Teck Resources Limited (TECK) Q4 2015 Earnings Report, Transcript and Summary

Gregory A. Waller - VP-Investor Relations & Strategic Analysis Donald R. Lindsay - President, Chief Executive Officer & Director Ronald A. Millos - Chief Financial Officer & Senior VP-Finance Scott R. Wilson - Treasurer & Vice President Ian C. Kilgour - Chief Operating Officer & Executive Vice President Raymond A. Reipas - Senior Vice President-Energy Andrew A. Stonkus - Senior Vice President, Marketing and Sales Marcia M. Smith - Senior VP-Sustainability & External Affairs

Ralph Profiti - Credit Suisse Securities (Canada), Inc Wilfredo Ortiz - Deutsche Bank Securities, Inc. Brian Hsien Yu - Citigroup Global Markets, Inc. (Broker) Orest Wowkodaw - Scotia Capital, Inc. (Broker) Justine Fisher - Goldman Sachs & Co. Greg Barnes - TD Securities, Inc. Oscar Cabrera - Bank of America Merrill Lynch Michael F. Gambardella - JPMorgan Securities LLC Lucas N. Pipes - FBR Capital Markets & Co. Alex Terentiew - Raymond James Ltd. (Broker) Richard C. Yu - Citigroup Global Markets, Inc. (Broker)

