Teck Reports Unaudited Third Quarter Results for 2012
VANCOUVER, BRITISH COLUMBIA, Oct 24, 2012 (Menafn - MARKETWIRE via COMTEX) --All dollar amounts expressed in this news release are in Canadiandollars unless otherwise noted.
Teck Resources Limited TCK reportedthird quarter adjusted profit of 349 million, or 0.60 per share,compared with 742 million or 1.26 per share in 2011.
"The uncertainty in global economic conditions resulted in lowercommodity prices and sales volumes of steelmaking coal compared withthe third quarter of 2011. This resulted in profits and cash flowfrom operations being less than the third quarter of last year.However, our quarterly operating results continued to be strong withanother quarterly record for copper production at 99,000 tonnes, up29% from the third quarter of last year. Our balance sheet remainsstrong, with a current cash balance of 4.2 billion and we are wellpositioned to continue with our growth plans. Notwithstanding ourstrong financial position, some of our planned capital spending hasbeen deferred for a variety of reasons and we have also implemented acost reduction program," said Don Lindsay, President and CEO.
Highlights and Significant Items
--Gross profit before depreciation and amortization was 933 million in
the third quarter compared with a record 1.8 billion in the third
quarter of 2011.
--Cash flow from operations, before working capital changes, was 741
million in the third quarter compared with a record 1.3 billion a year
ago.
--Our cash balance was 4.2 billion as at October 23, 2012.
--Profit attributable to shareholders was 180 million and EBITDA was 721
million in the third quarter.
--To date we have reached agreements with our coal customers to sell 6.2
million tonnes of coal in the fourth quarter of 2012 at an average price
of US163 per tonne. We expect to conclude additional sales over the
course of the quarter.
--Copper production increased 29% from the third quarter of 2011 to a
record 99,000 tonnes in the third quarter, which reflects investments we
have made at the Antamina, Carmen de Andacollo and Highland Valley
Copper Operations. With the increase in copper production in the third
quarter our total cash costs, before by-product credits declined by 6%,
and cash costs net of by-product credits, declined by 5% from the second
quarter of 2012 to US1.69 per pound.
--In August, we issued US1.75 billion of long-term notes with an
effective average interest rate of 4.0%. A portion of the notes
refinanced US660 million of our high-yield notes, which resulted in an
after-tax charge of 196 million in the quarter.
--On October 19, we issued a notice of redemption to redeem all US521
million principal amount of our outstanding 10.75% senior notes due in
2019, with the redemption taking place on November 19, 2012. We expect
to record an after-tax charge of approximately US259 million in the
fourth quarter in connection with the redemption.
--Approximately 1.5 billion of expected capital spending is being
deferred from our original 2012 and 2013 capital budgets, which
includes:
--reduced capital spending for Quebrada Blanca Phase 2 and Quintette
due to permitting delays for each project,
--a delay in the Relincho project as a result of external factors
related to power and port facilities,
--a delay in the development of Fort Hills as our partner updates the
design basis for the project, and
--a deferral of the construction of the Number 4 slag fuming furnace
at our Trail Operations.
--We are currently implementing cost reduction programs across our
operations designed to reduce a minimum of 200 million from our annual
operating costs.
--The Red Dog 2012 shipping season was successfully completed on October
19, 2012 with all available concentrates being shipped. Zinc concentrate
shipments totalled 950,000 tonnes and lead concentrate totalled 175,000
tonnes.
--During the quarter we reduced our coal production to align with
declining market demand. However, we expect that our annual production
will meet the lower end of our guidance of 24.5 million tonnes for 2012.
--In September, we were named to the Dow Jones Sustainability World Index
("DJSI") for the third straight year. Our DJSI score placed our
sustainability performance in the top two percent of companies in the
mining industry worldwide, with our environmental performance being
ranked the highest in the sector.
This management's discussion and analysis is dated as at October 24,2012 and should be read in conjunction with the unauditedconsolidated financial statements of Teck Resources Limited (Teck)and the notes thereto for the three months ended September 30, 2012and with the audited consolidated financial statements of Teck andthe notes thereto for the year ended December 31, 2011. In this newsrelease, unless the context otherwise dictates, a reference to "thecompany" or "us," "we" or "our" refers to Teck and its subsidiaries.Additional information, including our annual information form andmanagement's discussion and analysis for the year ended December 31,2011, is available on SEDAR at www.sedar.com.
This document contains forward-looking statements. Please refer tothe cautionary language under the heading "CAUTIONARY STATEMENT ONFORWARD-LOOKING INFORMATION" below.
Overview
We expect to meet our production guidance for the year and haveachieved significant increases in both copper and coal productioncompared to last year. With the increase in copper production in thethird quarter our total cash costs, before by-product creditsdeclined by 6%, and cash costs, net of by-product credits, declinedby 5% from the second quarter of 2012 to US1.69 per pound. OurCarmen de Andacollo and Highland Valley Copper Operations led thisimprovement. Further cost control programs are being implementedacross the company. These measures are expected to reduce our annualoperating costs by a minimum of 200 million.
Average prices for our base metal products remained constant ordeclined slightly compared to the June 2012 quarter, however, moresignificant decreases affected our coal business with averagerealized prices falling from US202 to US193 per tonne compared tothe preceding quarter.
