are responsible for 85% of the financing and the Chilean private company is responsible for 15%.

15%, okay. And one more question, if I may. On Quintette, you are talking about spending or making deed orders for the equipment. Are you spending any money from Quintette in those orders this year? And how much would that be?

Over to Ian or Tim, if you want [ph] .

Yes. We expect to spend around $340 million this year. Our plan is to aim for production at towards the latter half of 2013. We, in fact, have now submitted the Mines Act permit amendment application, and of course, our progress will depend on the approval period for that. And basically, if that proceeds as we hope it might, we'll start further works at site in the last quarter this year and -- which will hopefully give us first our coal by the last quarter of 2013.

The next question is from John Hughes with Desjardins Securities.

Just a couple of quick ones. Were there any Class B shares purchased for cancellation in the first quarter?

A very tiny amount, about 200,000. We've done 5 million so far, John.

Okay, that's great. And in terms of the summary of the feasibility study for QB2, is there a more -- is there anything else available outside of what's in the quarterly release?

Peter was...

There will be a 43-101 report filed sometime in the next 6 weeks, probably at least a month from now.

So what about any economic reviews? Or is that pending, following board decision type of thing?

Well, we have all sorts of scenarios that we run, and I guess we've finally come to the conclusion that you're going to come up with your own copper prices and models and so we've left it to you. We won't be disclosing our actual runs. We've disclosed the key inputs and then let you do your own numbers.

Okay. Last question, just on the balance sheet. That financial and other assets account, the one that was up $324 million in Q4 and another $168 million in Q1, Don, can you provide any color at all on the number of investments, specifically on the publicly traded investment side? Any type of color at all in terms of why this account keeps going up?

The same answer as before, I guess, is from time to time we make investments in situations we believe are undervalued. They could become something strategic. Most of them don't, and we may then sell to take a profit. And this is no different than anything we've done in the past.

The next question is from David Charles with GMP Securities.

Just a question, if you could, on the coal price visibility going forward. I am just wondering, Don, you've laid out some scenarios with increasing production in China, et cetera. I was just wondering what scenario would have to occur for coal settlements in the third quarter to be below $200 a tonne for met coal? I'm just trying to get some sort of a feel as to what's the upside and the downside on met coal prices.

Well, I think it's sort of the normal things that you would think of. If the global economy turns down, and in particular related to industrial production in -- primarily in emerging markets. Remember that, that business is just driven so much by China, where steel production is something like 8x larger than in the U.S. And then the emerging markets, you add those in, and that's just become the big factor. I know that financial markets tend to focus, of course, on the U.S. and Western Europe, and that tends to drive sentiment because they think that, that's sort of what drives commodities. And historically, of course, it is, but not anymore. The world has changed and the other economies are carrying on. But if they turn down -- and of course, we've seen situations like that happen on different occasions in economic history, '98 was a big one, then that would reduce demand. And if you have more supply than demand, then prices turn down. At the moment, we are seeing the opposite. We're seeing steel production turn up and some difficulties on the supply side in Australia, that you've all heard about. And obviously, they will eventually resolve those things, but for the moment we see quite a positive tone in terms of customers contacting us to accelerate shipments. How long that will last is very hard to tell, so we always monitor it quite closely. I'm sure you will, too.

Yes, maybe just to slightly change that -- that's a very good answer, but just maybe to change it. Do you think that there's a, let's say, 50-50 chance that the number could be below $200? Or do you think at this point in time, it looks like it will be less than that?

As you might expect, I do not think there's a 50-50 chance that it will be below $200. I kind of think we're past the bottom. The spot price is up a good $10 or more, and we've seen increased demand for shipments. So that looks good.

The next question is from Kerry Smith with Haywood Securities.

Don, for this 50% potential expansion of QB on the sulfides, what -- did you guys do any work at all to think about roughly what the CapEx might be for something like that and how it might be? Would it be like an expansion after your 5? Or did you think about it conceptually in any way that can give us some input?