Ladies and gentlemen, thank you for standing by. Welcome to Teck Resources' Q4 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. This conference call is being recorded on Thursday, February 11, 2016. I would now like to turn the conference call over to Greg Waller, Vice President, Investor Relations & Strategic Analysis. Please go ahead. Gregory A. Waller - VP-Investor Relations & Strategic Analysis: Thanks so much, operator. And good morning, everyone, and thanks for joining us this morning for Teck's fourth quarter and full year 2015 results conference call. Before we start, I'd like to draw your attention to the forward-looking information on slide two. This presentation does contain forward-looking statements regarding our business. However, risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statement. And I'd also like to remind you when we go to the Q&A session that we do have a number of members of our management team dialing in. So we may pause or we would sort out who will be taking your question. And at this point, I'd like to turn the call over to Don Lindsay, our President and CEO. Donald R. Lindsay - President, Chief Executive Officer & Director: Thanks, Greg. And good morning, everyone. I'm going to start with an overview of our annual results followed by our fourth quarter results and then Ron Millos, our CFO, will provide additional color from a financial perspective. And as usual, we'll conclude with a Q&A session, where Ron and myself and additional members of our senior team would be happy to answer any questions. So, the commodity cycle continues to provide a very challenging environment. Prices have declined further to levels that in some cases are well below what we saw during the global financial crisis in 2008 and 2009. Now, of course, this is a cyclical business and down cycles are expected, but this cycle is exceptional in terms of both length and depth. We cannot control prices, but we do have a plan to navigate an extended low price environment and emerge even stronger, ready to take advantage of the next up cycle. First, we're focused on our operational execution. I think we continue to deliver on that. In 2015, we met or we beat our guidance for full year production for costs and for capital expenditures. We've achieved significant sustainable operating cost reductions through our CRP, the cost reduction program, and our results have been helped by lower oil prices. At the mine level, we've reduced our cash unit costs at all operations year-over-year and, importantly, all of our major operating mines are cash flow positive after sustaining CapEx in Q4 in 2015, although Quebrada Blanca was nearing the end of its life and it was not cash positive due to declining grades, and Pend Oreille was ramping up production through 2015 following a restart but had a very good start to the year this year. At the same time, construction on the Fort Hills project continues to progress well. It has now passed the halfway point and the project is hitting all its major milestones and commissioning is due to begin in the middle of next year, just 17 months away. So we're very, very pleased with how that's going. Overall, we are in a solid financial position to weather an extended low price environment and we're focused on protecting that position. We exceeded our guidance for year in cash balance at C$1.9 billion. And as of yesterday, we have around C$1.8 billion in cash, which exceeds the approximately C$1.2 billion that's remaining on our share of the Fort Hills project. Our liquidity remains very strong at over C$6 billion between our current cash balance and the undrawn US$3 billion committed line of credit. We are also evaluating other opportunities to further enhance our liquidity and we have a number of options, we're aware of them, and we're carefully evaluating each of them to put ourselves in a position to act in the events that we feel we need to. The two precious metal streaming transactions that we executed in the last half of 2015 generated around C$1 billion in cash and these are good examples of assets on our books with unrecognized value and we have potential to do more on that front to navigate an extended period of low prices. Finally, we are not compromising on our core values of safety and sustainability. We were recently honored to be recognized once again for sustainability by being included in the Global 100 Most Sustainable Corporations List for the fourth consecutive year, which was announced at the World Economic Forum in Switzerland. We were the top rank company in the metals and mining category and the second rank Canadian company on this year's Global 100 List. So, looking at the overview of full year results on slide four, revenue was down 4% to C$8.3 billion, primarily due to lower prices for steelmaking coal and copper. However, revenue and gross profit before depreciation and amortization in our zinc business unit were both slightly higher than last year despite an 11% decline in the price of zinc. Overall, gross profit before depreciation and amortization was down 8% to C$2.6 billion. Bottom line loss attributable to shareholders was C$2.5 billion for the full year, and this reflects non-cash asset impairment charges totaling C$2.7 billion after-tax, which were driven by changing market expectations for commodity prices in the future. The majority of charges, C$2.2 billion, had been taken earlier in the third quarter. This quarter we've also recorded an additional C$536 million in impairments relating to Fort Hills, Carmen de Andacollo, and our decision to not continue mining at Coal Mountain post to 2017. After removing impairment charges and other unusual items, adjusted profit attributable to shareholders was C$188 million or C$0.33 per share. Turning to slide five, we reported our achievements against our original 2015 guidance. And as I mentioned earlier, we had solid delivery against guidance and we also set a number of significant operating records. In steelmaking coal, you may recall that we implemented temporary shutdowns in our production in the third quarter and lowered our production guidance as a result. Our continued focus on cost reduction contributed to us coming in below site cost guidance at C$45 per tonne and we also came in below the coal transportation cost guidance range at C$36 per tonne. Overall, including inventory adjustments, combined coal costs were C$83 per tonne or around US$64. In copper, we came in near the top end of our production guidance at 358,000 tonnes. Antamina set a new record for annual mill throughput. We also came in below our cash unit guidance range at US$1.50 per pound even with the much weaker by-product credits than we expected. In zinc, we met guidance for concentrate production and we exceeded guidance for refined production at Trail, which set new records for annual production of both refined zinc as well as for silver. And we also lowered our capital expenditures relative to guidance. So, overall, we believe it was a solid operational result. Slide six shows the significant unit cost reductions that we've achieved in 2015. Unit costs were reduced at all of our operations compared with the prior year. On a U.S. dollar basis, our steelmaking coal unit cost of sales, which includes site costs, inventory adjustments and transportation costs, were down by US$20 per tonne on a U.S. dollar basis. And that's what we report according to IFRS, but we view capitalized stripping as an extension of operating costs despite the requirement to capitalize it. Including capitalized stripping, our total cash costs were down by US$23 per tonne. In copper, we reduced our C1 unit costs, net of by-product margins, by $0.20 per pound. But if you included capitalized stripping, total cash costs were down by $0.27 per pound. I'd like to encourage the rest of the industry to be as transparent on these costs as well as this has become an important part of cash costs that we believe many investors are missing when they look at the industry cost structure. These reductions reflect the impact of our cost reduction program as well as the weaker Canadian dollar and lower oil prices. Turning to our free cash flow on slide seven. This shows free cash flow for our core business before our investment in Fort Hills each quarter over the past two years. I'd like you to think about the company as having two distinct cash flow profiles. Part of the company is a fully funded development project, Fort Hills, which is using the cash on our balance sheet. As I mentioned earlier, our current cash balance more than covers our remaining investment in the project. Our core business, excluding Fort Hills, have been delivering improved free cash flow through the first half of last year despite being in a constantly weakening price environment, and that shows the success of our cost management program. Subsequently, prices took another significant turndown in Q3, resulting in us being free cash flow negative in that quarter, and we responded. We responded in November with an announcement of further operating and capital cost management for 2016 and apparently saw some of the impact for that in Q4. Canadian dollar continued to weaken in Q4 as well, which offset some of the commodity price weakness. So that is our challenge for the coming year at these price levels to maintain the core business at least free cash flow neutral or positive at these metal prices while we complete the funding of Fort Hills. So, again, on one hand, a fully funded development project and, on the other hand, a current business well positioned to weather the current cycle. Looking at slide eight and the value of our diversified business model. The diversity in our operations allows Teck to mitigate downturns in one part of the business with stronger performance in other areas. Our commodity mix shifts with changes in relative commodity prices. The portion of cash operating profit from steelmaking coal has been declining. It was down to under one-third in 2015 and around 70% came from base metals, split equally between copper and zinc. I would also like to highlight our estimated sensitivities to changes in commodity prices and exchanges rates in 2016. The Canadian to U.S. dollar exchange rate has continued to move significantly in our favor. Our estimated sensitivity now to every $0.01 change in the Canadian dollar versus the U.S. dollar is around C$34 million of EBITDA, which provides significant mitigation to the current lower metal prices. Now this is lower than what we guided last year due to the sensitivity being calculated now on lower commodity prices. In steelmaking coal, our estimated EBITDA sensitivity for each US$1 per tonne change in the coal price is C$35 million. In copper and zinc, our estimated sensitivity for each one US$0.01 per pound change in the metal price is C$9 million and C$14 million respectively. Looking at an overview of Q4 results on slide nine, revenue declined 5%, C$2.1 billion primarily due to lower prices for all of our principal products. Overall, gross profit before depreciation and amortization was C$614 million and bottom line loss attributable to the shareholders was C$459 million. After removing the C$536 million in impairment charges and other unusual items adjusted profit attributable to shareholders was C$16 million or $0.03 per share. I'll now review our quarterly results by business units starting with steelmaking coal on slide 10. Coal sales were in line with the target we gave last quarter at 6.5 million tonnes. However, ongoing oversupplied market conditions continue to impact coal prices and on a Canadian dollar basis, our average realized price was down C$15 dollar per tonne to C$108. Revenue was down 15% to C$701 million. Our cost reduction efforts are continuing to produce significant results in coal, in Canadian dollar terms we lowered site costs by C$7 per tonne and transportation costs are down C$4 a tonne. On a combined basis including inventory adjustments, unit cost to sales is down C$13 to C$78 per tonne. Gross profit before depreciation and amortization declined by C$37 million to C$197 million. Looking forward, coal prices for the first quarter of 2015 have been agreed with the majority of our customers based on US$81 per tonne for the highest quality products. We expect sales of approximately 5.5 million tonne in Q1. Turning to our base metals businesses starting with copper on slide 11 compared with Q4 last year, revenue was down due to lower realized prices even though sales volumes were up. Production was 13,000 tonnes higher than in Q4 2014 with higher grades and recoveries at Highland Valley and record mill throughput in higher grades in Antamina. Now this is partially offset by lower production at QB due to ore availability issues following the ground movement incident near the SX-EW plant in June. Our cost reduction efforts have also produced significant results in copper, C1 unit costs net of by-product credits were down US$0.32 to a US$1.37. Overall, gross profit before depreciation and amortization declined by C$71 million to C$203 million. Looking at our zinc business unit on slide 12, and as always please note that Antamina zinc related results are reported in our copper business unit as zinc is considered to be a by-product. So zinc revenues were up 5% in the quarter on higher zinc and lead concentrate sales despite the lower prices. Refined zinc sales were also higher reflecting the good operating performance at Trail. Mill output at Red Dog was 15% lower than in Q4 2014 primarily due to an extended annual mill maintenance shutdown. Pend Oreille reached 88% of design capacity of 2,000 per tonnes per day and is expected to produce 40,000 tonnes of zinc in 2016. Trails production of refined metal met our quarterly production record and was 8% higher than the prior years' quarter. Overall, gross profit before depreciation and amortization was down 14% to $213 million due to the lower average zinc price. Turning to an update on Fort Hills on slide 13, we're now halfway through construction and the project remains on schedule and on budget. Favorable weather has allowed for additional site work to be accomplished in Q4, which is a bit ahead of expectation. Currently, our share of the remaining CapEx is $1.2 billion. We look forward to the completion of the project in the second half of 2017 and the additional earnings and cash flow that we expect it to generate. And with that, I'll turn it over to Ron Millos. Ronald A. Millos - Chief Financial Officer & Senior VP-Finance: Thanks, Don. Our fourth quarter pricing adjustments are summarized on slide 14. Lower prices resulted in C$63 million of negative pricing adjustments in the fourth quarter. Copper was down C$0.17 per pound from the end of Q3, 2015 and zinc was down C$0.03 per pound and these adjustments are included in our income statement under other operating income and expense. The chart on the right represents a simplified relationship between the change in copper and zinc prices and the reported settlement adjustments and usually provides a good estimate of our pricing adjustments each quarter. Fourth quarter settlement adjustments were well within the normal range. And as a reminder, refining and treatment charges and the Canadian/U.S. dollar exchange rate should be considered in your analysis of the impact of price changes and you should also consider taxes and royalties when analyzing the impact on our profits. Looking at a summary of our 2016 guidance on slide 15, in steelmaking coal our production guidance is 25 million tonnes to 26 million tonnes, which is flat to 2015 levels. Production in the first half of the year is expected to be slightly lower than in the second half due to the timing of plant maintenance work. Our site cost guidance is between C$45 and C$49 dollars per tonne and it is important to look at expense site cost in combination with the capitalized stripping cost. There is normal variability in strip ratios, has an impact on how they are split. Overall, we expect to reduce total mining cost in 2016 but with a higher proportion related to current production and less to capitalized stripping. And our capitalized stripping guidance for coal works out to around C$11 per tonne down C$5 per tonne from 2015. Our transportation cost guidance is between C$35 and C$37 per tonne and on a combined basis including capitalized stripping that's total cash cost of between C$91 and C$97 per tonne, which is equivalent to US$65 to US$69 per tonne using exchange rate of $1.40. That represents a further reduction from the US$76 per tonne that we incurred in 2015. In copper, our production guidance is for 305,000 to 320,000 tonnes. Lower production is expected in the second half of the year due mainly to lower grades at Highland Valley, and we expect our consolidated C1 unit costs net of by-products to be between US$150 and US$160 per pound. In zinc, our production guidance for zinc and concentrate is 630,000 to 665,000 tonnes and that includes production from Red Dog, Pend Oreille and our share of production from Antamina. Our guidance for refined zinc production at Trail is 290,000 to 300,000 tonnes. And please note, at the mine level, we have also provided commentary on expected production levels for the next three years being 2017 to 2019 in our news release for the first time. Looking at the details of our planned capital spending for 2016 is shown on slide 16. Excluding capitalized stripping, our guidance for capital expenditures is C$1.44 billion, which is about C$140 million less than 2015. The only major new mine development project being funded is Fort Hills where we expect our share of spending to be about C$950 million. We then look forward to completing the project in 2017. We expect to further decrease sustaining capital spending to C$305 million and major enhancements to C$55 million. As an extension of our operating cost, capitalized stripping cost will be reduced this year as well by C$120 million down to C$540 million. Total CapEx including capitalized stripping is expected to be almost C$2 billion, which is a C$260 million decline from 2015, and incorporates significant cuts from what we had previously expected to spend this year. As always, the amount and timing of our actual capital expenditures is dependent on numerous factors including our ability to secure permits, equipment, labor and supplies and to do so at cost levels expected and, of course, we may change our plans depending on commodity markets, results of feasibilities or various other factors. Turning to our debt profile on slide 17 with the repayment of the US$300 million note that was due in October of 2015, we have no debt due until 2017. And further out, our average maturities are a little bit less than C$600 million per year. We are well below our 50% debt plus equity covenant. That's 37% as of December 31, and our net debt to net debt plus equity ratio was 32% at the end of 2015. On slide 18, I've summarized changes in cash for the quarter. We received C$830 million in proceeds from the sale of investments and other assets, most of which was from the Antamina silver stream agreement with Franco-Nevada. Cash flow from operations and working capital was C$687 million. In addition, our cash increased by C$79 million in Canadian dollar equivalent due to the strengthening of the U.S. dollars. On the outflow side, we spent C$532 million on capital projects, including about C$300 million on Fort Hill. We also paid C$446 million in interest and principal on our debt, including a C$300 million note maturing in October. Capitalized stripping costs were C$176 million and we paid C$29 million in dividend. After these items, expenditures on financial investments and other assets and distribution to our non-controlling interest, we ended the quarter with cash and short term investments of about C$1.9 billion. Moving on to the next slide, you may recall that we provided guidance last year for an expected cash balance at the end of 2015 in excess of C$1 billion. So we thought it would be helpful to explain why we ended the year with nearly C$1.9 billion. Starting off, we faced the headwinds from the lower commodity prices offset by the favorable U.S. dollar exchange rate relative to our forecast at the start of the year and that amounted to about C$259 million using our sensitivity guidance. We also repaid the C$300 million in notes from October. You'll recall that we provided guidance assuming no net change in debt, so we decided to pay that off with cash balance to save the interest expense. These items were more than offset by management actions to conserve cash. Our cost management program contributed a little over C$200 million and we cut our capital spending by C$100 million. Reductions in the dividend conserved another C$144 million and we sold some assets that generated C$1.1 billion in cash, mainly from the two precious metal streaming transactions. And based on current commodity prices and exchange rates, we expect to end 2016 with a cash balance of at least C$500 million. That assumes we meet our 2016 guidance for production cost and capital spending and it also assumes we maintain our existing U.S. debt levels and have no unusual transactions during the year. On Slide 20, we provided an update on our credit facilities and letters of credit. We maintain two primary revolving credit facilities which are available for general corporate purposes. Our US$3 billion facility that matures in July 2020 remains undrawn and our US$1.2 billion facility that matures in June 2017 has US$ 740 million of letters of credit drawn against it. We expect to keep the balance of that facility available for any additional letter of credit requirements that may come to us. We also continue to maintain a number of uncommitted bilateral credit facilities that total around C$1.7 billion for the issuance of letters of credit primarily for future reclamation obligations. And please note that the issued letters of credit do not constitute debt for the purposes of the debt, debt plus equity covenants in our bank credit ratings, and are not required if and when we regain investment grade credit ratings. So, overall, we have ample liquidity for the remaining Fort Hills CapEx of approximately C$1.2 billion and with that I will turn the call back to Don. Donald R. Lindsay - President, Chief Executive Officer & Director: Okay. Thanks, Ron. So, in summary on Slide 21, our near-term priorities are; first, keeping all of our operations cash flow positive. Second, funding Fort Hills from internal sources. Third, maintaining a strong financial position, including our 2016 targets for our US$3 billion credit facility to remain undrawn and a year-end cash balance of approximately C$500 million or more and then we're looking at evaluating other options to further strengthen liquidity. So with that, we'd be happy to answer your questions. And I want to say once again that please note that some of our management team members are on the line in different locations. So, there may be a brief pause after you ask your question while we sort that out. Okay. Over to you operator? Thank you.