A significant component of our planned capital spending program hasbeen rescheduled for a variety of reasons. This includes a delay inQuebrada Blanca Phase 2, as the resubmission of our Social andEnvironmental Impact Assessment is not expected to occur before thesecond quarter of 2013. At Relincho changes in plans for localinfrastructure projects necessitates a pause before the completion ofthe feasibility study. Spending on Fort Hills has decreased this yeardue to the focus on developing a cost-driven project schedule. Wehave also deferred the construction of the Number 4 slag furnace atTrail and we are considering delay of a number of other projects.This rescheduling will result in deferrals of capital expenditures ofapproximately 1.5 billion, of which 300 million relates to 2012,and 1.2 billion which relates to 2013. Our annual budgeting cycleoccurs in the fourth quarter of each year and our capital andoperating budgets for 2013 have not yet been finalized.
Profit and Adjusted Profit(i)
Adjusted profit, which excludes the effect of certain transactions asdescribed in the table below, was 349 million, or 0.60 per share,in the third quarter of 2012 compared with 742 million, or 1.26 pershare, in the same period a year ago. The decline in adjusted profitwas primarily due to significantly lower prices for all our mainproducts, especially for coal.
Profit attributable to shareholders was 180 million, or 0.31 pershare, in the third quarter compared with 814 million or 1.38 pershare in the same period last year.
Three monthsNine months
ended September 30,ended September 30,
( in millions)2012201120122011
----------------------------------------------------------------------------
Profit attributable to
shareholders as reported1808146662,031
Add (deduct):
Asset sale gains(22)(24)(43)(145)
Foreign exchange (gains)
losses2152110
Derivative (gains) losses(48)(63)(95)(67)
Collective agreement charges9-5926
Financing items196-525-
Tax items32-32-
--------------------------------------------
Adjusted profit3497421,1651,855
--------------------------------------------
Adjusted earnings per share0.601.261.993.14
--------------------------------------------
(i) Our financial results are prepared in accordance with InternationalFinancial Reporting Standards ("IFRS"). This news release refers toadjusted profit, adjusted earnings per share, EBITDA and gross profitbefore depreciation and amortization, which are not measuresrecognized under IFRS in Canada and do not have a standardizedmeaning prescribed by IFRS or Generally Accepted AccountingPrinciples ("GAAP") in the United States. For adjusted profit weadjust profit attributable to shareholders as reported to remove theeffect of certain kinds of transactions in these measures. EBITDA isprofit attributable to shareholders before net finance expense,income taxes, depreciation and amortization. Gross profit beforedepreciation and amortization is gross profit with depreciation andamortization added back. These measures may differ from those usedby, and may not be comparable to such measures as reported by, otherissuers. We disclose these measures, which have been derived from ourfinancial statements and applied on a consistent basis, because webelieve they are of assistance in understanding the results of ouroperations and financial position and are meant to provide furtherinformation about our financial results to investors.
Business Unit Results
Our business unit results are presented in the tables below.
Three Months ended September 30
Gross profit
before
depreciation and
( in millions)RevenuesamortizationGross profit
----------------------------------------------------------------------------
201220112012201120122011
----------------------------------------------------------------------------
Copper763 808 362 439 263 362
Coal1,0771,7174451,094333954
Zinc66485512528198255
Energy1-1---
----------------------------------------------------------------------------
Total2,505 3,380 933 1,814 694 1,571
----------------------------------------------------------------------------
Gross profit before depreciation and amortization from our copperbusiness unit in the third quarter declined by 77 million comparedwith a year ago as a result of lower copper prices and lowerby-product revenues. This was partially offset by a 13% rise in salesvolumes. Copper production in the third quarter increased by 29% to99,000 tonnes compared with 77,000 tonnes a year ago, which reflectsa new quarterly production record, and an increase of 10% from thesecond quarter of 2012. The higher production is a result of ourshare of additional production from Antamina's mine expansion, themining of higher grade sections at Highland Valley Copper and millthroughput initiatives at Carmen de Andacollo. Copper prices softenedby 14% in the third quarter to US3.50 per pound compared with a yearago reflecting weaker commodity and metals markets, but ended thequarter at US3.75 per pound, resulting in positive pre-tax pricingadjustments of 54 million which are recorded in other income. Withthe increase in copper production in the third quarter our total cashcosts before by-product credits declined by 6%, and cash costs, netof by-product credits, declined by 5% from the second quarter of 2012to US1.69 per pound.
Gross profit before depreciation and amortization from our coalbusiness unit decreased by 649 million in the third quarter comparedwith the same period a year ago as a result of significantly lowercoal prices, reduced sales volumes and higher total unit costs.Production in the third quarter increased by 6% compared with thesame quarter in 2011 despite our decision to reduce productionstarting in mid-August to align with the declining demand for coal.Production levels increased in July and the first part of Augustafter completing the plant upgrade at our Elkview mine and thede-bottlenecking efforts across our operations. Coal sales were 5.5million tonnes in the third quarter, 10% lower than the same periodlast year, and the average coal price declined by US93 per tonne toUS193 per tonne in the third quarter compared with the same periodlast year reflecting weaker steelmaking coal market conditions. Totalcash unit cost of product sold in the third quarter increased by 13%compared with a year ago to 114 per tonne primarily as a result ofhigher labour costs and increased transportation costs. On ayear-to-date basis, total cash unit costs rose by 4% to 111 pertonne, with the increase entirely due to higher transportation costs.
