Ladies and gentlemen, thank you for standing by. Welcome to Teck’s Second Quarter 2020 Earnings Release Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. This conference call is being recorded on Thursday, July 23, 2020. I would now like to turn the conference call over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Thanks very much, Laurie, and good morning, everyone. Thanks for joining us for Teck’s second quarter 2020 results conference call. Before we begin, I would like to draw your attention to the caution regarding forward-looking statements on slide 2. This presentation contains forward-looking statements regarding our business. This slide describes the assumptions underlying those statements. Various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statement. I would also like to point out that we use various non-GAAP measures in this presentation. You can find explanations and reconciliations regarding these measures in the Appendix. With that, I will turn the call over to Don Lindsay, our President and CEO.

Thank you, Fraser and, good morning, everyone. Thank you for joining us today. I will begin on slide 3 with our second quarter highlights followed by Ron Millos, our CFO, who will provide some additional color on the financial results. We will than conclude with a Q&A session where Ron and I and additional members of our senior management team would be happy to answer any questions. So these continue to be challenging times, as the world works its way through the COVID-19 pandemic. Teck will remain focused on protecting our people and communities while continuing to operate responsibly and safely, support the economic recovery in the wake of the pandemic. We took steps during the quarter to further strengthen our financial position and reduce costs and position Teck to a significantly improved margins towards the end of 2020 and early 2021 as we complete our major capital projects. We were also pleased to be recognized, as one of the best 50 Corporate Citizens in Canada, ranking by Corporate Knights for the 14th consecutive year. Turning to our financial results, on slide 4. In the second quarter, revenues were CAD$1.7 billion and gross profit before depreciation amortization was CAD$453 million. Profitability was impacted by the significant negative effects that COVID-19 had on both prices and demand for our products as well as abnormal costs because of the pandemic. Bottom line adjusted profit attributable to shareholders, was CAD$89 million or CAD$0.17 per share on both the basic and a fully diluted basis. Details of the second quarter's earnings adjustments on slide 5. The most significant adjustments was CAD$147 million of COVID-19 expenses in the quarter on an after-tax basis, which is primarily related to the suspension of our QB2 project. We also had a CAD$69 million adjustment for environmental costs, which…

Great. Excuse me. Thanks, Don. And I'll start by addressing the changes in our cash position during the second quarter, which was shown on slide 17. So, we've generated $300 million in cash flow from operations in the quarter. We issued US$550 million of the 10-year notes and used the net proceeds to repurchase that US$268 million of the notes, maturing in 2021 '22 and '23. And used the balance to reduce draws on our $4 billion net revolving credit facility resulting in the transactions being leveraged neutral. In the second quarter, we had a net reduction of US$32 million on the draws against our revolver and we didn't draw US$388 million on the QB2 project financing. And that accounts for most of the increase in our total debt, which totaled $6.2 billion at the end of June versus $5.5 billion at the end of March. Our capital spending was $889 million in the quarter, of that $97 million was stripping activities and the largest single piece was $446 million on QB2. We paid $78 million in interest and finance charges and $52 million on expenditures on investments and other assets. We repaid $40 million of lease liabilities and paid $26 million for our regular $0.05 quarterly base dividend. So, after these and other minor items, we ended the quarter with cash and short-term investments of $336 million. Turning on to the COVID expenditures on slide 18. In terms of the accounting what we're doing is costs related to capital projects that do not qualify for capitalization are expensed as incurred in our other operating income expense line item. And these are primarily the demobilization and remobilization care and maintenance costs. Cost not directly related to the production of our products are expense that incurred and cost of sales. But…

Thanks, Ron. To wrap up on slide 21. Teck has quality operating assets and stable jurisdictions. We're advancing a proper growth strategy, it is funded and is being implemented. We continue to progress our four key priorities, which are the QB2 project, RACE21, the Neptune Upgrade Project and our company wide cost reduction program do reduce spending. We are executing on these priorities to create value and position Teck for decades to come. And we are confident that our strategy will drive significant value over the long-term as the world recovers from COVID-19. And with that, we would be happy to answer your questions. I should say that like many of you, most of us are on phone lines from home. So please bear with us if there is a play while we sort out who will answer your questions. Operator over to you for questions.

