Teck Resources Limited (TECK) Q4 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 Ian C. Kilgour - Senior Vice President of Coal Réal Foley - Vice President of Coal Marketing Roger J. Higgins - Senior Vice President of Copper John F. Gingell - Vice President and Controller Timothy C. Watson - Senior Vice President of Project Development Andrew A. Stonkus - Vice President of Base Metals Marketing

Meredith H. Bandy - BMO Capital Markets Canada Curtis Rogers Woodworth - Nomura Securities Co. Ltd., Research Division Jorge M. Beristain - Deutsche Bank AG, Research Division Ralph M. Profiti - Crédit Suisse AG, Research Division Garrett S. Nelson - BB&T Capital Markets, Research Division Oscar Cabrera - BofA Merrill Lynch, Research Division Alec Kodatsky - CIBC World Markets Inc., Research Division Carly Mattson - Goldman Sachs Group Inc., Research Division John Hughes - Desjardins Securities Inc., Research Division Greg Barnes - TD Securities Equity Research Terence S. Ortslan - X-Ore Resources Inc. John Charles Tumazos - John Tumazos Very Independent Research, LLC

Ladies and gentlemen, thank you for standing by. Welcome to Teck's Fourth Quarter 2012 Results Conference Call. [Operator Instructions] This conference call is being recorded on Thursday, February 7, 2013. I would now like to turn the conference over to Greg Waller, Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Thanks very much, operator. Good morning everyone, and thank you for joining us this morning for Teck's fourth 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 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 before I turn the call over to Don, I'd just like to point out, we've got people dialing in from a number of locations this morning, so when we do go to the Q&A, please bear with us if it takes a moment to sort out who's going to respond to a question. And with that, I'll turn it over to Don and we'll hear from you later. Thanks.

Thanks very much, Greg. Good morning, everyone, and thank you for joining us. I will start with the 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. And as Greg said, we do have a number of members of management on the phone in different timezones, different countries and so on. So turning to Slide 5 and starting with the results for the calendar year. Although sales volumes of our key products, coal and copper, were up by 8% and 13%, respectively, revenues declined about 10% versus last year to $10.3 billion, reflecting lower prices for all of our major products. In fact, we set a new company record for copper production of 373,000 tonnes, and also record material moved at our coal operations. So operationally, we were fairly pleased. Gross profit for the year was still very healthy at $4 billion. Bottom line profit attributed to shareholders of $811 million was significantly impacted by the nearly $800 million in financing charges recognized due to the debt redemption program. EBITDA was also strong at $2.8 billion for the year. On Slide 6, we've summarized our production results for 2012 versus the guidance that we gave earlier in the year, and I'm pleased to report that we delivered on each of our objectives. In coal, production was impacted earlier in the year due to the strike at CP [indiscernible]. But despite these challenges, production was still within [indiscernible] $72 per tonne, with [indiscernible] copper production of 373,000 tonnes, was at the higher end of our guidance and then zinc, both zinc and concentrate and refined zinc production ended the year in the midrange of the guidance for the year. Ron Millos will address our guidance for 2013 later in the call. Looking at Q4 results on Slide 7, thanks to incremental improvements from most of our copper operations, this quarter, we achieved record copper production of 103,000 tonnes. And also during the quarter, we completed the final redemption of our high-yield notes, and this is a very positive step that will significantly lower our interest charges going forward. In December, we announced a 12.5% increase in the semiannual dividend to $0.45 a share, and also in Q4, we took advantage of our normal course issuer bid to purchase for cancellation approximately 3.8 million Class B shares. And then subsequent to the quarter end, I'm very proud, on behalf of all the employees at the company, to note that we were the top-ranked Canadian company named to the Global 100 list of Most Sustainable Corporations. And I could also add, we were the top mining company globally on that list as well. Turning to Slide 8, fourth quarter revenues were over $2.7 billion. Gross profit before depreciation and amortization was $961 million, and profit attributable to shareholders was $145 million. EBITDA was $527 million and adjusted profit after onetime and unusual items, which I will speak to on the next slide, was $354 million. Next slide, this quarter, the most significant adjustment is related to the debt redemption, which resulted in a $259 million after-tax charge. Other significant items include tax items that amounted to $61 million. The balance was made up of asset sales, a onetime labor settlement at the Antamina operation and foreign exchange losses. After these items, the adjusted profit was $354 million for the quarter or $0.61 per share versus the street consensus estimate of $0.48 per share. Turning to our operating results for the quarter on Slide 10, in our coal business, production and sales both ended at 6.4 million tonnes. The average realized price for the second quarter was USD 159 per tonne. About a 6% discount to the benchmark price of USD 170 per tonne for the premium brands of coal. Usually, the realized price is about a 10% discount to the benchmark price due to the mix of products that we have, including some lower value PCI and thermal coals. However, this does fluctuate due to product mix and importantly, to carryover tonnage. Fourth quarter unit site costs were $62 per tonne and that was down $13 per tonne from the average of the first 3 quarters. And distribution costs came in at $41 per tonne for a combined cost of CAD 103 per tonne. We were pretty pleased with that. Increased distribution cost compared to last year were mainly due to the higher port, rail and ocean freight costs, including a higher proportion of coal sold in the quarter that was inclusive of ocean freight. Turning to Slide 11, the expansion at our 6 existing mines is nearing completion. Plant upgrades and additions to our mine fleet have increased our production capacity to about 27 million tonnes currently. However, we continue to align our production rate to the anticipated market demand. So the capacity is there. We're just waiting for market conditions to improve. Demand for our coal products remained strong in China. However, the share of sales into our traditional markets will probably increase back to more normal levels in 2013. Contract prices for the first quarter for our highest quality coals has been set at USD 165 per tonne, which is in line with prices reportedly achieved by our competitors. And as of this release, we have already contracted for sales of 6 million tonnes to be delivered in Q1 at an average price of USD 159 per tonne, which is a discount of only 4% from the benchmark prices this quarter. Finally, the Quintette restart project continues to progress and we expect to receive permit approval in the first half of 2013, with production commencing in 2014. On Slide 12. At Neptune, the new stacker reclaimer is taking shape. The picture at the top gives a sense of the scale of the equipment and the progress being made. And this expansion will increase our throughput capacity from the current 9 million tonnes to 12.5 million tonnes. And beyond this phase, we have completed the feasibility study for a further increase in capacity. And the project has received permitting approvals and will be developed in 2 phases over the next number of years, taking the capacity from 12.5 million tonnes to 18.5 million tonnes, which gives us a lot of flexibility. At Westshore, berth number 1 is anticipated to be back in full service in mid-February, which is only about a week away. And the picture here shows the excellent progress that's been made on rebuilding the conveyor trestle. The conveyor and loading system will be activated first and then the road deck work will be completed in mid April. And it's worth mentioning, I think, that this incident would have been a very significant problem for our coal business in the past, but through several strategic decisions over the last 3 years or so, we now have flexibility in our distribution network that allows alternatives when situations like this arise. In our copper business unit, on Slide 13, we had record copper production of 103,000 tonnes, and thus we've achieved our targeted of 400,000 tonne annualized run rate. However, we do face declining grade issues, as do most mining companies these days, and production will tail off from this level until our next significant growth project comes online. Production was up 22% versus Q4 of last year, with cathode production down and concentrate production increasing significantly. Overall, unit costs from the copper business were up about 6% versus last quarter. Lower byproduct credits, as well as higher labor, contractor and energy prices were the main drivers behind the increase. Turning to Slide 14, this chart, which shows rolling fourth quarters of production illustrates the progress we've made in increasing production. Year-over-year, production at Antamina was up 28%, with mill throughput up 22%, which reflects Antamina's expanded capacity. At Highland Valley, copper production in the fourth quarter of 37,400 tonnes was 37% higher than a year ago, primarily as a result of significantly higher grades. And we've been waiting for that to materialize for some time. And at Carmen de Andacollo, production rose 7% to 20,500 tonnes. October was a particularly noteworthy month at the operation, as the concentrator processed a record 55,500 tonnes of ore per day, which is slightly over designed capacity. Next slide. The mill optimization project at the Highland Valley is progressing well, with commencement of structural steel erection and also placement of major equipment. And you can see the structure come together in the picture here on Slide 15. Detailed engineering was 88% complete at year-end and the project is on track for completion by the end of 2013, which will enable us to increase throughput rates and recoveries starting in 2014. Now turning to our zinc business on Slide 16. Zinc concentrate production for the quarter was up about 5% compared to last year. At Red Dog, year-over-year production was up about 5%, and mining is now exclusively from the Aqqaluk pit. Antamina, additional mill throughput and a greater absolute tonnage of copper zinc ores were offset by lower grades, resulting in production being about 3,000 tonnes lower. And as always, I should note that even though we show Antamina's share of zinc production in these figures, the financial results for Antamina are reported in our copper business as we consider zinc to be a byproduct at this mine. Lead concentrate production was 18% higher than the fourth quarter last year, as higher recoveries counteracted to the lower grades that we were seeing. And at Trail, production was slightly down, but the decline in profits was mainly due to lower metal prices and a stronger Canadian dollar. I'll now turn the call over to Ron Millos, to address some of the financial issues. Ron?