Gross profit before depreciation and amortization from our zincbusiness unit decreased by 156 million to 125 million in the thirdquarter compared with a year ago. This was primarily due tosignificantly lower metal prices and a 24% decline in zinc salesvolumes from our Red Dog Operations due to weather related shippingdelays. Red Dog's zinc production declined by 15% in the thirdquarter compared with the same period a year ago due to lower oregrades and milling rates which were lowered to reduce silica in thezinc concentrate. A band of extremely fine grained/high silicacontent ore was encountered, requiring a reduction in mill throughputto achieve acceptable concentrate quality. Milling rates are expectedto return to normal in the fourth quarter. Refined zinc and leadproduction from Trail Operations were similar to the same period ayear ago. Sales volumes at Trail rose approximately 10% compared witha year ago due to stronger customer demand. Average zinc, lead andsilver prices decreased 15%, 20% and 23%, respectively, in the thirdquarter of 2012 compared with the same period a year ago.
Revenues
Revenues from operations were 2.5 billion in the third quartercompared with record revenues of 3.4 billion a year ago. Revenuesfrom our copper business unit declined by 45 million from a year agoas the higher sales volumes were offset by lower copper prices andlower by-product revenues. Coal revenues decreased by 640 millioncompared with the third quarter of 2011 as a result of significantlylower coal prices and a 10% decline in sales volumes. Revenues fromour zinc business unit declined by 191 million from a year ago as aresult of lower metal prices and a 24% reduction in sales volumesfrom Red Dog.
Average Prices and Exchange Rates(i)
Three monthsNine months
ended September 30,ended September 30,
20122011 % Change20122011 % Change
----------------------------------------------------------------------------
Copper (LME Cash - US/pound)3.504.07-14%3.614.20-14%
Coal (realized - US/tonne)193286-33%206258-20%
Zinc (LME Cash - US/pound)0.861.01-15%0.881.04-15%
Silver (LME PM fix - US/ounce)3039-23%3136-14%
Molybdenum (published price -
US/pound)1215-20%1316-19%
Lead (LME Cash - US/pound)0.901.12-20%0.911.15-21%
Cdn/U.S. exchange rate (Bank of
Canada)1.000.982%1.000.982%
(i) Except for coal prices, the average commodity prices disclosedabove are based on published benchmark prices and are provided forinformation only. Our actual revenues are determined using commodityprices and other terms and conditions specified in our various salescontracts with our customers. The molybdenum price is the pricepublished in Platts Metals Week.
Our year-to-date business unit results are presented in the tablebelow:
Nine Months ended September 30
Gross profit
before
depreciation and
( in millions)RevenuesamortizationGross profit
----------------------------------------------------------------------------
201220112012201120122011
----------------------------------------------------------------------------
Copper2,247 2,330 1,070 1,335 803 1,115
Coal3,6374,2071,6862,4151,3232,019
Zinc1,7262,005298604221531
Energy3-2---
----------------------------------------------------------------------------
Total7,613 8,542 3,056 4,354 2,347 3,665
----------------------------------------------------------------------------
BUSINESS UNIT RESULTS
The table below shows our production and sales of our majorproducts.
Units
(000's)ProductionSales
----------------------------------------------------------------------------
ThirdThird
QuarterYear-to-dateQuarterYear-to-date
(note 1)20122011201220112012201120122011
----------------------------------------------------------------------------
Principal
products
Copper
Contained in
concentratetonnes84632191828168213184
Cathodetonnes1514515015175151
----------------------------------------------------
99772702329685264235
----------------------------------------------------
Coaltonnes 6,322 5,952 18,294 16,087 5,546 6,143 17,567 16,660
Zinc
Contained in
concentratetonnes145164441496157194371422
Refinedtonnes74732172177569220214
Other products
Lead
Contained in
concentratetonnes2219696246464646
Refinedtonnes2120646422216563
Molybdenum
Contained in
concentratepounds 3,448 2,8259,6527,046 3,006 2,5669,3967,144
----------------------------------------------------------------------------
1.We include 100% of production and sales from our Highland Valley Copper,
Quebrada Blanca and Carmen de Andacollo Operations in our production and
sales volumes, even though we own 97.5%, 76.5% and 90%, respectively, of
these operations, because we fully consolidate their results in our
financial statements. We include 22.5% of production and sales from
Antamina, representing our proportionate equity interest in Antamina.
REVENUES AND GROSS PROFIT
QUARTER ENDED SEPTEMBER, 30
Our revenue, gross profit before depreciation and amortization, andgross profit by business unit are summarized in the tablebelow:
Gross profit
before
depreciation andGross profit
( in millions)Revenuesamortization(loss)
----------------------------------------------------------------------------
201220112012201120122011
----------------------------------------------------------------------------
Copper
Highland Valley Copper 251262128142 90119
Antamina227195164145153140
Quebrada Blanca107140158(22)35
Carmen de Andacollo14217260784058
Duck Pond3139616(1)10
Other5-3-3-
----------------------------------------------------------------------------
763808362439263362
Coal (note 1)1,0771,7174451,094333954
Zinc
Trail437492552(7)40
Red Dog288416127227111213
Other24(7)2(6)2
Inter-segment sales(63)(57)----
----------------------------------------------------------------------------
66485512528198255
Energy1-1---
----------------------------------------------------------------------------
TOTAL 2,505 3,380933 1,814 694 1,571
----------------------------------------------------------------------------
1.Our coal business unit represents our interest in six operating mines.
We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal
River Operations, and have a 95% partnership interest in the Elkview
Mine and an 80% interest in the Greenhills Operations.