I really do appreciate that you'll all be trying to develop your models for this and build in expansion in some year with capital. We just haven't got there yet. We really want to finish the discussions with the other owners and get on with the first part. And once we get through that, then we'll start thinking about it. But you sort of want to stay really focused on executing well. And one of the points to make about this project is that it's really doable. But for it to be doable, we have to stay absolutely focused on executing cleanly. And that's why we have a couple of slides in the presentation today that show you how we're managing the execution risk, and Tim Watson's got a real plan on that. And we had him down on the analyst tour in Chile to be able to speak to a number of you face-to-face because to me, when we do resolve the ownership issues, the discussions, then being absolutely focused on executing this one cleanly is really important, much more important than spending a lot of time on the expansion phase too soon. But we do signal that there is such a large resource there that this is the kind of deposit that, once built, will likely be expanded a couple of times during the course of its mine life, which we believe will be longer than 39 years given that we have additional resource there. So that's one of the reasons why we like it. So all of these things are kind of judgment calls. But when we look at QB2 compared to a number of projects out there in the world that -- and we spent a lot of time doing that. We looked at over 400 projects around the world before we really finished this and had 3 different sessions with the board on it. But when we compare all the risk factors, this one, the risks, they appear quite manageable. We're building a copper concentrator, and we just built one at Carmen de Andacollo, so we have a lot of experience to directly apply to that. And I think this is just going to be an intense focus on executing cleanly on this one, and we'll get to the expansion when it's the right time.

Right. Okay. The only reason I asked is, obviously, the NPV would look significantly better with a 40-year mine life to expand there.

You can always stay with that because you're absolutely right, and I appreciate that. But that NPV today is still going to be just a fraction of what the NPV will be when the first phase is built. As NPVs work, you do the arithmetic today, and you're going to get a pretty low number because you're just starting the phase where you're spending all the money. I love for people do the NPV in 2017, with what just the first phase looks like because it's pretty good. And then if you do the expansion after that, it gets even better. So this is why we'd love to be able to snap our fingers and have this project built and have it in our portfolio ,because we know we're going to love it for 50 years in this portfolio.

And Don, how much contingency is built into the $5.6 billion, as a percent or as a dollar amount?

13%.

So 13% of the $5.6 billion, okay. And is it a full 4 -- maybe Tim can answer this. Is it a full 4-year build for that project?

Yes. The actual -- when we look at the development cycle, we're into the basic engineering phase of the project right now. We obviously can't go to the field until we receive our SEIA. We have certain assumptions built into our program on the approval cycle time for the SEIA but we -- should the project be approved, we do expect to be in the field the second half of next year.

Okay. So if you're in the field by the second half of 2013...

It's a 3-year build time.

It's a 3-year build time, okay, which should be the back half of 2016 then, okay.

I'll just add another comment because I was just at QB on Thursday and speaking to groups of employees and touring the site. And a number of you won't have had a chance to be there recently, although we had the tour of Carmen de Andacollo and Antamina just, I guess, a couple of weeks ago, but we will get something organized in the future. But as you stand on the lookout, you can visually see a dome of mineralization that is already exposed by the current mining operations. So a very, very low strip ratio, almost nothing, and it has a copper grade of 0.62 to start. And if you compare that to what we've been mining at Highland Valley, which is 0.22, and the moly grade is 3x what Highland Valley has, and this is what we get to start with. And I think sometimes it's important to just go there and see it. And the terrain is very easy to work in, it's not like some of the other projects around the world. The elevation is 14,000 feet-plus, of course, but that doesn't mean that there's not as much sort of environmental challenge as if you were in the heart of a rainforest and various other things. And of course, we're operating there and [indiscernible]is operating next door. So all this combines to help it be a doable project. I think as people look to these projects around the world, just looking at all of the risk factors combined and ask the question, "Is this doable?" is really the important question. Because the mining industry's being challenged worldwide to even just keep current mines operating at current production levels, let alone do brownfield expansions or even a greenfield project. We've seen company after company report declining production because of head grades going down and that sort of stuff. So when you look at everything in that context, we feel QB2 is very doable, very manageable. We obviously already have our share of the equity financing on the balance sheet. So that's not an issue. And so it's something that we love -- if it was just built already and in the portfolio.

The next question is from Brian MacArthur from UBS Securities.