Thanks, Don. On Slide 18, we've summarized our changes in cash for the quarter. Cash flow from operations before working capital changes was $722 million. Our capital expenditures and investments in the quarter were $661 million, and in mid-November, as Don mentioned, we redeemed all of the outstanding balance of the high-yield notes that we issued back in 2009. In addition, during the quarter, we purchased for cancellation approximately 3.8 million Class B subordinate voting shares for $123 million, pursuant to our normal course issuer bid that we announced back in June. And these items and exchange rate changes, other items, our cash decrease in the quarter was $663 million, leaving us with $3.3 billion in cash at the end of the year. And as of today, we have about $2.9 billion of cash. Moving forward to Slide 19, it shows our final pricing adjustments for the quarter, which are included in our other operating income and expense on our income statement and our outstanding position at the end of 2012. Total pricing adjustments for the quarter were negative $20 million on a pretax basis, primarily due to the reduction in metal prices. And remember, when analyzing the effect of price changes in the adjustment, refining and treatment charges and the Canadian U.S. exchange rate must be included in your calculations. And in addition, when trying to analyze the effect on our profits, you need to consider taxes and royalties. On Slide 20, we continue to use this chart to illustrate the relationship between the change in metal prices and our reported price adjustment. We've updated the chart with our Q4 data and you can see the adjustment is in line with what we would expect from our historical relationships. And keep in mind, this chart is meant to be an indicative guide, not a definitive predictor. And as we mentioned last quarter, there are other elements that impact the total settlement adjustment, the total volumes, lead and silver prices. But clearly, copper and zinc price changes are the most significant factor in these adjustments. Moving to Slide 22 (sic) [21], I'd like to spend a minute to provide a quick summary of our debt refinancing transactions. Over the last 2-plus years, we've taken advantage of the historically low interest rates and our investment-grade credit rating to reduce our all-in interest rates and reduce some of the large maturity towers and extend our average term to maturity. We've reduced the average coupon from about 7.6% to 4.8%, which has reduced our annual interest expense by approximately $250 million. Our average maturity has been stretched out over 16 years, with maturities now averaging about $600 million in the years in which we have issues coming due. And moreover, we only have about $325 million due to the end of 2016. We're very pleased with this accomplishment and, as Don indicated earlier, this marks the end of our planned financing -- our refinancing transactions, and we can look forward to some cleaner quarters in the future. On Slide 22, we summarized our production guidance for 2013. Coal production guidance is in the range of 24 million to 25 million tonnes, and this is lower than our current productive capacity of 27 million tonnes as we continue to match our production to market conditions. Our annual site costs for coal are expected to be between $71 and $77 per tonne. Our copper production is expected to be in the range of about 340,000 to 360,000 tonnes, down about 6% from 2012. And this is due mainly to lower production from Quebrada Blanca, as that mine nears the end of its life, and lower ore grades at Highland Valley Copper. Zinc in concentrate production is expected to be between 560,000 and 590,000 tonnes, and this includes Red Dog, and our share of production from Antamina and a small amount from the Duck Pond copper mine. Refined zinc production at Trail is expected to be similar to last year, between 280,000 and 290,000 tonnes. Our forecast capital expenditures for 2013 are summarized on Slide 23. Note that this includes our investment in Fort Hills, which we do account for as an equity investment. Our sustaining capital expenditures are expected to be lower this year at just under $750 million, and should decline even more next year. Our major enhancement spending at existing mines includes $310 million for the Highland Valley mill optimization project, which should be finish near the end of this year, and more than 1/2 of the of the $80 million in coal is for the expansion of Neptune terminals. Our major project spending on new mine development projects includes $120 million for Quintette, $450 million for Phase 2 at Quebrada Blanca, $70 million at Relincho and final work on the Antamina expansion project. Note that spending for Quintette could be higher for the year if we do make a go-ahead decision later this year. In energy, we expect to spend $110 million on the Frontier Project and $290 million for our share of the Fort Hills project. As always, the amount and timing of actual capital expenditures is dependent upon numerous factors including permitting, equipment and other costs, the timing of orders and the timing of delivery schedules. Lastly, Slide 24 highlights the sensitivity to changes in commodity prices and exchange rates for the year based on the guidance that we've provided. Our EBITDA in 2012 was $2.8 billion or about $3.7 billion if the unusual items disclosed in the table on Page 4 of our news release are excluded. In coal, our EBITDA sensitivity is CAD 25 million for each USD 1 per tonne change in the coal price. In copper and zinc, our sensitivity is CAD 7 million and CAD 11 million, respectively, for each USD 0.01 per pound change in the metal price. And our EBITDA is most sensitive to changes in the Canadian-U.S. dollar exchange rate with each USD 0.01 change affecting EBITDA by about CAD 70 million. And with that, I'll now turn the call back to Don.