REVENUES AND GROSS PROFIT
NINE MONTHS ENDED SEPTEMBER 30
Our revenue, gross profit before depreciation and amortization, andgross profit by business unit are summarized in the tablebelow:
Gross profit before
depreciation andGross
( in millions)Revenuesamortizationprofit
----------------------------------------------------------------------------
201220112012201120122011
----------------------------------------------------------------------------
Copper
Highland Valley Copper 698722341394 249332
Antamina640597460439436423
Quebrada Blanca3804238720915143
Carmen de Andacollo42348215524694187
Duck Pond991062747930
Other7-----
----------------------------------------------------------------------------
2,2472,3301,0701,3358031,115
Coal (note 1)3,6374,2071,6862,4151,3232,019
Zinc
Trail1,3661,498382081171
Red Dog516669261388221352
Other615(1)8(1)8
Inter-segment sales(162)(177)----
----------------------------------------------------------------------------
1,7262,005298604221531
Energy3-2---
----------------------------------------------------------------------------
TOTAL 7,613 8,542 3,056 4,354 2,347 3,665
----------------------------------------------------------------------------
1.Our coal business unit represents our interest in six operating mines.
We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal
River Operations, have a 95% partnership interest in the Elkview Mine
and an 80% joint venture interest in the Greenhills Operation.
COPPER
Highland Valley Copper (97.5%)
Operating results at the 100% level are summarized in the followingtable:
Three months endedNine months ended
September 30,September 30,
2012201120122011
----------------------------------------------------------------------------
Tonnes milled (000's)10,95510,76333,72330,631
Copper
Grade (%)0.320.240.270.26
Recovery (%)89.386.885.987.6
Production (000's tonnes)31.522.878.970.0
Sales (000's tonnes)31.526.880.273.5
Molybdenum
Production (million pounds)2.72.07.55.1
Sales (million pounds)2.21.86.95.3
Cost of sales ( millions)
Operating costs114111332303
Distribution costs992525
Depreciation and amortization38239262
Gross profit summary ( millions)
(note 1)
Before depreciation and
amortization128142341394
Depreciation and amortization(38)(23)(92)(62)
----------------------------------------------------------------------------
After depreciation and
amortization90119249332
----------------------------------------------------------------------------
1.Results do not include a provision for the 2.5% non-controlling interest
in Highland Valley Copper.
Highland Valley Copper's third quarter gross profit before depreciationand amortization decreased from a year ago primarily due to lowercopper prices, despite an 18% increase in sales volumes and lowerunit costs.
Copper production in the third quarter of 31,500 tonnes was 38%higher than a year ago primarily as a result of significantly highergrades and resulting higher recoveries. Production was focused on thehigher grade ore in the Valley Pit during the third quarter of 2012,with higher than normal grades expected to continue in the fourthquarter. Molybdenum production was also strong in the quarter as aresult of improved recoveries and higher feed grades.
The mill modernization project is progressing, with concrete workwell advanced and steel erection and major equipment installationcommencing in the third quarter. During the third quarter an updatedcost estimate for the project was completed. The forecast completioncost for the project is now estimated at 550 million compared withthe pre-feasibility study cost estimate of 475 million. The increasein cost of approximately 15% is primarily due to finalizing theproject scope, bulk commodity quantities and the resultingconstruction hours for the project. The project is on schedule forcompletion and commissioning at the end of 2013.
Antamina (22.5%)
Operating results at the 100% level are summarized in the followingtable:
Three months endedNine months ended
September 30,September 30,
2012201120122011
----------------------------------------------------------------------------
Tonnes milled (000's)
Copper-only ore9,3597,62323,54118,405
Copper-zinc ore2,9151,77411,1909,533
----------------------------------------------------------------------------
12,2749,39734,73127,938
Copper (note 1)
Grade (%)1.151.111.071.00
Recovery (%)89.487.387.685.3
Production (000's tonnes)123.593.2325.2238.7
Sales (000's tonnes)122.186.8317.0239.4
Zinc (note 1)
Grade (%)1.972.591.882.33
Recovery (%)81.984.880.385.2
Production (000's tonnes)51.131.4174.6187.8
Sales (000's tonnes)54.733.6166.3188.4
Molybdenum
Production (million pounds)3.03.99.48.8
Sales (million pounds)3.53.611.18.4
Cost of sales (US millions)
Operating costs204 136570409
Distribution costs29 238067
Royalties and other costs (note 2)49 55152170
Depreciation and amortization39 2710380
Gross profit summary (our 22.5%
share) ( millions)
Before depreciation and
amortization164 145460439
Depreciation and amortization(11)(5)(24)(16)
----------------------------------------------------------------------------
After depreciation and amortization 153 140436423
----------------------------------------------------------------------------
1.Copper ore grades and recoveries apply to all of the processed ores.
Zinc ore grades and recoveries apply to copper-zinc ores only.
2.In addition to royalties paid by Antamina, we also pay a royalty in
connection with the acquisition of our interest in Antamina equivalent
to 7.4% of our share of cash flow distributed by the mine.
The increase in our 22.5% share of Antamina's gross profit beforedepreciation and amortization in the third quarter was primarily dueto significantly higher sales volumes as the benefits from theexpansion project and resulting higher production levels wererealized. Higher sales volumes were partially offset by lower metalprices.
Tonnes milled in the third quarter were 31% higher than a year agoand averaged approximately 133,400 tonnes per day, which reflectsAntamina's expanded mill capacity.
The mix of mill feed in the third quarter was 76% copper-only ore and24% copper-zinc ore, compared with 81% and 19%, respectively, in thesame period a year ago. Copper production increased by 33% to 123,500tonnes compared with 93,200 tonnes in the third quarter of 2011. Thehigher production was primarily the result of the mill expansion, aswell as slightly higher head grades and improved recoveries. Zincproduction increased to 51,100 tonnes from 31,400 tonnes in the sameperiod a year ago as a result of the additional mill throughput and agreater proportion of copper-zinc ore processed in the quarter.Molybdenum production decreased in the third quarter compared with ayear ago as a result of lower molybdenum grades and recoveries.