Thank you. The first question is from Ralph Profiti from Credit Suisse. Please go ahead. Ralph Profiti - Credit Suisse Securities (Canada), Inc: Good morning and thank you. Don and Ron, you touched on this briefly, but does the MD&A disclosure describe most or all of the risks to greater requirements for letters of credit in 2016 and 2017? And if so, where do they come from? Donald R. Lindsay - President, Chief Executive Officer & Director: Ron, I'll let you start. Ronald A. Millos - Chief Financial Officer & Senior VP-Finance: It's certainly – well, we haven't issued all the risks, normally puts in our AIF, Ralph, and that normally gets filed in early March. But certainly we're looking at the disclosure that will be required on that. Ralph Profiti - Credit Suisse Securities (Canada), Inc: Okay, great. Scott R. Wilson - Treasurer & Vice President: Ron, it's Scott. Perhaps I could add that all of the letter of credit requirements that we are aware of are disclosed in the financial liquidity section of the news release. Ralph Profiti - Credit Suisse Securities (Canada), Inc: Okay, got it. Thank you. Just maybe more of a housekeeping question. There is C$40 million in major enhancements in the coal business for 2016, which you described as mine life extension. Can I assume that that excludes investment in water treatment? And if so, can I get an update on what's the remaining CapEx and perhaps a little bit of a help on the timing for that spending? Donald R. Lindsay - President, Chief Executive Officer & Director: All right. Ian? Ian C. Kilgour - Chief Operating Officer & Executive Vice President: Yeah, sure. The major enhancements are essentially sort of pit extensions at the Elkview and Fording River mines. We're preparing new mining areas for operation and that will occur throughout the year. That include things such as electricity access, water management, impairments, top soil stripping that sort of thing. And there is some water treatment in expenditure this year, which is essentially preparation for our second water treatment plant at Fording River. Ralph Profiti - Credit Suisse Securities (Canada), Inc: That's great. Thank you.