Thanks, Ron, and turning to Slide 26, I'd like to update you on the status of the many development projects that we have underway. For Quintette, the feasibility study for the restart is complete and we expect to receive permit approvals sometime in the first half of 2013. At QB, the updated SEIA document is expected to be submitted closer to the end of Q2 2013. And every effort is being made to see that we comprehensively address the issues raised by the regulators. At Relincho, the completion of the feasibility study has been deferred due to the uncertainty with the related power and port project. We now expect it to be complete in Q4 of 2013. At the Neptune coal terminal, I commented earlier on our plan to expand to 18.5 million tonnes of capacity. And finally, at Fort Hills, work continues towards the project sanction decision expected in the latter half of 2013. So in summary, Teck remains in great financial shape and is well-positioned in these uncertain economic times. Our long-term view remains favorable, particularly for our key products, steel-making, coal and copper. Our near-term expansions are on track and we've seen the benefits in the results that we've reported today. Our coal production is making the necessary adjustments to ensure it is responding to market demand but the capacity is there. And lastly, our capital spend program reflects our current expectations, but it might be modified depending on commodity markets, our financial position or other factors. And with that, I'd like to turn the call over to questions.

[Operator Instructions] The first question is from Meredith Bandy of BMO Capital Markets.

So my question is about the selenium guidance that you gave. You gave a little bit more color on that this quarter. And in particular, the CapEx but also the cost per tonne. I mean, is it appropriate for the long-term cost to just sort of add the $6 to your $71 to $77 a tonne cost for 2013?

Turn that question over to Ian.

Yes, for -- it wouldn't be appropriate to add it next year because the first plant won't be completed until, 2014. So basically, we'll -- as we move to install the water treatment plants at each of our major Elk Valley mines, the cost per tonne will move towards that figure. That figure is based on current technology. It's based on the technology we're installing at Line Creek at the moment, a biological reactor. We are carrying out the search into quite a number of alternative treatment methods, which we're hoping will prove to be more economical.

And then my follow-on question is, if the market were better and you were producing the coal at your full capacity, what impact would that have on the cost?

Well, I think as you would expect, there would be some bit of distribution of overhead costs over a larger denominator and we would expect to see some slight decreases.

But would it be sort of just towards the low end of the range? Is that why there is a range? Like if you were closer to capacity you'd be at the bottom? Or would it even be below that?

No, I think the bottom of the range would probably be an appropriate way to think about it.

Might just offer a comment to put operating costs in the coal industry in perspective. You've seen in our own business, from the average of the first 3 quarters this year to the fourth quarter, we had a significant drop of over to $10 per tonne, and we've given the guidance for next year. But if you look back over the last 3 or 4 years, other areas of production the world, in the U.S. and Australia, in Changtse [ph] province, the costs have gone up by $30 or more a tonne, so quite significantly. So the additional selenium costs that we're indicating here, I think in context to what's happened elsewhere, it just needs to sort of be put into balance.

The following question is from Curt Woodworth of Nomura.

A question on the coking coal market. And it seems like the spot price has been moving up about $10 to $12 a tonne in the past month. I heard the BHP monthly settlement was up about $9. Again, it seems like in terms of your demand outlook or for production in the first quarter and for the full year running about that 6 million tonne level, is it just you think a brief snapback in China that's sort of benefiting the market and some of the other regions aren't participating? Or any color you can kind of give on what you're seeing in terms of what are the near-term fundamentals would be great.