Certainly. Thank you. [Operator Instructions] The first question is from Orest Wowkodaw from Scotia Bank, please go ahead.

Hi, good morning. Last quarter, you warned that you were seeing customers defer contracted coal volume. I'm just curious if you're still seeing that. Whether customers, I guess, outside of China are still deferring? And whether the guidance for Q3 assumes a higher proportion of spot sales in that number?

Okay, thanks, Orest. Good question. I'll turn that over to Real. Real Foley?

Yes. Can you hear me, Don?

Go ahead. I hear you.

Can you hear me?

Yes, we can.

Okay. Thank you. Thanks for the question, Orest. So actually, we're seeing quite the opposite right now. You're right, in Q2, we had deferred sales. But now some of the customers that had deferred sales are actually bringing some back into Q3. And there's a couple reasons for this, actually. First, if you look at the steel price, it is back to nearly what it was at the beginning of 2020 through COVID-19. And steel production is coming back, of course, the demand for our customers’ products is increasing. And we are seeing some increased production in some areas. But as steel mills reduced production during Q2, they were also a lot quicker to reduce their inventory as well than they did during the global financial crisis in ‘08, ‘09. That basically leveraged the learnings, the technical learnings from that period. So, of course, as production is starting to ramp up for steel products, they need to import steelmaking coal from the market. And this is what we are seeing from our customers. And your last question on the ratio of spot to contracted sales, our ratio remains very similar, around 40% of contracted sales and the balance in spot sales.

Well, that's great. Thank you. That's great to hear. And then just finally, on the costs for coal, you have talked about an exit rate this year of onsite costs it looks less than $60 a ton by year end. That's certainly a big improvement from what we've seen in the first half the year. Should we take that to mean that for costs for 2001, at least onsite costs, are going to average below that $60 a ton?

I think you mean 2021. I’ll turn that over to Ron.

Appreciate the question, Orest. There's a number of things that have happened in the coal over the last few years. And I've kind of walked a group through that a few times. I'm going to take the opportunity to take a shot out. Again just because it sets up for the structural change that's occurred. So the first thing that I've spoken to a number of times is the strip ratio. And, that's a key cost driver for us. And for the last three years, we've been transitioning from coal mining closure and setting up to the expansion of Elkview where we need to go -- where we want to go from 7 million to 9 million ton. To do that, we had to run a higher strip ratio through 2019. So that was around 11.4 to 1. And we're going to come in around 10.7 to 1 in 2020. But in the second half, we're actually going to be mining at less than 10 to 1. And that'll continue that through the 2021 and forward. So that key structural change of getting the strip ratio established at a 10 to 1 average or below was the biggest part of getting our cost structure adjusted. The second key piece of that was bringing Cardinal River closure. So that's been done as mentioned. So just to put that in perspective that operation ran at almost double the cost of sales at the BU average. So bringing that to closure actually reduces our cost per ton by about 3 bucks a ton, that's for cost of sales, sorry. So that's been established. And then the third piece of the puzzle was getting Elkview expanded. And we've successfully done that. Elkview now is capable of 9 million tons per year. So when the…

That's excellent. Thank you very much for the color.

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

Yes. I just want to continue on the coal side. On Neptune, Don, it sounds like it is on track for completion in Q1. I just want to understand more about the rail capacity through Vancouver to get the volume of coal to Neptune that you want. Has the work been done to open that up? Is that being done as we speak? Or is it completed? And will it be ready by the time that the Neptune's ready?

Yes, it is. And I should say just before I turn over to Ian Anderson, that we had a terrific visit to site at Neptune just last week. And it is impressive what they've been able to accomplish so far. And it gave us a lot of confidence. So, Ian, are you there, if not Real?

Yeah, I'll take that, Don. So Greg, I guess one thing to say is we've also had visits with CM as to some infrastructure upgrades that they are doing to address the increased tonnage. This is on schedule and progressing very well. Maybe at this point, we have no concern with capacity being sufficient to maximize the volume throughput through Neptune, which is our overall goal to ensure that we have long-term competitive supply chain.

Thanks Real. Don, secondarily, the guidance on QB2 construction now. Just to be clear by October, or assuming everything goes according to plan you will be back at full construction on the project.