The increased cost of sales in the third quarter compared with a yearago was due to substantially increased sales volumes in both copperand zinc. Cost per unit of production sold was similar to the samequarter last year.
Negotiations for Antamina's labour agreement, which expired on July23, 2012, are continuing.
Quebrada Blanca (76.5%)
Operating results at the 100% level are summarized in the followingtable:
Three months endedNine months ended
September 30,September 30,
2012201120122011
----------------------------------------------------------------------------
Tonnes placed (000's)
Heap leach ore1,9041,5465,1304,825
Dump leach ore7,4495,00219,69317,258
----------------------------------------------------------------------------
9,3536,54824,82322,083
Grade (TCu%) (note 1)
Heap leach ore0.780.930.850.93
Dump leach ore0.470.500.450.47
Production (000's tonnes)
Heap leach ore9.96.730.223.0
Dump leach ore5.16.917.922.7
----------------------------------------------------------------------------
15.013.648.145.7
Sales (000's tonnes)13.815.547.146.0
Cost of sales (US million)
Operating costs10582288213
Distribution costs1255
Depreciation and amortization23237167
Gross profit (loss) summary (
millions) (note 2)
Before depreciation and
amortization15887209
Depreciation and amortization(23)(23)(72)(66)
----------------------------------------------------------------------------
After depreciation and
amortization(22) 3515143
----------------------------------------------------------------------------
1.TCu% is the percent assayed total copper grade.
2.Results do not include a provision for the 23.5% non-controlling
interest in Quebrada Blanca.
Quebrada Blanca's gross profit before depreciation and amortization inthe third quarter declined substantially due to significantly higherunit costs, lower copper prices and an 11% decrease in sales volumesdue to timing of shipments.
Cathode copper production in the third quarter rose by 10% to 15,000tonnes compared with the same period a year ago. Production increasedas a result of processing higher amounts of heap and dump-leach oreplaced in this and previous quarters, and now undergoing leaching,partly offset by lower ore grades.
Operating costs increased by US23 million in the third quartercompared with the same period a year ago primarily due to significantincreases in heap and dump-leach ore placed in the quarter and tohigh, non-recurring costs. This increased 43% compared with the sameperiod a year ago. In addition, labour costs rose, reflecting the newterms of the collective agreement ratified earlier in 2012.
Quebrada Blanca's 2012 production is now expected to be approximately60,000 tonnes of copper cathode compared with our previous guidanceof 65,000 to 70,000 tonnes, with the reduction due ahigher-than-anticipated proportion of low-grade dump materialundergoing leaching and a corresponding lower-than-anticipatedproportion of higher-grade heap ores undergoing leaching.
Carmen de Andacollo (90%)
Operating results at the 100% level are summarized in the followingtable:
Three months endedNine months ended
September 30,September 30,
2012201120122011
----------------------------------------------------------------------------
Tonnes milled (000's)4,5293,70312,49010,988
Copper
Grade (%)0.520.490.520.51
Recovery (%)87.586.786.687.6
Production (000's tonnes)20.815.856.148.8
Sales (000's tonnes)18.517.950.546.8
Gold (note 1)
Production (000's ounces)16.211.840.938.5
Sales (000's ounces)14.713.538.935.3
Copper cathode
Production (000's tonnes)0.81.13.24.5
Sales (000's tonnes)0.61.13.34.7
Cost of sales (US million)
Operating costs7590248226
Distribution costs761916
Depreciation and amortization20216161
Gross profit summary ( millions)
(note 2)
Before depreciation and
amortization6078155246
Depreciation and amortization(20)(20)(61)(59)
----------------------------------------------------------------------------
After depreciation and
amortization405894187
----------------------------------------------------------------------------
1.Carmen de Andacollo processes 100% of gold mined, but 75% of the gold
produced is for the account of Royal Gold Inc.
2.Results do not include a provision for the 10% non-controlling interest
in Andacollo.
The decrease in Carmen de Andacollo's third quarter gross profit beforedepreciation and amortization was primarily due to lower copperprices, partly offset by lower unit operating costs.
Production in the third quarter was a record and rose by 32% to20,800 tonnes compared with the same period a year ago. The 20,000tonnes per day pre-crushing plant commissioned during the thirdquarter was primarily responsible for the additional increase inthroughput. Although not fully optimized, the plant began to reachdesign capacity near the end of the quarter. Plant throughputachieved just over 54,000 tonnes per day in the month of Septemberversus the design capacity of 55,000 tonnes per day.
Operating costs in the third quarter decreased by 17% to 75 millioncompared with a year ago as result of lower unit costs achieved bythe economies of scale from the higher production levels.
Duck Pond (100%)
Duck Pond's gross profit before depreciation and amortizationdeclined to 6 million in the third quarter compared with 16 millionin the same period a year ago as a result of lower metal prices.Copper and zinc production in the third quarter were 3,100 tonnes and4,600 tonnes, respectively, compared with 3,500 tonnes and 5,900tonnes, respectively, last year. Lower production in both copper andzinc was due to lower feed grades available during the quarter, aswell as lower recoveries in the plant. Copper and zinc sales in thethird quarter were 4,100 tonnes and 3,700 tonnes, respectively,compared with 3,900 tonnes and 4,300 tonnes, respectively, last year.