Give that to either Ian or Real.

Real, would you like to take that one? Réal Foley: Yes, I will take that, Ian. So, thanks for your question. What we're seeing overall in the market is a gradual improvement for 2013. But there is still economic uncertainty. And we were seeing strong demand from a number of areas, stronger demand compared to 2012. But we're still being prudent. And at the same time, we've developed very strong relationships with our customers around all of the market areas in the world. So that allows us to try to maximize the sales that we can make during the year.

The following question is from Jorge Beristain of Deutsche Bank.

I guess my question is for Don. Just -- you closed -- you flagged in February with a very high cash position of almost $3 billion. And I was wondering if you could talk to -- if you feel, in this environment, still a need to carry such a high cash position and what the possible uses of that could be given again, that you're still seeing some deferrals in your Chilean copper growth projects, now particularly with the pushback of Relincho. So do you still feel the need to sort of have this cash to pay for the growth CapEx over the next 2 or 3 years?

Yes. The classic capital allocation question, I guess. Yes, we do. Our starting point is the Stay the Course strategy that we talked about before. And well, at the moment, we're using some of the cash to finish the Highland Valley modernization, the asset plan at Trail and so on. But we are carrying on with QB2 and moving it along as we finish the SEIA for resubmission. In the long term, that's going to be just one of the key assets in our portfolio. And so, I mean, as you're seeing with our guidance today, the copper production starts to go down because 2 of our mines are nearing the end of their lives, where the orebodies deplete and grade goes down and cost go up. It just illustrates the value of getting QB2 built. It's just very, very important to us. But we could see -- it wouldn't be that many months from now that you could have the permit at Quintette, a sanction decision at Fort Hills and QB2 just around the corner and Relincho not so far behind that. So we think that having the cash balance on hand for the Stay the Course strategy makes a lot of sense. And if we execute well in the Stay the Course strategy and looking out 5 or 6 years, then each share of Teck will have significantly more copper production, more coal production and first phase of oil sands up and running with a lot of growth after that. So that's our base case. Now in the meantime, we still look at what is going on around the world in terms of acquisition opportunities and there's a bit of action out there. We talked about, in the past, that iron ore would be a good fit for our portfolio and it really would for all sorts of good reasons. I said in the last quarterly call that we've moved on because we just found the values too high. And so I enjoyed a good holiday from iron ore for quite a few weeks there. But values have come down and also, as probably those who follow the industry closely, there's a few new assets that have become available. So we still think that's a good fit in our portfolio, but we've never been able to get a deal at values we're comfortable with. Copper obviously, is a priority for us. And with declining production for the next couple of years, it's something that might fill the gap there, would be of interest to us. But -- and all these things come down to what long-term prices are you comfortable with. I'm always intrigued to see what different sort of commodity forecasters, they use -- often once they get 3 or 4 years out, they use quite low prices. And we've published ourselves things at that $2.50 copper when we do the feasibilities and that sort of thing. But realistically for long term prices to be $2.50 in copper or $75 or $80 in iron ore, those sort of things, then to average that long-term, you got to be significantly below that for large periods of time, and that would be $2 copper or $50 iron ore, that sort of thing. So we don't think that those kind of long-term prices actually make sense and probably realistically you'd see $3 or $3.25 is what's going to end up because we've seen so many long periods when the copper price is higher. Likewise, you see in iron ore today, $155, an awfully high price and we recognize that, but the reality is it's unlikely to stay down at $50 either. So $100 average, $110 somewhere in there, probably makes more sense. So the key is to start on your long-term prices and then look at the assets. Are they in a good geopolitical jurisdiction? Are there significant environmental issues? What's the nature of the country? Is it a country that's conducive for mining investment? But first and foremost, is it a long-life ore body and at the midpoint in the cost curve or below, and is infrastructure available and workforce and the rest of it? So we're always looking at these and comparing it to the base case, and so far, we haven't, obviously, executed on any of them. We carried on with this Stay the Course strategy. The odds are that, that's what we will do. But in the meantime, we still look at opportunities and so having the cash balance there, for either Stay the Course or one of these opportunities, makes sense to us. We have increased the dividend, as you've seen. We have bought back a few shares and we will continue to do that going forward.

And sorry, if I could just have a quick follow-up, has the recent opening of the spread of the West Canada Select to WTI changed the potential long-run breakeven price that you're thinking you need up in Northern Alberta for the oil sands projects? Or do you think things will revert out by the end of the decade as more pipeline capacity comes on?

The latter, and not just pipeline capacity but bitumen by rail as well, and a lot of it is already moving in that direction. I mean, that issue is so important for Canada that we believe there'll be a solution one-way or the other.

The following question is from Ralph Profiti of Crédit Suisse. Ralph M. Profiti - Crédit Suisse AG, Research Division: Don, with respect to unit costs in the copper business, unit mining costs, can you give us a sense of what you saw in 2012 versus 2011? And what you can expect that trend to be in 2013, say, on a year-over-year basis? And presumably, those pressures are coming from labor and power, and also if you can discuss if there's anything else we should be concerned about.

Okay. I'll make an overview comment and then turn it over to Roger Higgins. And the overview comment is that at 4 of our 5 operations, we felt we had a good, solid performance, meaning Antamina, Carmen de Andacollo, Highland Valley and Duck Pond. And then QB has been problematic as it gets to the end of its mine life and is switched over from heap leach to dump leach and grades lower, and the rest of it. And we've taken quite a number of steps related to QB. And so I think it's probably best if Roger summarizes that. Roger?

Can people hear me? Sorry, I just had to take them off mute. Am I on the line there?

We can hear you, Roger.

Thank you very much. I'm actually calling you from Quebrada Blanca today.

I'm sorry, for the interruption. His line just disconnected.

Okay. Well I suspect he will dial in and maybe we can come back to that question when he comes back onto the call later on. So I think we can move on to the next question.