That is the plan. Obviously, everything’s subject to the ramp up from here. We're actually about 3400 people on site today. And we think we'll be at 4000 by the end of the month, which is not that far off, of course. And between now and then one of the key criteria is to get to the room. And we've developed protocols just as has been done with the health authorities elsewhere in the country to do that. So if all goes according to plan, yes, we'd be at full strength by October and starting to get that 3% to 4% completion per month thereafter. So, it isn't done yet. Obviously, there's still way to go, but we were encouraged we come from the demobilization level was at about 400 people on site. So we come from 400 to 3400, headed the right direction, but still story to tell.

Okay. And again, according to plan, a five to six-month delay in the construction schedule will mean that you get first ore in the mill hopefully by the end of 2022, or is it slipping into '23 now?

Yeah, it's in 2022. We've spent the last five to six months. We'd initially said Q2, 2022. So we should think in terms of a couple of quarters. That's right.

Okay, great. Thank you.

Thank you. The next question is from Curt Woodworth from Credit Suisse. Please go ahead.

Hey, good morning, Don.

Good morning.

First question is just on portfolio construction. So when you evaluate the copper supply landscape today, you look at Codelco and others in terms of challenges to meet mine production. I wonder if you could give us an update on projects Satellite. And any monetization efforts there, I would think was the recovery we've seen in the markets that would maybe be some more momentum on that front?

Yeah, I'll turn it over to Andrew Golding in just a minute. But, yeah, we remain constructive on the copper market for the long term, which is why we have a portfolio rich and opportunities to develop. But we don't need to do them all ourselves. So as we've said in the past, if market conditions are appropriate and interest is there, we could have sold out right or contributed to another company take back shares, that sort of thing. There are two projects of the five that are advanced enough that we think it's appropriate to look at potential transactions when the mark is right. But we're not quite sure that mark is all the way there yet. So copper, of course, has had quite a run. Why don't I stop there and turn it over to Andrew with any other thoughts that he may want to share?

Can you hear me, Don?

Yes.

Okay, good. I don't really have a great deal to add to what you said there. Clearly, there are some significant logistical constraints as a result of COVID-19 in advancing field work. And for that matter, if we want to conduct any form of sales process that would be logistically extremely challenging right now. But we are in very good shape for when it becomes logistically more practical to take potential buyers and interested parties to sites. So we continue to get a lot of interest. These are very good projects by world standards and obviously backdrop over positive copper market. These are the things we'd hope to advance COVID notwithstanding in 2021.

Okay, that make sense. And then just a follow up, maybe for Real, on the coking coal market. It seems like there's been some increased activity out of India, but then there's been some reports around quota restrictions being kind of exhausted in China. I was wondering if you could just provide a little bit more granular outlook in terms of what you're seeing, perhaps regionally in terms of the demand trends you're seeing in coking coal. Thank you.

Yeah. So thanks, Curt. So let's look at maybe China first to address one part of your question on the import restrictions. So the China economy is really continuing to recover and showing well. And the steel industry is producing very strong right now with achieving record production in both May and June. So year-to-date, they're running at a high level. And as a result, the seaborne coking coal imports into China have also been very strong with May year-to-date up 11 million tons year-over-year. And there's a couple of reasons for that. Reduced Mongolian coking coal imports are one thing. They're down 9 million tons year-over-year and lower domestic coking coal production. They're actually down 3 million tons year-over-year. And the seaborne price is still lower than the domestic coking coal price today, it's around $60 and it's been above 50 for a while now. And then we're seeing sustained demand, increasing demand from the coastal steel mills. So that is all helping with the seaborne market. Now, when we look at outside of China, depending on the market areas, there is definitely still risk with the pandemic. But we are seeing some economies reopen. And as I answered the one question earlier, we are seeing some customers bring back the original deferred tons into Q3. And that's a result of the opening economies, but it is also a result of expected supply disruptions, ongoing supply disruptions this year, but also expected further production cuts as we're going through, whether it's related to COVID-19 or overall mind disruptions. So when you look at the [indiscernible] figured for instance, they're forecasting that seaborne exports this year will be down 30 million tons that includes somewhere around 10 million tons from the U.S. a little bit less from Australia, Russia, Canada and Mozambique, somewhere in the 2 million to 3 million ton range. And for those other markets outside of China. The China's steel exports are also a lot lower this year, which is continuing to support production as the economy recovers in those other parts of the world. In India, monsoon season will be over during the quarter. So we are expecting to see some demand come back as a result of that as well.