Thank you. The following question is from Wilfredo Ortiz from Deutsche Bank. Please go ahead.

Yes, Good morning, gentlemen. Could you please elaborate a little bit on the potential options that you are considering as far as strengthening the liquidity? Are these options including equity issuances, new secured debt, to extend maturities, further asset sales and if any of the above, like in what sort of order would you rank them depending on how things are evolving and your accessibility to each options? Donald R. Lindsay - President, Chief Executive Officer & Director: Okay. So, I just want to say upfront, issuing equity is not an option, that is – our main objective is to go through this severe down cycle without issuing any equities so that on the other side of the cycle we can position ourselves to have excellent share price performance when we will have more production per share, including Fort Hills than we had before. We looked at a number of assets internally, primarily non-resourced assets because we wanted, again, hang on to all of the key resources that we have, which is in contrast to some of our competitors. Infrastructure assets as you know tend to trade at much higher EBITDA multiples than a diversified mining company is ever going to trade. So we see some real potential there with some of the things that we have and we've had quite a few inbound calls increase as to expressing their interest and those kind of things. So we are kind of working through the options on that. We had great success with the streaming deals as you've seen and there is potential to do more of that. Although we're not looking it at the moment because we do have over C$6 billion of liquidity at the moment and our objective is to have the company ex-Fort Hills to be cash neutral. And some of these are kind of complicated transactions, so we're not rushing to do them. In terms of, I think part of your question was secured debt. You will be aware of the options that we have there, the ability to do it and that really depends on how the world unfolds going forward. But it is not something that we want to do. And so if we can get through 2016 as we've described without ever touching the US$3 billion credit line and finishing the year with C$500 million in cash or better with Fort Hills then almost finished, I think we will be through the worst of it and looking forward to the normal results of a down cycle where investment, of course, drives up and production shuts down. Meanwhile global growth kind of continues to mud along on an upward trend and maybe not as high as in some years, but in the long-term eventually demand exceeds supply again and commodity prices rise and the whole show starts again. So we're looking forward to that day.

Great, thank you. And a second one, if I may. As far as, you mentioned in Quebrada Blanca of being cash flow positive as of the fourth quarter. At what point would you consider perhaps shutting it earlier than the end of its mine life or any of the other assets should they become cash flow negative, how long would you wait to shut anything? Donald R. Lindsay - President, Chief Executive Officer & Director: Yeah. We look at those decisions all the time as I am well aware my competitors do and so two or three key points on that. One is, first, the management team under Dale Andres and Ian Kilgour, our Chief Operating Officer, have been really intensely focusing on the QB issue and I think they've had some pretty reasonable success, such that cash cost looks like they're going to be below C$2, so that's sort of a good news story number one. Number two is that we look at QB as the combined entity of QB1 and QB2, and obviously a lot of the – if I call it infrastructure assets are kind of linked to the next project. The workforce of course is very important and so having some continuity there as we finish the permitting process for QB2 is important just in the overall relationships with the regulators in Chile and all the other stakeholders and employees. So, we certainly wouldn't shut it down very lightly, and then there is a cost of shutting down. Of course the cost as you shutdown and there is the care and maintenance value shutdown and then if you want to start up again, there is a cost to that too. So we look at all the factors at the moment we are carrying on and stressing getting the cost down so that it's cash positive, which is one of our key objectives.

Thank you very much.

Thank you. The next question is from Brian Yu from Citigroup. Please go ahead.