Certainly. The following question is from Garrett Nelson of BB&T Capital Markets. Garrett S. Nelson - BB&T Capital Markets, Research Division: Looking at your 2013 production guidance, is it fair to say that it's potentially conservative given the recent run rates you've demonstrated recently and that you're choosing to leave some tonnes in the ground and not run the assets at full capacity? On the coal side, that appears to be true with the capacity being 27 million tonnes. But on the copper side, obviously, you cited [ph] the factors at QB and Highland Valley. But the total platform ran at a run rate of over 400,000 tonnes in the second half of last year.

Yes. I don't think Roger's on the line yet, so just to address it. In coal, you're quite right, we are choosing to leave capacity unutilized due to market conditions. But in copper, it's all a question about grade, really. At different times, you're in different parts of the mine plan, in different parts of the ore body, some higher grade, some lower grade. At Highland Valley, for example, for quite a while as we were going through the geotechnical issue that we had in filling the buttress and so on, we were in an unusually low grade phase. And then we finally, completed that, got back into value pits and got some higher-grade material. And in fact, there will be different phases like that going forward as well. But the average grade won't be as high as what we had in the fourth quarter. Now down the road, there's a lot of material left around Highland Valley that, like there is literally, 0.4 and 0.5. And we're currently mining just under 0.3. And this is from 20 or 30 years ago. We've got a resource development program under way to go and get that somehow worked into the mine plan as we finish the Highland Valley modernization program. So that's a factor. Also QB is in declining mode, and this what you expect at the end of mine life. It's not actually a surprise. It's just the way it is as you reach the end of the mine life. So copper is really more about grade, I would say, than leaving capacity unutilized.

Don, I'm back on the line.

Sorry, Roger. I answered that question. But you got cut off just as you were about to talk about what's going on at QB. So maybe we could go back to that.

Yes, I'll just make 2 comments there. First, a thing to note, I think in terms of the last couple of years, that at 4 of the operations, both of the operations in Chile, at Antamina and at Highland Valley, we have had labor settlements and each of those has resulted in a large -- large-ish lump sum that's gone into the costs. So there is -- and we made comments on those appropriately throughout them. But just when looking at the costs, over both 2011 and 2012, keep in mind that each of those 4 operations has had a labor settlement. At Quebrada Blanca, Don has just been describing how we are in transition from a leaching operation now to a concentrator operation when Quebrada Blanca Phase 2 goes into business. And during that period, we're going through a number of changes. First of all, a greater proportion of material going to our dump leaching operation, which is run of the mine [ph] uncrushed material because it's lower grade. And compared with the heap leach, that has somewhat lower recovery, and -- but equally importantly a much longer leaching time, so while it takes us 300 days or so on the heaps to fully leach material, it takes 700 days or more on the dump to fully leach material. So you can see how there's quite some time lags go into this as well. And in addition, the production itself is going down from the 80,000 tonnes, 84,000 tonnes, when we had our best years, to 60s, and we'll have some years in probably 50s, mid- to high 50s, before Quebrada Blanca comes on. All of those affect the unit costs and, whether it's the mining cost because we're still having to move waste or the processing cost. So the process we're in at the moment is to, is effectively, to rebase Quebrada Blanca to recognize that. But it is going to be a different operation for the next few years. We did comment at the call -- the Q3 call last year, that we're in the process of resizing the workforce and we have done that without difficulty. And we had to unfortunately, reduce our employee workforce by around about 200 people, of which 160 or so is now complete and we're cleaning up the rest of that right now. Had to let some people go and that's always unfortunate, but it's the reality. And then on an equivalent sort of number of contractors around the site, as we've rationalized. The progress and things we're looking at most actively now include our contract services and supply costs and we have some opportunities that we're working through to get some better arrangements around energy costs, around some contract maintenance costs. And that's the immediate focus as we then have a look at how we can carry Quebrada Blanca forward. So they're the actions that we are doing. We did put a team together from people from across Teck to assist the operation here to make sure we can keep it successful during this period between now and the start of the Quebrada Blanca Phase 2 project in some years' time. Garrett S. Nelson - BB&T Capital Markets, Research Division: I have a follow-on question about the CapEx budget. How much of that is committed, of the 2013?

The question may need some clarification, but Ron Millos, do you want to go through what we have in our quarterly?

Yes, just -- was that a question related to all the CapEx or specific projects? Garrett S. Nelson - BB&T Capital Markets, Research Division: Just collectively. I mean, looking at, I guess, Slide 23, how much of that CapEx number is committed and how much would you potentially be willing to delay?

Yes, I guess I'll have to go back to that nitty gritty detail behind there. But most of the sustaining -- the only project [indiscernible] that are committed, and I'd have to follow-up with the detail, would be those that are in progress at this stage. But anything that hasn't started or is in the latter part of the year, we're intending to move those projects forward. But the formal paperwork and detailed engineering and detailed cost estimates would probably be vetted [ph] before formal approval to go ahead would happen. But the Quintette, the major project, the bulk of the Quintette and the QB Phase 2 is moving forward. That has been committed. And the Fort Hills money, what we expect to spend to the sanctioning decision, that is pretty much committed. Garrett S. Nelson - BB&T Capital Markets, Research Division: Okay. One final question. Your cash balances declined by about $400 million since year-end. Is that primarily a function of additional stock buybacks or something else?

No. The dividend payment in January and we also -- in January, we make the quarterly payment to NANA. And then we've got the normal capital spending as well. And of course, in addition Q1, usually the sales out of Red Dog are not as high as they are in Q4 just because of the timing of the shifting season.

I'll just point out on the CapEx question, Page 29 of the quarterly report gives all the details right there.

The following question is from Oscar Cabrera of Bank of America Merrill Lynch.