Just one last question on QB. When you looked at this, did you -- what sort of tax rate did you assume in your analysis? Did you assume money is repatriated or reinvested in Chile and did you credit any of the other operations against there or did you just look at it as a standalone?

Yes. We used the current tax regime. We do sensitivity analysis, again, as you know, and we have our tax specialists have been following the Chilean tax developments and what might change in the future. But yes, Chile does have the advantage of, if you invest cash flow generated in Chile, then you pay a lower cash tax rate during that time. So that does help in the early years.

But we did not assume that in the model. In our model, we did not assume reinvestment of profits from QB. It was viewed on a standalone basis.

But of course, Brian, the amount of the capital spend results in a fairly large depreciation tax shield in the early number -- early years, anyway, which obviously has a big impact on the cash tax payable in the early years of the project.

Right. But we're not taking profits from current cap, current QB and crediting them or anything like that, or bringing Carmen de Andacollo in.

No, we don't do that.

Okay. And then obviously, if and when you did an expansion, obviously you'll get the benefit of redoing that again. So theoretically, as we go on a longer time, you'll be able to maintain a structurally lower tax rate, assuming nothing changes.

Right.

Great. Second question, just something totally different and I apologize. There's a statement on Page 22 talks about this whole thing in Lake Roosevelt, and I'm not a lawyer. It says, "striking our affirmative defense of apportionment in CERCLA litigation," and I just have no idea what that means. Can you just elaborate a little bit on where we stand on that?

Peter Rozee would love to answer that question.

Sure. That finding is a setback in the litigation. Apportionment is a doctrine that lets you reduce your share of the CERCLA liability to a portion of the total remediation cost, total natural resource damages. We're appealing that finding, and we think there are some fundamental legal problems with it. And it's too early to say whether the appeal of that issue will hold up the rest of the proceedings, or whether we'll have to wait until the liability phase of the trial is over to appeal the whole thing. But it's a significant finding. The good news is that our RIFS work on the Upper Columbia continues to be very positive and the results of the science are showing that there remains actually very little remediation required. So we're encouraged by the facts and discouraged by the legal outcome on that one issue.

Right. So nothing changes in what you're doing. You still continue to do the work you're doing, whatever. This is just going to go the courts for a while, I don't know how long it will take, and we just proceed on in the near term like we've been doing. Is that fair or...

That's exactly right, and we don't know how long it will take, but longer rather than shorter is a good guess.

Okay, great. And one other final different topic altogether again. Just you mentioned on Trail that the margins changed there because you're paying more for silver. Is that as a result of just terms have changed? Or is it just a change in mix of product going into Trail at the moment that led to that?

Our costs -- Don speaking, Brian, simply just a rising silver market prices. So the -- we pay for concentrate based on the price of silver [indiscernible] in a rising market. When silver prices rose last year, costs for those concentrates that contained silver rose.

Okay. So whatever the margin, whatever, that is just a flow-through thing. It's not like we're getting different types of cons that have different contracts on the silver, or is there anything like that?

No. That's correct.

The next question is from Terence Ortslan with TSO & Associates.

Just going back on the QB, Don. Did you just say a few minutes ago that the cutoff is 0.2 for those numbers that were tabled today?

No, I was comparing the dome of mineralization in QB that's already exposed and its grade to what we currently mine at Highland Valley Copper and my point being that QB in the first 5 years has not quite tripled, but a substantially higher grade than what we're mining at Highland Valley, where we're making good money.

So what is the cutoff that goes along with those numbers? While you're looking at that, also going to ask you about the power costs assumed and what percent or pie chart is the power cost for the C1 cost that you guys had?

Okay. So we've got the power cost question and the cutoff grades.

Cutoff grade is based on an NSR principally, rather than the price of copper. We don't just put that out there. It depends on the mine plan at the time. Power costs, we're in negotiations there and it would appear that costs are going to come in at the $0.10 or $0.11 range, but we are still in a process of determining what that will be.

That's a pretty good number. And the availability of power, is it there, or you're just making an assumption that it will be available sometime with the expansions and all?