Yeah, thanks, good morning. Don, I think you had touched on, the plans are not touched, but you had addressed plans for 2016. I was wondering if you could talk about 2017 with expectation and in 2016 with C$0.5 billion of cash in the presentation slides you go through some of the letters of credits that's maturing and bonds. Is there other things we can look for in 2016 actions you guys might take in anticipation of some of these maturities in 2017 assuming that there is no major recovery in commodity prices? Donald R. Lindsay - President, Chief Executive Officer & Director: Right. So, yes, there are things that you would look for. I think you can assume that we will either execute on one of these options that we've been describing. We're certainly as I said, examining them closely and putting ourselves in a state of readiness to act if commodity prices do not increase, so that when we get to the end of 2016, beginning 2017, I would like to have more than the C$500 million, in fact I'd like to have whatever it takes to finish Fort Hills and finish Fort Hills without ever having drawn on the credit line. In terms of the maturities, in terms of our bonds, the first maturity is in January, US$300 million and then the next one in August of 2017, US$300 million as well. In terms of the other credit line, the C$1.2 billion, you can assume that sometime during the course of the year we would have our normal discussions with the banks. We would usually do that in Q2 and whether we ask them to extend or whatever kind of discussion as we haven't decided yet. But, in the normal course, you have to have your 2016 budget finalized, the three year production forecast established and these are all the information the banks would be looking to ask for when we go to extend. So, we've just finalized most of that now. So we will have those conversations in the normal course. So we keep a very, very close relationship with the banks as you can imagine and we've had positive feedback. So we'll go through that and you'll probably see some sort of announcement during the course of 2016 on that as well.

Okay, great. And then second question is on Fort Hills. From your prior presentation, I think you guys had indicated that high $30s WTI type of price that that project could break-even on a free cash flow basis. With everything that's happened in the market, is that still a right number to think about in terms of free cash flow break-even? Donald R. Lindsay - President, Chief Executive Officer & Director: Yeah. So on this question, I always point out that you have to look at more than just the WTI oil price. You got to look at the differential and of course the exchange rate which is a very, very important variable. I think one thing I'd point to is Suncor, obviously, a mature operator and you can – in public information see what its cost are. And that was with the older original operations and we all think and Suncor is of course the operator that Fort Hills being a newer project and with all the learnings that's gone into design will actually be better than what they're doing. So we think that – it will be cash positive by the time it comes into production, which is really – it's almost two years from now before you get to first oil, December 2017 is the schedule. So that's a lot of time for changes in the oil price to occur. So we'll look forward to that day.

All right. Thank you.

Thank you. The following question is from Orest Wowkodaw from Scotia Bank. Please go ahead.

Hi. Good morning. Just coming back again to the letters of credit, is there anything you can do to reduce that requirement at QB2? I mean that's consuming a lot of that available line. I don't know if there is some kind of provision to buy that out given that you're not going to need the power for a long time at QB2. And just, again, how worried should we be in terms of that maturity date on that US$1.2 billion line of June 2017. Should we just view it as a normal course type of annual renewal because obviously if that doesn't renew, it would consume a fair amount of your US$3 billion line, if required? Donald R. Lindsay - President, Chief Executive Officer & Director: So on the latter question, I would say we're viewing it as normal course and that's the nature of our discussions with the bank so far. On the first question, I will turn that over to either Scott or Ron. Scott R. Wilson - Treasurer & Vice President: So the first question related to our ability to lower the letter of credit requirement at QB2, that's a contractual issue with the power developer there and as long as our credit ratings are below investment grade, we are obligated to provide the letters of credit that have been posted. And just as a reminder, the US$1.2 billion facility, although it was put in place prior to Teck's investment grade credit ratings being reduced, in discussions with the banks et cetera at that time, the stability of investment grade was certainly there. And so this facility is very much acting as it was intended to. And so, the letters of credit on that will likely remain outstanding as long as we are non-investment grade.

And what happens in the event that QB2 never gets built? Scott R. Wilson - Treasurer & Vice President: There would be our obligation on our part and we would look to lay that off in the market.

I see. And just so I understand in terms of your other uses for the letters of credit. Is the only – so the only potential increase that you can see this increase around Fort Hills from C$93 million to C$650 million in the next couple of years? Scott R. Wilson - Treasurer & Vice President: Those are the only letters of credit that we are contractually required to provide and as a clarification on the Fort Hills, that's the maximum amount that we would be required to provide. We had discussions with various counterparties on Fort Hills and some of them require letters of credit and some of them have not. And so, the disclosure that we have indicates the maximum amount that we would have to post, but at this stage, it's looking as though that amount would be somewhat less.

Okay, thank you. And just again if I could return to Fort Hills, maybe ask the question in a different way. Are the partners – how are the partners thinking about starting up Fort Hills if the oil price environment remains where it is today i.e., do you plan to actually start the project if it would be free cash flow negative, in operation? Donald R. Lindsay - President, Chief Executive Officer & Director: Yeah. I may get Ray to comment, but I'd just say upfront, it is a theoretical question and we've all sort of asked it ourselves, but it's such a long time before we get that it's really hard to answer. So far, we've had very good alignment with the partners and people are working well together. I actually had breakfast with Steve Williams and Patrick Pouyanne just a couple of weeks ago and we're very pleased with how the project is going. So, at this point, we would just carry on. Ray, do you have anything that you could add to that?

Yeah. Thanks, Don. I'll just make a couple of points. One is the one we made earlier that we're still two years away from production start and remember production start-up isn't at full capacity, we need to ramp that up over the next 12 months. So we have a full two years to see some price recovery. The other thing I'd point out is that if you take a look at the industry and we are driving cost down across the industry and having good success at that. So we have some time to continue that and Fort Hills being a brand new asset coming up with the latest design, we are very optimistic. We'll see good cost performance out of Fort Hills. And the last point I'd make is the partners are aligned there. We do have common infrastructure that gets us to Hardisty, which is a market hub in Alberta. So we do think the partners will be aligned in their decision on operating Fort Hills.

Thank you very much.