Don, I was just wondering if you can just answer Ralph Profiti's question with regards to cash costs for copper. I think he was looking for a comparison between 2012 and '13. He got interrupted there.

So the 2012 costs versus what we expect in 2013?

That's right.

Okay. Roger, over to you.

Yes. So I'm just checking. I want to make sure I get the numbers correct here, Oscar. We came in at about $1.70 all up, if I've got the number correct, for 2012. And that is of course, a wide spread between -- particularly between those operations that have very significant byproduct credits, starting from Antamina and to other extent at Carmen de Andacollo and Duck Pond, for example, and some moly [ph] at Highland [ph] Valley. So the costs have a wide spread and the average is perhaps a little bit meaningless in that sense. We will have a wide spread again because we still have those same effects during 2013, but we're expecting that cost will come down and we sort of look at the industry cost curve where we see the midpoint at around about $1.50, $1.55 and our clear target is just to bring the year in, into the second quartile, just below the halfway point rather than just above it in the third quarter.

So just -- if we were to take away the byproducts, how do you see your gross costs or before byproducts year-over-year? Should we assume that you're going to try to reduce these or are they going to -- cost pressure from labor and other things too much?

Well, of course, we do have those things. But I think the cost of our byproducts is also a little bit meaningless in the sense that some of our operations are built and operated on the basis that they do have significant byproduct credits. And so it is nonetheless legitimate to keep them in. But we are focusing on total costs. Total costs at the operations are going to come down. We're focusing, as we've said, particularly on total costs at Quebrada Blanca. We need to bring those down because the production is coming down, and they are starting to come down now. Initial results before January, which we still have to confirm of course, are showing that the effects of the steps we took in November, December are starting to have an impact and we'll be able to talk to you about that fully at the next quarterly call. Likewise, we are in a cost-conscious mode obviously, with some volatility in the market. And so we're looking to bring total costs down, but we don't generally even have the number of what a total cost per pound is because we really do believe the byproduct credits are a legitimate part of that calculation.

Okay. What have you -- on Quebrada Blanca 2, there's a statement in the press release where you talk about potentially financing or bringing in a financing partner. Can you provide more color around that, please?

Don, I think probably best answered in Vancouver.

Yes, I'll take that. The QB has 2 partners, ENAMI is at the 10% carry and just the [ph] state agency of the Chilean government and IMSA's a private company. And there have been discussions with the other owners as to whether they will participate in QB2, the project going forward. That has resulted in them, I guess, examining their options as to whether they go forward or whether they sell their interest. So at this stage, it's still in process and we'll have to see what the result is. But it's quite possible that we could end up with a new partner or partners, depending upon the result. And so when we refer to it as a financial [ph] partner, that's really what we're thinking about, the changeover of ownership. We haven't really thought about Teck taking on a financing partner because we think we can certainly manage our 76% from our current strong balance sheet.

Just shifting gears to coal, if I may. On the CapEx that you put down for selenium or for water treatment, is that included in your estimates for 2013? How should we spread out the $600 million over the next 5 years?

Thanks, Oscar. Ian here. It is included in the capital for 2013. And it will be spread out reasonably evenly over that time, as it does involve the construction of 4 plants at 4 different mines, and they'll be constructed sequentially. So that will be spread out.

Now that's very helpful. And then lastly, on -- and then in the release, when you quote your mine costs for your coal operations between $71 and $77, there's a statement here that says this is before the effects of new accounting for overburden and removal cost. So I'm assuming that you've been capitalizing, stripping or removal of overburden. How can we expect -- I mean, are you going to continue to report these like in this manner or should we expect to see increases in this cost and I don't know if you can give us an idea of what that removal cost per tonne would be like and what are you looking for in 2013.

Okay. I might hand that over to Ron Millos.

John Gingell, our controller is here. He'll...

Oh, John is here. Okay.

Yes, the effect of the new overburden removal product cost standard will reduce our operating costs and increase our capital costs over the next -- well, from now on. That number will be quite substantial, but we do not have a figure yet to release to the public.

And we will be restating the comparative figures, so that on a go-forward basis, you'll have an apples-to-apples comparison as well.

The following question is from Alec Kodatsky of CIBC World Markets.

I just wanted to follow-up on the selenium CapEx number. Not to beat it to death, but just in terms of the shift in the number, it looks like there may be a few things going on. Has there been a change in the scope of your plans, either in terms of the number of plants that you're building or the volume of water that you need to treat? And is there another element as far as industry inflation as well that we sort of explain the increase?

Basically, the increase comes from 2 main things: one is the increase in the number of plants and the size of a couple of the plants, different volumes of water being treated and I guess the other one really, is the fact that this has come from the development of a valley-wide management plan. So that we're looking at the whole Elk Valley and have modeled the water flows, the selenium contents and the water treatment required to reach satisfactory levels of selenium throughout the watershed. So that's basically resulted in these numbers.

Okay. And what prompted the shift for a valley-wide plan rather than a sort of a site-specific plan?

I guess the realization that it was an issue which, in fact, was occurring at all of the mines initially. I guess it focused on a particular mine permit that we were looking to extend the life of the Line Creek mine. But as we, I guess, broadened the studies that, that led us to do, it took us to a valley-wide perspective.

The following question is from Carly Mattson of Goldman Sachs.

I wanted to follow-up on the comments made earlier regarding potential acquisition opportunities. And understanding that this isn't the Stay the Course strategy, if the right acquisition opportunity did present itself, how should we think about what Teck would view as peak leverage that the company would be comfortable operating with?

Ron Millos, do you want to talk about our philosophy there?