As planned in the original feasibility study, the operation willstart early works for the Boundary pits in the fourth quarter as themine transitions towards open pit mining in 2013 as a supplementalfeed source for the remainder of the mine life, currently scheduledto close in early 2015.
Copper Development Projects
Quebrada Blanca Phase 2
During the second quarter we completed a feasibility study on ourQuebrada Blanca hypogene project. The study estimates a capital costfor the development of the project of US5.6 billion on a 100% basis(in January 2012 dollars, not including working capital or interestduring construction), of which our funding share would be US4.8billion. The study contemplates the construction of a 135,000 tonneper day concentrator and related facilities connected to a new portfacility by 165 kilometre concentrate and desalinated waterpipelines.
As part of the ongoing project work plan for 2012, the SocialEnvironmental Impact Assessment ("SEIA") for the project wassubmitted to the Chilean regulatory authorities during the secondquarter. This was subsequently voluntarily withdrawn and we arepreparing responses to the comments and questions from the Chileanauthorities and collecting and analyzing some additional baselineenvironmental data. We currently do not expect to re-file the SEIAbefore the second quarter of 2013.
Discussions are ongoing with various potential suppliers for power tothe project and with the other shareholders of Quebrada Blancaconcerning financing options for the hypogene project, which mayinclude limited recourse project financing and, possibly, bringing ina new funding partner.
Relincho
The feasibility study is progressing. Permitting delays have impactedthe progress of third-party port and power supply facilities that weexpected to use for Relincho and will delay the completion of thefeasibility study. Exploration and geotechnical drilling are ongoingand a new resource and reserve estimate is expected at the completionof the feasibility study. Based on the prefeasibility design,production would average 180,000 tonnes per year of copper and 6,000tonnes per year of molybdenum over a 22-year mine life, with higherproduction in the first five years.
Galore Creek (50%)
The 2012 work program, which included approximately 25,000 meters ofinfill and geotechnical drilling, was completed in the third quarter.The results of this field program are currently being assembled andreviewed.
COAL (100%)
Operating results at the 100% level are summarized in the followingtable:
Three months endedNine months ended
September 30,September 30,
2012201120122011
----------------------------------------------------------------------------
Production (000's tonnes)6,3225,95218,29416,087
Sales (000's tonnes)5,5466,14317,56716,660
Average sale price
US/tonne193286206258
C/tonne194279207252
Cost of sales (C/tonne)
Operating costs77707575
Transportation costs37313632
Depreciation and amortization20232124
Gross profit summary ( millions)
Before depreciation and
amortization4451,0941,6862,415
Depreciation and amortization(112)(140)(363)(396)
----------------------------------------------------------------------------
After depreciation and
amortization3339541,3232,019
----------------------------------------------------------------------------
Gross profit before depreciation and amortization in the third quarterdeclined substantially compared with last year due primarily tosignificantly lower coal prices, lower sales volumes and higheroperating and transportation unit costs.
Production in the third quarter increased by 6% compared with thesame quarter in 2011 despite our decision to reduce productionstarting in mid-August to align with the declining demand for coal.Production levels increased in July and the first part of Augustafter completing the plant upgrade at our Elkview mine and thede-bottlenecking efforts across our operations.
Coal sales of 5.5 million tonnes in the third quarter were 12% belowproduction levels and 10% lower than the same period last year. Theaverage coal price of US193 per tonne in the third quarter was 33%lower than the same quarter a year ago. The decline in sales volumeand average coal price for this quarter reflects the weaker marketconditions. Concerns surrounding the slowdown of global economicactivity and softer steel prices have caused many steel producers toreduce their production.
Coal prices have been agreed with the majority of the quarterlycontract customers for the fourth quarter of 2012 based on pricing ofapproximately US170 per tonne for the highest quality product, whichis consistent with prices reportedly achieved by our competitors. Asof the date of this release, contracted sales are approximately 6.2million tonnes of coal for delivery in the fourth quarter at anaverage price of US163 per tonne. We remain in quarterly contractdiscussions with a small number of customers and are anticipatingselling additional tonnage on the spot market as well. Vesselnominations for quarterly contract tonnage are determined bycustomers and final sales and average prices for the quarter willdepend on vessels arriving at port as scheduled, and on the level ofadditional spot sales.
Unit cost of product sold of 77 per tonne, before transportation anddepreciation charges, was 7 per tonne higher than in the samequarter of 2011. Cost reduction efforts at the mines, whichaccompanied the reduction in production levels beginning inmid-August, were successful and further reductions are beingimplemented. Costs in the third quarter, other than those for labour,were generally consistent with prior year levels. The increase inunit labour costs year-over-year was primarily due to the effect ofnew annual collective agreements at all mines, and a one-time chargefrom the recently settled Cardinal River collective agreement. The2012 annual cost of product sold is expected to fall within thecurrent guidance range of 72 to 78 per tonne, for currentproduction plans.
Unit transportation costs in the third quarter were 37 per tonne, or19% higher compared with the same quarter a year ago mainly due tohigher port and ocean freight costs. Port costs rose due to an annualincrease in contract rates and inflation adjustments. Ocean freightcosts this quarter also increased due to a higher portion of coalthat is being sold inclusive of ocean freight. The additional costsof utilizing different coal terminals as a means of supplementingcapacity during outages that occur as part of expansion programs atthe ports in greater Vancouver, also contributed to the highertransportation costs in the third quarter. Annual unit transportationcosts are expected to remain within the current guidance range of 34to 38 per tonne.