Thank you. The next question is from Justine Fisher from Goldman Sachs. Please go ahead. Justine Fisher - Goldman Sachs & Co.: Good morning. Ronald A. Millos - Chief Financial Officer & Senior VP-Finance: Good morning. Donald R. Lindsay - President, Chief Executive Officer & Director: Hi good morning, Justine. Justine Fisher - Goldman Sachs & Co.: Hi. So, my first question is just on the discussions with the banks. You said that they are going in the normal course and I was wondering if you could update us on whether there is any discussion of giving security to the banks for that 2017 facility. I mean, I think the relationships are good there and there is no doubt that the banks would certainly continue to extend that credit but given where the unsecured credit risk of Teck is trading, have the banks at all opened that discussion of providing security to the 2017 facility? Scott R. Wilson - Treasurer & Vice President: It's not yet. No. Justine Fisher - Goldman Sachs & Co.: Okay. And I guess, are you kind of in the meat of the discussions or do you think you probably have to wait until you get the forecast and everything that you were talking about before and then go really in 2Q is when you will have the meat of the discussion? Scott R. Wilson - Treasurer & Vice President: Yeah. I think as Don said earlier, we just completed our budget and our three-year production forecast, et cetera and this is the sort of information that we think the banks would be looking for that discussion. In the normal course, we would look somewhere between 60 days and 90 days prior to the maturity or the anniversary of the facility so that would take it sort of towards the end of March. So, sometime between now and the end of March is when we expect we would start that discussion. Justine Fisher - Goldman Sachs & Co.: Okay. Thanks. And then, my follow-up question is on asset sales. So you mentioned that you're getting some inbound calls on asset sales and there are clearly some non-mining assets that the company could sell. And I'm wondering given that the forecast is for a cash decline in 2016 even though you won't need to drawn on the revolver, why is the company not more ardently pursuing these asset sales like making a bunch of outgoing calls and saying look, here hey world this is what's on the block come and get it. I mean, why is the company not more actively pursuing those non-mining asset sales especially given that they might be able to kind of get done more easily in this environment and get a higher multiple? Donald R. Lindsay - President, Chief Executive Officer & Director: It is an interesting question, but a lot of these things, if we were very actively doing something, we would necessarily tell you. So, I think you can assume that we are reviewing all of our options and making sure that they are in stage of readiness to execute if we choose to do so, if we think there is a need to do so. And we're on top of the situation then we will just see how it unfolds throughout the course of the year, but we haven't made any public announcements about which thing we're going to do when. Justine Fisher - Goldman Sachs & Co.: All right. Thanks very much.

Thank you. The following question is from Greg Barnes from TD Securities. Please go ahead.

Don, I believe you were in China late last year and perhaps you could give us a sense of what you think is going on there with respect to demand for commodities in general? Donald R. Lindsay - President, Chief Executive Officer & Director: Yeah. I was there in November and I'm usually there about four times a year and so I am going to be there in March. So I kind of almost think that whatever I learned in November is out of date, but we track it from here as well. It depends on the commodity. Starting with steel, there is no question that steel passed its peak almost two years ago and is forecast to decline again this year. The statements coming out of the government are strongly indicative of closing down excess capacity in both steel and coal. The number that they came out with I think last night was 150 million tonnes of coal capacity would be shutdown. What hasn't been decided is, which steel plants and which coal mines will go. In terms of our customers, which are some of the major companies and some of the coastal steel plants that are new, we don't expect it to have any effect. And as you know, we have reduced the amount of coal that we sell to China to targeting 15% or less and that's really to major customers where we're already part of the blend. So we don't think it's going to have that much effect on our volume, but China being the marginal buyer that's the price and I guess it's sort of a balance between less demand because less steel will be produced, less demand for coal overall, but not necessarily less demand for seaborne high-quality hard coking coal to the key customers. They made announcements about capacity rationalization before and hasn't really happened. This time it looks like you are lot more serious. Now in zinc, we're quite encouraged about what's going in zinc because they imported – I think the number was 59% more zinc concentrate last year than the year before. And then our estimate is that 60% of the zinc concentrate that they imported will not exist in 2016 due to the various shutdowns that have been announced so far. So you've seen treatment charges, spot treatment charges in China have gone down dramatically. I should actually be having Andrew Stonkus answer some of this question and more color, but I'll just finish quickly. And that's indication of how tight the zinc concentrate market is and, of course, you'll also see announcements from the zinc industry, the smelting industry where they were cutting capacity as well. And on the demand side, the auto business, the sales were up 18% in December albeit with government help but more and more of those cars are being galvanized and the long-term trend to galvanization looks pretty good. So we feel pretty good about the zinc side of it. Copper, there is so many different views on copper, I'm not sure that mine is worth anymore than any of the others. But generally speaking even as the economy transitions from an FAI, fixed asset investment, led growth model to consumption model, there's still going to be a big need for copper. What they've announced in terms of infrastructure spend and the grid spending I find it encouraging. We'll see if they meet their targets, usually they come pretty close. So, certainly demand hasn't just stopped in terms of the base metal side of it. I think that still continue to grow. The steel one is the one to watch in terms of how much rationalization actually take place. Hope that's helpful. Andrew Stonkus, do you want to add anything?

Yeah. Thanks, Don. The other thing I would add on the zinc side is that with the imports up over 50% and, as you mentioned, with the closures of the various mines, it's going to take a lot of concentrate supply out that normally go to China. So you have to look at the metal imports of the China, they were up dramatically, November-December. So, the imports of metal ore into China are going up because you don't have the source of concentrate for conversion to metal internally. So that's a key point that we'll be watching going forward. China needs zinc units and are getting their concentrates or metal and right now it's going to be on the metal side and with the galvanizing increase of about just over 3% the rate of galvanized production that's another key indicator of ongoing increased demand in China for zinc.

Okay. Great. Thank you very much.

Thank you. The following question is from Oscar Cabrera from Bank of America Merrill Lynch. Please go ahead.

Thank you, operator. Good morning, everyone. And just, first, a quick comment. I don't know if this was the unintended result, but the three-year guidance helps a lot. So I hope you can keep it going forward. So the first question if I may, going back to the liquidity, would it be fair to say that based on what you – some of the answers you provided, Don, equity issuance and/or securing debt would be at the bottom of the priority list and therefore infrastructure projects that you mentioned would be the preferred vehicle to increase your liquidity? Donald R. Lindsay - President, Chief Executive Officer & Director: Yes. I really need to emphasize this. Equity issuance is not even on the list. It's not at the bottom; it's not on the list. Infrastructure makes a lot of sense because they tend to trade at higher values significantly higher values, probably more than double the multiple of EBITDA than a diversified mining company. So that's certainly at or near the top of the list.