Sure. We want to maintain the debt at the level that allows us to maintain our mid-BBB investment-grade credit rating, and that would be about a 30% debt-to-debt plus equity ratio, debt-to-EBITDA of 2.5x or better in interest coverage or EBITDA-to-interest coverage of 6x or better. And we're within those guidelines right now. We would consider moving beyond those a bit if we felt that we could get back down within those targets in a relatively quick period of time. And of course, if we were going to do something, we generally go to the rating agencies ahead of time with what our plans are, how we intend to finance and ask for an indicative rating and, depending on the results that we get back, we move forward or change things or decide not to do things. That would be the approach we would take.

And a bit, does that mean fall to -- that you'd be willing to take a notch on the rating, to stay within investment-grade? Or could that also include falling below investment grade?

No.

Well, go ahead, Don.

You heard me. Just to be clear, that was a no.

The following question is from John Hughes of Desjardins Securities.

Just a couple of quick ones, left anyway. Coal inventory situation, with what's happened at Westshore over the last little while, could you sort of quantify or try to give us an idea on what kind of inventory you're sitting with on the coal front that maybe we can augment some of your production numbers for this year in terms of getting to our sales numbers?

Yes, we're sitting with reasonably healthy inventories both at the mines and at the port. The -- that was basically, the situation late last year when we -- around August, we looked at the situation and said that it really wouldn't -- the best thing to do to keep producing at 100% rate when the inventories were at good levels. So that basically we've -- we reduced somewhat from that point and maintaining that rate to basically keep in balance. But having sufficient inventories to be able to respond readily to any uptick in the market.

So for running, can we use 1.5 million tonnes inventory or that kind of 1 million to 2 million tonnes, 1.5 million to 2.5 million tonnes, that kind of range?

You could.

Okay. And the again on the -- sticking with the coal, it was noted that you had a record material moved in the quarter. And I'm just wondering if you could quantify that for us on either a tonnage or a BCM basis.

Yes, we're moving fairly steady volumes now of around 75 million to 77 million BCMs per quarter. And that's the sort of rate we need to move to achieve the capacities that we've been talking about.

The following question is from Greg Barnes of TD Securities.

The selenium management plan, it doesn't appear that it's been approved by the regulatory authorities from what you said in the press release. When do you expect it to be approved?

We're talking to the regulators now. We've basically been talking with them for quite a while and developing frameworks that would satisfy the regulators as we go. So we'd be expecting that somewhere in the next 3 to 6 months we'd be able to reach agreement on the water quality required by the regulator that would allow us to move on the first permit extension -- or mine life extension, which is for Line Creek.

Okay. And the 300-odd million, I guess the $345 million in sustaining capital for the coal operations this year, 2013, is that the sort of level we should be looking at going forward, including the selenium management plan?

Yes, more or less. We going to have -- we're going to have higher levels in the next few years while we put in the plants that are required and then they're going to, obviously, last 30 or 40 years. So that bump will mitigate once those plants are in place.

So $400 million for the next 5 years, and then down to $300 million is what we should be looking at? Sustaining?

I think that it's -- those sorts of numbers are a little bit more exact than we'd probably be able to really say at this point. But it's obviously, a one-off borrowing [ph] cost that we're going to have to undergo while we install those plants. And then, as I said, they'll be long-lasting plants.

Sure. Just on the coal operating costs in Q4, they dropped, as Don said, $10 a tonne. But going forward, it doesn't seem like you can sustain that $62 per tonne mine site cost. I'm wondering what happened in Q4 and why is it bumping back up again, going forward.

Q4 is often the lowest quarter of the year because we generally do our plant maintenance shutdowns in the second and third quarters. So that pattern actually occurred the year before. It was perhaps emphasized this year because we really realize that with the revenues and prices coming down as they were and the reduced production, that we would have to just really minimize costs for that period. So we'd certainly be hoping that we can maintain the efficiencies that we generated in that period. But realistically, some of that was cost deferral of maintenance and things like that, that eventually, you do have to catch up with.

Just one more, switching to copper. Don, I guess, Relincho, you said you could have the feasibility study done by the end of this year. Does that mean you've got a port and power plan in place for that project?

I'll let Tim Watson answer that. Have we lost Tim? Or Tim, you're still on mute.

Yes. How's that?

Good, much better.

Sorry, Greg. I apologize. I'm just fumbling with the phone here. With respect to -- I'll deal with the 2 issues separately. From a port perspective, we kicked off a fairly detailed study, back late November, analyzing about 350 kilometers of the coast, both up and down, from, I guess the port of Wasco [ph] in terms of potential opportunities for port site development. That has been narrowed down to realistically a half dozen options. And we expect to complete that study towards the end of February. I believe, what we will then have is a plan going forward from a port perspective. The power is slightly different in so much as there are power opportunities available to us, and we continue to analyze different options, whether it be similar to what we've done with QB, where we go, in terms of potential long-term power purchase agreements with somebody that has a permanent plant. But we're also looking at other options. You may or may not have heard that the government does want the interconnection of the northern and the southern grids to go ahead. And that would actually be completed in the timeframe well ahead of when we require the power for Relincho. Plus there's other people looking at expanding the import of natural gas into Chile. So we're looking at all those options and just seeing what is the best fit. But certainly, by the time we -- for us to complete the feasibility study, we really need to have good options developed for both port and power by, say, the middle of the year.

And does this mean that potentially you're going to have to build the port for Relincho and that would have to come into the CapEx number?

That would certainly be one possibility. But at the same time, we've also been speaking with port -- I guess, port operators. And it does appear that there are, again, a number of alternatives out there for us to maintaining the same approach, even if we had to, say possibly go the route of getting the port site permitted, but then have somebody else come in and do the actual development work. So again, we're looking at various alternatives there as well.

The following question is from Terence Ortslan of TSO & Associates.

Two questions, actually. Since the Analyst Meeting, I'm just wondering if the 2012 number for zinc, for China, changed in terms of zinc mines coming in and the zinc metal production and consumption. And also the output for 2013 for China that you, on a best guess basis, would anticipate that some of the economic numbers have changed [indiscernible] imports in the zinc markets. And I have another question for you, Don.