Westshore Terminals is completing planned capacity expansion work atits facility in the fourth quarter that will result in reduced raildumping capacity during the construction period. We do not anticipateany impact on our sales with greater use of the Neptune, Ridley, andPacific Coast terminals. Additionally, we will draw down stockpilesat Westshore to take advantage of vessel loading capacity that isavailable during the dumper work.
Ongoing CP Rail investment in its network, supported by the recentrail loop extension at Neptune Terminals, is adding rail capacity forcoal through longer trains. More than half the trains in CP exportservice are now running at 152 cars in length allowing more coal tobe transported with fewer trains. We expect to see average trainlengths to increase further in 2013 as CP Rail's investment programprogresses.
Depreciation and amortization declined by 3 per tonne due to thesignificant increase in coal reserves recorded in 2011 as a result ofour drilling programs at our coal mines. Certain capital assets aredepreciated on a units-of-production basis over proven and probablereserves.
The feasibility study for the re-opening of the Quintette mine wascompleted in the third quarter of this year. The feasibility studyestimates the capital cost to re-open Quintette at 858 million, notincluding escalation or interest during construction. The studycontemplates an average clean coal production rate of 3.5 milliontonnes per year over the estimated 12 year life of Quintette. We arepresently evaluating options that would extend the life of mine forQuintette beyond the present mineral reserve of 42.5 million tonnesof clean coal. The Mines Act Permit Amendment ("MAPA") applicationwas submitted earlier this year and has been delayed as a result ofnewly issued provincial interim guidelines for caribou management. Anupdated Caribou Monitoring and Mitigation Plan incorporating theinterim guidelines was developed and submitted as an amendment to theMAPA in October 2012. The delay in the permitting process hasresulted in a reduction in capital spending of 224 million in 2012.We expect to receive the permit approval in the first half of 2013and the first coal production is now expected in the first half of2014. By the fourth quarter of 2014 Quintette is expected to beproducing at an annualized rate of three million tonnes.
Work is ongoing to develop and implement selenium management plansfor each of the six operating coal mines and the Quintette project.It is possible that permitting for current and future projects may bedelayed or withheld until appropriate selenium management plans aredeveloped and implemented. Water treatment is being planned at threemine sites in the Elk Valley entailing expenditures of approximately175 million over the next three years. Construction has commenced atour Line Creek Operation on the first water treatment plant forselenium removal. However, plans are not yet complete and additionalcosts may be incurred, which may be significant. In addition, anextensive applied research and development program focused on thedevelopment of long-term, lower-cost methods of mining to reduceselenium generation has been initiated this year with planned costsof approximately 12 million annually for the next three years.
Neptune Bulk Terminals, of which we have a 46% ownership interest, isexpanding its annual coal throughput capacity from 9 million tonnesto 12.5 million tonnes by the spring of 2013 with the addition of asecond stacker reclaimer. Completion of the feasibility study for thenext expansion phase, which may further increase capacity from 12.5million tonnes to 18.5 million tonnes, is expected in the fourthquarter of 2012. The proposed upgrades will include a second railcardumper and associated conveying system, a new rail track within theexisting rail loop, the replacement of a ship loader and foundationreinforcement of the loading berth.
ZINC
Trail (100%)
Operating results at the 100% level are summarized in the followingtable:
Three months endedNine months ended
September 30,September 30,
2012201120122011
----------------------------------------------------------------------------
Metal production
Zinc (000's tonnes)73.573.1217.0216.6
Lead (000's tonnes)21.720.364.464.0
Silver (million ounces)5.65.016.216.0
Metal sales
Zinc (000's tonnes)75.669.3220.3214.0
Lead (000's tonnes)22.220.164.962.5
Silver (million ounces)5.65.016.215.9
Cost of sales ( millions)
Concentrates305326893946
Operating costs9990354270
Distribution costs28248174
Depreciation and amortization12123737
Gross profit (loss) summary (
millions)
Before depreciation and
amortization55238208
Depreciation and amortization(12)(12)(37)(37)
----------------------------------------------------------------------------
After depreciation and amortization(7) 401171
----------------------------------------------------------------------------
Gross profit at Trail before depreciation and amortization declinedsubstantially from a year ago due to significantly lower metalprices, despite higher production and sales levels.
Third quarter production levels for lead and silver increased from ayear ago due to a combination of the Kivcet furnace running at higherfeed rates and a drawdown of in-process inventory that hadaccumulated in the second quarter. Stronger customer demand resultedin higher zinc sales volumes than the same period in 2011.
Concentrate purchase costs decreased in the third quarter comparedwith the same period a year ago as a result of lower metal prices.Operating costs rose slightly in the third quarter from a year agodue to higher labour costs and higher expenditures on operatingsupplies consistent with increased production levels.
Construction continued on the new acid plant project with start-upexpected in late 2013. Spending on the Number 4 Furnace Project hasbeen deferred as major excavation and construction have not commencedand detailed engineering has yet to be completed. Current productionwill not be impacted by the deferral and employees currentlydedicated to the project will be deployed to other areas of TrailOperations.
Upper Columbia River Basin (Lake Roosevelt)
Teck American continues studies under the 2006 settlement agreementwith the U.S. Environmental Protection Agency ("EPA") to conduct aremedial investigation on the Upper Columbia River in WashingtonState.
The Lake Roosevelt litigation involving Teck Metals Ltd. in theFederal District Court for the Eastern District of Washingtoncontinues. In April, an order for summary judgment was issuedstriking Teck Metals Ltd.'s defense of apportionment. In July, theUnited States Court of Appeals for the Ninth Circuit denied ourapplication for leave to appeal that decision on an interlocutorybasis.