Okay. And so there was the sale of the Waneta Dam and I believe it was like third of it, so I'm assuming that that is the one that you're referring to, and that asset went for C$825 million. So how should we think about the level of capital that you think you can get from that? And I assume the other one is one of the ports that you own? Donald R. Lindsay - President, Chief Executive Officer & Director: Yeah. I don't want to go into too much detail about this. I should say that transaction in 2009 power prices were higher, but there is a real scarcity value to clean power generation like that. And then, of course, the two-thirds of that dam does provide the power for Trail, so you'd have to in turn do a long-term contract of some sort. So you could sort of design a grid as to what value you could get depending on what power price you're prepared to pay, but certainly there's a lot of value there. And in terms of ports, as you've seen throughout the world, there's – with reduction in steel in China and oversupply of coal and different shutdowns in coal mines, there's the potential for consolidation on the port side of the business that could release a lot of value in different forms. It's really intriguing actually, but I don't think I can comment in much detail at this point.

No, that helps a lot. And then just one clarification, if I may. In your slide number 20 where you say that the only financial covenant is debt to debt-plus-equity of less than 50%. It does say, excludes issued letters of credit. So what are the covenants under those letters of credit, please? Donald R. Lindsay - President, Chief Executive Officer & Director: Scott or Ron? Scott R. Wilson - Treasurer & Vice President: Sure. The letters of credit themselves have no financial covenants, but that debt to debt-plus-equity financial covenant is one that applies across the board because there's cross-acceleration related covenants in all of our debt agreements.

All right. Thank you very much.

Thank you. The following question is from Michael Gambardella from JPMorgan. Please go ahead.

Good morning. Donald R. Lindsay - President, Chief Executive Officer & Director: Good morning, Mike.

Just wanted to say I really appreciate all the detail you give in your report, especially the sensitivity and the waterfall charts. Those just make it easier for everyone to kind of understand what's transpired over the past year so. But if I could just go back to the Fort Hills, I heard your response to an earlier question on Fort Hills was kind of we're hoping that in two years prices go up, but what happens if prices don't go up? Or just assuming the currency situation is the same as today, pricing is the same as today, and you have your own estimates on costs, I mean, what would the Fort Hills project look like to Teck right now, two years from now? I mean, what type of negative drain would it be and what would the plan be to address that? Donald R. Lindsay - President, Chief Executive Officer & Director: I think it's a good question, but it's not one that we can answer at this time. It remains to be seen what the oil price will be two years from now. If it was at today's spot price, it would be probably cash negative, but we'll have to see what plans Suncor has and they're really the spokesperson on the project. And I think that when we got to that point of time 18 months to 20 months, 21 months from now then we'll look at it in detail, see what the options are and make whatever decisions are necessary. But it's pretty hard to predict at this point. So I don't want to say anything that would end up being misleading.

And then do you have any flexibility whatsoever to kind of postpone the spending at this point just to see if market changes? Ronald A. Millos - Chief Financial Officer & Senior VP-Finance: Yeah. We really don't want to do that because the project is going very well. You got thousands of people on site, all working very productively, getting good productivity numbers, and we obviously didn't make the investment thinking oil was going to be long term in the C$20s or C$30s, and we haven't changed our view on that. It still looks like the clearing price for oil is going to be north of C$50 or even substantially higher. So it's a cyclical business, just like our other commodities and sometimes you end up building during the downturn and that usually works out quite well. Because when oil prices are lower, when copper prices are lower, coal prices are lower, investment stops and production is cut back and eventually the market rights itself and I think it will again here. So we'll just carry on.

I mean, what would the harm be in saying we're going to postpone right now and take the C$1 billion. If you're assuming like an equity offering is off the table, it's ridiculous in your mind and I agree. But why not take the money you're going to spend on Fort Hills, the C$1 billion and buy back shares; that seems like it's a no-brainier in your mind in terms of you don't want to – so your issuing equity down here is crazy. Why not postpone the project, take that money you intended for Fort Hills and put it in a repurchase program and then see where you are? Ronald A. Millos - Chief Financial Officer & Senior VP-Finance: Right. So I certainly understand the numbers behind the question. We on our own as a 20% partner can't postpone the project. That would have to be a unanimous decision amongst the partners. And I don't think any of the three partners really think that oil price is going to stay at these levels forever. So we think Fort Hills is going to be an excellent project. We've had all sorts of offers of financing on royalties, various things from the oil patch because Fort Hills has such a good reputation of what kind of quality asset it's going to be. So our priority at the moment is to get it finished and see if we come in on time and under budget, and they are making very good progress on that. So that's sort of where the three partners are. If for some reason the other two partners wanted to do that then that question that you've asked would be a theoretical possibility and it will be a very intriguing possibility, but it's not really on the table now.

Okay. Thanks, Ron. Ronald A. Millos - Chief Financial Officer & Senior VP-Finance: It's not lost on me though, if you see what I mean.

I understand.

Thank you. The next question is from Lucas Pipes from FBR & Company. Please go ahead. Lucas N. Pipes - FBR Capital Markets & Co.: Hey, good morning, everyone, again. Ray and Ron, Don, I also have a follow-up question on Foot Hills and I obviously understand there's been a lot of questions on it and I understand there are still some theoreticals here. But at this point in time, I was wondering, are there fixed costs associated with Fort Hills associated with infrastructure off-take and such things that we could be thinking about that essentially would already be a sunk cost at commissioning? Donald R. Lindsay - President, Chief Executive Officer & Director: Could you elaborate on that? I am just trying to think of what you mean? Lucas N. Pipes - FBR Capital Markets & Co.: So what I am trying to understand is, I mean, we can all do the math on what the cash flow is at today's oil prices. But if you have already made certain agreements for pipelines, for example, then that would be a sunk cost and that we should exclude that from the breakeven on the economics going forward. So I was wondering if you could share with us what the annual fixed commitments are for Fort Hills starting in late 2017?

Don, I can take that. Donald R. Lindsay - President, Chief Executive Officer & Director: Yeah, go ahead, Ray.