Andrew, do you want to take that one?

Thanks, Don. There's a lot of dispute about the trade stocks [ph] and the domestic mine production in China. And I think the official numbers were in excess of 20% for domestic mine production. But there's a lot of skepticism on those numbers due to the double accounting that may have occurred. And so the domestic mine production have gone up, but I think the numbers are -- have been inflated and that there will be a revision downwards. The domestic and the imports for zinc concentrates have been down into China. But the demand for zinc concentrates is still relatively strong. The imports were approximately 1 million tonnes, at the time of this, in 2012. So still very strong demand. And the smelters are running at the low utilization rate. So there's still a lot of capacity for production of metal in China, underutilized capacity. And so the -- while material demand is there, domestic market production is up. It's not as up as much as the official stats would indicate.

And your expectation for 2013, Andrew?

2013, the growth rates demand for zinc in China specifically is strong. The galvanizing production numbers that we're seeing are up above 5% or 6%. So the galvanizing demand is still strong in that region. That will continue to improve demand for zinc metal and it's reflected by zinc metal imports as well. Zinc metal imports into China have been very strong. And a combination of the -- for consumption for galvanized production is driving imports of zinc metal into China as well.

Don, just a question with respect to the write-offs in the industry, CEO changes and expected changes. How do you -- I think this is probably an interesting time for the majors to look into the possible asset reshuffling by the majors. As the new CEOs come in, they'll probably orient the company in terms of direction, geopolitics and also size of the assets. I guess we have 2 ways you can do this. One, do nothing. And two, be very proactive and express your interest, which assets you're interested in. And three is, which ones you can participate in as some of these assets will probably be too big for the -- these companies. And as well, you can do another uncommitted [indiscernible] or an arrangement, or from Escondidos, QBs or whatever. What are your thoughts on this?

Okay. Well, this issue has got fairly high-profile. When you see on the front page of the Wall Street Journal that 20 mining CEOs have lost their jobs in the last little while, it definitely makes you take a good, hard look at what's going on. I guess there's been $50 billion in write-downs in the industry. But I'm pleased to say that none of that was at Teck. Our assets have been closely reviewed by the auditors and we have no write-offs. And we actually feel we're quite strongly positioned with some good quality assets in good geopolitical jurisdictions. And if we could get the permits, we'd get on and build them. And that's what we'd like to do. I think you're quite right though that with change in leadership at some of the large companies, the major ones in the industry, that there will be some reviews of their portfolios and some assets may shake out. And in fact, I already referred to that in my earlier comment, that we are already aware of some things that will now be either for sale or where they're looking for partners that otherwise might not have occurred. So we will be watching that closely. So that, combined with delays in permitting in Chile and that sort of stuff, means that we're probably looking more closely at acquisition opportunities. But in the end, it's pretty tough to do these things and the odds are not that high. And it's kind of an odd time in the industry right now because you can't build anything because you can't get permits or the market's worried about cost overruns, and you can't buy anything because the market's worried about overpaying. If you're in the mining industry, where your assets year-after-year deplete, that's not really a good formula. So I think companies have to do something but it certainly is a very awkward time in the industry from that point of view.

Well I can't see too many companies being aggressively pursuing, participating or acquiring. I think most of them are in the other way around. But Teck is positioned, with your balance sheet, and your cash position and what do you bring to the table. You haven't that much competition the way I see it.

Well, I guess, we'll have to be contrarian.

The following question is from John Tumazos of John Tumazos Very Independent Research.

I was looking at the map of your coal operations. And could you explain the distance from the Fording River mine, north most, to the Coal Mountain mine, that's south most of the 5 mines, sort of in a north-south line? And the size of the envelope around Cardinal River or Quintette, if they were to be part of the water management operations too?

Okay. So John, the -- from Fording down to Coal Mountain is probably about 80 kilometers.

8-0?

? 8-0. And that encompasses our 5 mines plus the -- some gaps between them. And they are all part of, we call it, the Elk Valley watershed. Cardinal River is a quite separate operation up in Alberta, which has about a 30-kilometer span. But the mining operations are over a much smaller distance, perhaps 10 kilometers. And Quintette is quite focused, quite concentrated over a smaller distance. So our selenium management efforts are focused in the Elk Valley, and we, at this point, with Quintette, in our permit application, we've included selenium management measures. And for Cardinal River, we have been managing selenium for quite a while. So each case is individual and we'll be managed -- managing them as they require.

How many valley envelopes, if you will, would the water management districts entail? In other words, you said there were gaps. A whole 80-kilometer tract is not affected by mining. It's just little pockets here and there where you have a pit or a dump.

Yes. But well, there'd be a significant number of streams, perhaps 20 streams, something like that, tributaries of the Elk River.

Are there public documents filed yet that provide detail? Such as environmental applications and things?

Yes, there's a public application for the Line Creek environmental assessment. It's a public document.

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

Okay. Well, thank you very much, Alice [ph] . It is sort of the meeting at which we review the last year, 2012. And I just want to close by summarizing a few aspects. It was our best year in safety ever, and that's a value in the company that's extremely important to us. We've got international recognition for our sustainability practices from both the Global 100 and the Dow Jones Sustainability Index, where we were in the world index. We met all of our guidance on production despite some challenges with the CP rail strike and the Westshore incident, so -- and had record copper production for the year. So that was all very important. And our balance sheet is extremely strong, we've termed out the debt past the year 2040 and -- for a bunch of it. And we only we have $323 million of debt coming due between now and the beginning of 2017. So the company is in very strong condition and it was a very solid year in 2012. The outlook still depends on the global economy and we've seen some very encouraging signs on the China front, though the rest of the world is still somewhat weak and we'll look for greater recovery there. But generally, Teck is very strongly positioned and we thank you all for attending this morning.

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

Thank you very much, Ally.