Great, I really appreciate it. Thank you.

Thank you. The next question is from Jackie Przybylowski from BMO Capital Markets. Please go ahead.

Thanks very much. I just wanted to get some more color from you guys on what's happening at Red Dog, if you don't mind. I know in the MD&A it says that there's a risk to grade, I guess specifically for the second half of the year if the water conditions continue to restrict access. Can you tell me a little bit about what is the risk to the guidance that you've given and how much additional work might need to be done or CapEx might need to be spent to mitigate those risks? Thanks.

Okay. Thanks, Jackie. We'll turn that over to Dale or Shehzad.

Yeah, it's Dale. Thanks, Don and thanks Jackie. Just to give you a bit more color on the issue. Due to changing climate conditions we have experienced higher precipitation levels at Red Dog in recent years and our discharge capacity for water that we do collect on site is restricted. And it’s also dependent on background levels in our discharge water as well. So we’re seeing naturally higher levels that we’re discharging into which restrict us. So in order to manage those water balances, we’re actually storing water in various areas at the site and that includes in our pits. And so when we’ve to store water in our pit, it does restrict us accessing higher grade at the bottom of the pit and we’re having to mine lower grades towards the top of the pit. So what we’re doing about it is we’re raising the tailings dam to store more water in that facility and that will be complete in the next two to three months for the next lift of the tailings dam. And we’re also building, and that’s normal course, but we’re staging that in a bit of a different way to get capacity earlier. And we’re also increasing our water treatment capacity and putting in [multiple speakers] that is probably costing in the range of $25 million U.S. that wasn't originally budgeted.

Alright, thanks. So that's sort of a one time -- I guess both of those things are one-time cost and then after that you should have sufficient water capacity to manage going forward?

Yeah, through future tailings dam lists and other water management efforts. Exactly.

Great. And if I could just ask one follow-up question on Red Dog. I noticed that the back of the MD&A where you talk about the costs, the royalties for Red Dog seem to be a credit to tax this quarter? And can you just help me maybe interpret or explain what happened with the royalties in the zinc division this quarter? Thanks.

Ron, I'm not sure, if you want to take that one.

Ron Millos, are you there?

It's a cash flow royalty-based calculation. So it might have to dig into the numbers there on that one. And it ties in with when we receive the receipts from the sales and when we pay our bills and stuff. And in the first half of the year, we're generally buying a lot of supplies and paying for those supplies getting ready for the shipping season. And of course, we have no lower sales volumes. So the revenue coming in is a lesser numbers, so there's a good chance that it generally catches up in the latter half of the year, where you see the largest royalty payments would normally be in Q1 based on the Q4 results.

Okay. Got it. Thanks a lot, Ron. That's it for me.

Thank you. The next question is from Oscar Cabrera from CIBC. Please go ahead.

Thank you, very much and good morning, everyone. So I'm just wondering, in QB2, there's been reports coming out of different companies in Chile, where there has been workforce, two-thirds reported by [indiscernible]. So wondering in the ramp up assumptions that you're making for your labor force in the QB2 construction. What are your assumptions in terms of allowance by the government to do everything safely? And then secondly, there's also been reports of labor just being reluctant to go back to site without any strict policies on COVID-19? I just wonder if you can comment on that as well.

Okay, thank you, Oscar. Good question. And I'll turn that over to either Alex or Dale. Alex, are you there?

Yes, Alex here. So maybe I'll answer to Oscar here. And then Dale can chime in if he has any additional comments. But Oscar our priorities here continue to be the safety of our workforce, and supporting the Chilean efforts to limit the transmission of COVID-19. So the project team, Bechtel, we've been working very closely with the government, with our subcontractors and with our unions. And they've done a really good job of developing and putting protocols in place to manage the workforce, the camp environment, the transportation of workers to and from the site. So over the last couple months, we've spent a fair bit of time ensuring that essentially the protocols that we put in place are working well. The government has been up and inspected and are quite complimentary in terms of what we're doing. So we have a trigger action response plan in place to manage the situation, should we see an outbreak. And then the protocols that we have in place there to manage, so to ensure that we have timely identification as symptoms. And particularly, as we see some cases of workers that are arriving at site, who may bring the disease with them. So we're looking at testing. Basically, quarantine and medical treatment and working with the government on that. And we have a COVID committee that meets regularly to review the status of what we're doing and approve all of the additional ramp up changes that we're having. So a lot of protocols in place and working very closely with both the government and our subcontractors in union. So we haven't seen any substantive challenges to date. But should we see challenges, we do have a response plan prepared to manage those. So with that, maybe I'll pass it over to Dale, if he has any additional comments on that?