So the partners work together to develop infrastructure from Fort Hills down to the Hardisty market hub in Alberta. We are aligned on that. That is mostly newbuild facilities down there and our transportation service agreements allow us to start using those facilities when we start up Fort Hill, so that's aligned in the startup. I think part of your question, there certainly would be care and custody cost on the property should we decide not to start up and those would be a cost we'd carry as a partnership. Lucas N. Pipes - FBR Capital Markets & Co.: And is there a way to quantify that cost?

I certainly don't know the answer to that. That work hasn't been done. We're still, say, a couple of years away from startup and I don't have a number for an option where we wouldn't start up, we haven't that work. Lucas N. Pipes - FBR Capital Markets & Co.: Okay. Thank you. And then, Ron, as a follow-up question. In the release, you mentioned at least C$500 million cash by the end of the year. I was wondering if you could give us a little bit more parameters around that number and how we should think about it. For example, what would you expect in terms of working capital, does that go into that C$500 million cash balance? And then also, what should we be thinking about in terms of cash taxes for 2016? Any other items would be helpful as well. Ronald A. Millos - Chief Financial Officer & Senior VP-Finance: Yeah, the working cash we think we need is somewhere in the order of C$300 million to C$400 million just around the day-to-day affairs of the business. So we got a little bit of cushion with C$500 million. On a cash tax basis, the cash taxes that we're likely to pay will be any of the mining taxes on the coal operations in British Columbia and Alberta. Not likely to be any Canadian income taxes because of the tax pools that we have. And then the taxes in the foreign jurisdictions will be the cash tax portion. And again, that will be dependent on what the commodity prices are. Lucas N. Pipes - FBR Capital Markets & Co.: And at current commodity prices, so would that be in line with 2015, any ballpark figure that you could give us? Ronald A. Millos - Chief Financial Officer & Senior VP-Finance: Yeah, generally in line I'd think. Lucas N. Pipes - FBR Capital Markets & Co.: Got it. Okay. Thank you and best of luck. Donald R. Lindsay - President, Chief Executive Officer & Director: Thank you.

Thank you. The next question is from Alex Terentiew from Raymond James. Please go ahead.

Hi. Good morning. I just have a couple of questions here on your coal business. I noticed you noted that you'll be looking to optimize production from your five other coal mines to replace the 2.25 million tonnes lost from Coal Mountain. Can you give us any idea on where these additional tonnes would come from and what would be needed to get those to the market? And a final related question. Your AIF from last year says that for Cardinal River mining beyond 2019 would require significant improvement in coal prices. Is this still what you guys are thinking and are there other mines that in a few years time could face the same situation? Ian C. Kilgour - Chief Operating Officer & Executive Vice President: Thanks. Alex, it's Ian here. In terms of replacing the production that we'll lose from Coal Mountain at the end of 2017, we'll just be doing that by incremental increases in production from our Elk Valley mines. As you know, we've got four other mines in the Elk Valley, which in fact create the bulk of their production, and we think there's some very good low capital scenarios for us to incrementally increase production there. In terms of Cardinal River, yes, the situation hasn't really changed. At this point, the end of 2019 sees the completion of the pits that are within our current mining areas and to go further would require starting a new pit somewhat further away from the industrial facilities and would require a higher coal pricing we're seeing now for us to continue.

For Coal Mountain and Cardinal River, are you able to quantify at all what that coal price would be? And, I guess, related question, is there a certain amount of time that you need to have before you – so with Coal Mountain, you suspended the Phase 2 stripping. If coal prices went up next quarter, would you be – for example, would you be able to continue mining Coal Mountain in 2018 or would there be some sort of gap? Ian C. Kilgour - Chief Operating Officer & Executive Vice President: No, we've made the decision that we won't be continuing at all, won't be commencing Coal Mountain Phase 2. That, again, is a satellite pit remote from the current industrial facilities. And it's basically more economic for us to replace that production with the low-cost incremental production from the other Elk Valley mines.

Okay. And then just one last question, if I may. BC Hydro, I think it was earlier this week or last week, announced a cost deferral program that they are offering to a bunch of the miners in the province. Is there something that you expect Teck to be participating in? And I was wondering if you could quantify the potential savings to you guys this year from that and also is it included in your guidance? Ronald A. Millos - Chief Financial Officer & Senior VP-Finance: Don, Marcia is on the call, if you want Marcia to respond to that? Donald R. Lindsay - President, Chief Executive Officer & Director: Okay. Marcia, go ahead. Marcia M. Smith - Senior VP-Sustainability & External Affairs: Yeah. I am happy to respond. I would just say, at this point, we're still looking at the details of the program. The Ministry of Finance through the government of British Columbia works with each of the individual operations in the province. So we're going through that work, but we don't have any view yet on whether we'll take advantage of the program. And we have not updated – we didn't include any of those – any of the thinking on it in our releases.

Okay. Thank you.

Thank you. The following question is from Richard Yu from Citi. Please go ahead.

Hi. Thanks for taking my question. So it sounds like, when you're talking about the potential infrastructure sale, you're not quite ready to do it. You kind of said you're getting into a state of readiness to do so. But I'm just wondering what is it going to take you to feel like you're not in that state, is it like a certain time if commodity prices are going to increase, what are you looking for? Donald R. Lindsay - President, Chief Executive Officer & Director: It's a combination of factors. It would be in the judgment of the board whether a deal surfaces that we think is good value, that still leaves the operating assets associated with infrastructure in the right position, outlook for commodity prices. If zinc takes off like we think it will at some point, it changes the whole picture and you wouldn't need to do anything. So it's all those factors and at some point, the board will make a judgment call on whether to pull the trigger on something.

Okay. Thank you. Gregory A. Waller - VP-Investor Relations & Strategic Analysis: Operator, we're going to have to cap it here. We're well past our hour. So for those of you who are still on the queue for questions, if you want to contact us directly, we're certainly happy to talk to you later this morning or the afternoon your time, but we could just – we'll have to cap at this point. Donald R. Lindsay - President, Chief Executive Officer & Director: Okay. So with that I'll just say thank you all for joining us on the call. And as Greg said, we're happy to answer further questions directly and we look forward to speaking with you at the end of the Q1. Thank you.

Thank you. Gregory A. Waller - VP-Investor Relations & Strategic Analysis: Thanks, everyone. Bye-bye.

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