We expect that there will need to be a construction of a power station in the north, and that's the nature of the negotiations we're in.

Okay. And may I ask you on how much power you're going to be using once it's cranking up this thing?

240, 250 megawatts.

How much?

240 to 250 megawatts. That includes pumping water from the ocean to altitude, it includes the mills. There will be big requirements.

Okay. One question quick question on the Quintette. I was going to ask you if the feasibility study, once this comes out, what's next. I guess the answer is kind of a foregone conclusion. You guys are going ahead with this, 2013 fourth quarter startup. What's the ramp up again, could you remind me please on the Quintette beyond -- into 2013 onwards?

The ramp up on Quintette.

Basically, we'll be ramping up starting coal production in the fourth quarter through 2014, getting towards the 3 million mark towards the end of 2014. And that's our final throughput rate.

Your next question is from Oscar Cabrera with Bank of America.

Just getting back into Quebrada Blanca, if I can. Two of the main bottlenecks in the northern part of Chile right now is power and skilled labor. And so the first thing is, you -- in your presentation, you talked about third-party power with permitted sites. Is one of these sites [indiscernible]? Or can you tell us what sites you're considering for your power contract?

We're in discussion with a couple of different parties, Oscar, and we'd just like to leave it at that because we're in negotiations at the moment.

Okay. Let me ask it in a different way. So when you talk about permitted sites, do these sites have environmental permits already?

That's correct.

Right. So you were just talking about right-of-way.

That's correct. We are working on the right-of-way ourselves. And the power transmission line is, in fact, in our CapEx numbers, but the power station itself is not.

And then the second question, I guess, more looking at Relincho. Obviously, there's been -- there is one example right now in Chile with a plant using saltwater, and you obviously have been very cautious about the way that you were developing your project. How are you thinking about the development of Relincho? Do you still think that this can come right on the back of Quebrada Blanca, i.e., if you start production like you just mentioned to one of the previous callers in the second half of 2015, can -- and actually Relincho you're seeing come on stream on 2017? Or has all this process changed your way of thinking on that project?

I'm going to make a comment and then turn it over to Tim for more detail. But that kind of decision. We wouldn't make for at least a year. We want to see the results of the final feasibility, and we want to see how much progress we've made on QB2. Remember, we haven't made the final go-ahead decision on QB2 yet, so if it gets delayed quite a bit, anything could happen in terms of the timetable or the order between QB2 and Relincho. If it goes like we'd like to see it go, we will be very careful about how much we stagger QB2 and Relincho in terms of people available to really be focused on the project. We've got to be cautious about biting off more than we can chew and also looking at the financing of it as well. I'll then turn it over to Tim related to the seawater flotation and that stuff.

Thank, Don. With respect to Relincho on the seawater issue, right now, we still have extensive test work programs underway, metallurgical test work programs underway. And we are actually analyzing how the plant work in both seawater and desalinated water so that as we come through the costing phase of the feasibility work for Relincho, we can actually do a detailed analysis of both options. And at the end of the day, it will come down to what we fundamentally believe is the lowest-risk option for the project and also in terms of then providing the best rate of return. So it will be a combination of de-risking the project and the copper recovery, and what we fundamentally believe is the best option going forward. But we are looking at both options, and we continue to pursue the seawater option along with the desal option.

And can you just remind me, I don't know if you mentioned this, in the scoping study that you provided a CapEx for, was that done with desalination or was that assuming seawater usage?

The previous information that we have released was on the basis of seawater.

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

All right. Well, I'd like to thank everybody for your time this morning. Maybe just a summary comment that Teck, as a company, is in very strong condition. The world has been in a reasonably fragile state for a couple of quarters or more, but we do see a number of positive signs underneath all the noise in the media and so on that point to a better quarter, at least in terms of our coal business and sales versus what we've seen the last 2 quarters, and certainly stronger steel production across the board. So that's encouraging for the future. We will continue to stay focused on trying to finalize discussions with the other owners of QB, so that we can provide clarity on development decision and timing. But it could take a few weeks or months, depending on how long the discussions last. So we look forward to talking to you again at the end of the second quarter. Thank you.

Thanks so much. Goodbye.

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