No, I think you've covered it off well, Alex.

For those who have followed us closely through the beginning of construction of this project. You may recall that during the first year, we had several delays related to permitting and we’re still in our permitting process. But one of the silver linings to the COVID delay is that the federal government and local governments and the independent regulators and so on, have been working very hard in getting through that. So yesterday, we actually got the final group of permits that had been outstanding. So we're very, very pleased about that to be able to go forward with construction.

That’s helpful. Thank you, Don, Alex and Dale. Now just if I may moving back to the coal market. It sounds like you're more optimistic on the fundamentals of metallurgical coal. However, we haven't seen prices move above $110 a tonne based on [flat], and this is for the last month or so. I was just wondering if you can comment on this notion of Chinese restocking in the first half of the year to make sure that they have enough materials to process in the second half should we have more disruptions. I mean, that is the bearish argument. The bullish argument is that there is enough demand in the second half, and hence that's why all of the things that you have pointed to would suggest to a higher coking coal price in the second half of the year. Can you just add more color on that please?

Those are interesting concepts for us and that’s just things about the commodities markets, you can always create a scenario both bullish or bearish based on a number of factors like you've listed. But Ron I'm going to turn it over to you if you want to take a shot at answering that.

Yes, sure. Thanks Oscar. So yes, the prices is holding around CAD$110 right now. So we are seeing positive signs out there in terms of demand, whether it's out of China or markets outside of China. But of course there is still uncertainty with the pandemic. And we've seen reductions on both the demand and the supply side. So, the market is still trying to find the balance for sure. But we are cautiously more optimistic about Q3 than we were at the beginning of Q2. So, we are seeing changes. With respect to restocking, we have not really seen restocking in China right now, because China steel industry is running at record high levels. And when you look at what is happening in terms of supply, the increase in seaborne supply is just about balancing the reductions from Mongolian imports, but also domestic coking coal production. I don't know if that answers your question.

Yes, that does. Thanks very much. And congratulations for strong performance under challenging situations.

Thank you.

Thank you. Well, operator. I think we've got time for maybe one more question here, before we hit the top of the hour.

Certainly. The next question and last question is from Alex Hacking from Citi. Please go ahead.

I just wanted to clarify something on the QB2 CapEx. I think when you put out the update a few months ago, you said that the sensitivity to the peso, I think you would republish that 775 as the underlying assumption, and said if the peso went to 850 there would be about a CAD$240 million benefit on the CapEx. Should we assume that that relationship is linear? Obviously, copper has strengthened, the peso strengthens. So, if the peso were to go back to 700 would it be fair to assume kind of a CAD$240 million headwind there? I'm just trying to understand how that relationship works. Thanks.

Okay. That would be for Alex please. And at the time that we published in peso it was 850, actually, which is why we did that sensitivity. It's right close to the 775 or 770 or so right now. Alex, over to you.

Thanks, Alex. As the exchange rate changes, the exposure to the exchange rate is somewhat different, but in general, the relationship is close to linear. Obviously, the lower the peso becomes against the U.S. dollar, the less exposure you have to the Chilean peso, but inside of a couple hundred pesos to the U.S. dollar exchange rate that relationship you can assume that it’s close to linear with just around 70% or 69% of our to-go capital exposed to the Chilean peso.

Thank you.

Thank you.

So, I think that was the last question. So, I just want to say thank you to everybody for joining us for the call today. We're very pleased to get Q2 behind us. Q2 2020 was a tough one for sure. Things have improved significantly. We're delighted to have the Elkview plant expansion complete and got that done despite COVID. We're delighted to be ramping up slowly but surely at QB2. And look forward to getting back to full strength there in October. And we're looking forward to continued global recovery from the pandemic throughout Q3 and Q4. And we'll speak to you again in October. Thanks very much all. Meeting adjourned.

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