In September, Teck Metals entered into an agreement with theplaintiffs, agreeing that certain facts were established for purposesof the litigation. The agreement stipulates that some portion of theslag discharged from our Trail Operations into the Columbia Riverbetween 1896 and 1995, and some portion of the effluent dischargedfrom Trail Operations, have been transported to and are present inthe Upper Columbia River in the United States, and that somehazardous substances from the slag and effluent have been releasedinto the environment within the United States. These facts areexpected to provide the minimum requirements to allow the court tofind in favour of the plaintiffs on their claim for a declaratoryjudgment that TML is liable under CERCLA for response costs, theamount of which will be determined in a subsequent phase of the case.In October, the Federal District Court for the Eastern District ofWashington heard argument with respect to personal jurisdiction andcertain legal issues with respect to CERCLA. The subsequent hearing,with respect to claims for natural resource damages and costs, isexpected to be deferred while the remedial investigation andfeasibility study being undertaken by Teck American are completed,which is currently expected to occur in 2015.
There is no assurance that we will ultimately be successful in ourdefense of the litigation or that we or our affiliates will not befaced with further liability in relation to this matter. Until thestudies contemplated by the EPA settlement agreement and additionaldamage assessments are completed, it is not possible to estimate theextent and cost, if any, of remediation or restoration that may berequired or to assess our potential liability for damages. Thestudies may conclude, on the basis of risk, cost, technicalfeasibility or other grounds, that no remediation should beundertaken. If remediation is required and damage to resources found,the cost of remediation may be material.
Red Dog (100%)
Operating results at the 100% level are summarized in the followingtable:
Three months endedNine months ended
September 30,September 30,
2012201120122011
----------------------------------------------------------------------------
Tonnes milled (000's)8809592,5752,817
Zinc
Grade (%)18.119.318.218.9
Recovery (%)80.881.782.382.0
Production (000's tonnes)128.9151.1386.8436.9
Sales (000's tonnes)141.2186.8321.1364.1
Lead
Grade (%)4.34.84.74.8
Recovery (%)59.442.257.745.7
Production (000's tonnes)22.319.469.161.9
Sales (000's tonnes)46.445.646.445.6
Cost of sales (US millions)
Operating costs8090127131
Distribution costs32406673
Royalties (NANA)52616482
Depreciation and amortization16144036
Gross profit summary ( millions)
Before depreciation and
amortization127227261388
Depreciation and amortization(16)(14)(40)(36)
----------------------------------------------------------------------------
After depreciation and
amortization111213221352
----------------------------------------------------------------------------
Red Dog's gross profit declined significantly in the third quarter as aresult of lower metal prices and a 24% decrease in zinc sales volumesassociated with weather related shipping delays.
Zinc production in the third quarter decreased by 15% from a year agoto 128,900 tonnes as milling rates were lowered to reduce silica inthe zinc concentrate and due to lower ore grades. A band of extremelyfine grained/high silica content ore was encountered, requiring areduction in mill throughput to achieve acceptable concentratequality. Milling rates are expected to return to normal in the fourthquarter. Lead production was 15% higher than the third quarter of2011 due to improved recoveries as significantly less near-surface,weathered ore from the Aqqaluk Pit was processed in the quarter.
The 2012 shipping season was completed on October 19, 2012 followingthe shipment of 950,000 tonnes of zinc concentrate and 175,000 tonnesof lead concentrate compared with 1,010,000 tonnes and 143,000 tonnesrespectively, for the 2011 season. This represents all of Red Dog'sconcentrates available to be shipped from the operation.
Appeals of Red Dog's 2010 water discharge permit have been favourablyresolved (although deadlines for further appeal have not yetexpired), and discussions are ongoing with regulators in connectionwith the reissuance of the permit.
In accordance with the agreements governing our development of themine, the net proceeds of production royalty that we pay to NANADevelopment Inc. will increase to 30% in the fourth quarter of 2012from the current 25%.
ENERGY
Fort Hills Project
Engineering studies are ongoing to update the design basis for theproject and improve the accuracy of cost estimates to facilitate aproject sanction decision by the partners in 2013. Suncor, operatorof Fort Hills, has indicated that it is developing a cost-drivenconstruction schedule and as a result, should the partners approvethe sanction of Phase One of the Fort Hills project in 2013,production would not be expected to start before 2017.
Our share of 2012 Fort Hills spending, including our ongoing earn-incommitments, is now estimated at 138 million compared with ourprevious guidance of 220 million. Spending has decreased this yeardue to the focus on developing a cost-driven project schedule.
Frontier Project
The Frontier project has been designed for up to four productionlines with a total capacity of approximately 277,000 barrels per dayof bitumen. The first two production lines are planned to have aproduction capacity of 159,000 barrels per day.
Provincial and federal regulatory agencies completed their initialreview of the Frontier project application and provided supplementalinformation requests ("SIR"s) in July 2012. We anticipate respondingto these information requests in late 2012 or early 2013. TheCanadian Environmental Assessment Agency ("CEAA") has providedestimates of the federal review schedule for the Frontier projectapplication. The cumulative federal review period is estimated to beapproximately two years. When time to respond to information requestsis included, 2015 is the earliest an approval decision and receipt ofrequired permits is expected.
A field exploration program is being planned for 2013 to acquireadditional resource definition and geotechnical information to assistin future engineering studies.
There is no certainty that it will be commercially viable to produceany portion of our contingent bitumen resources.
Wintering Hills Wind Power Operation
During the first nine months of 2012, our share of the powergeneration from Wintering Hills was 68 GWhs. Expected powergeneration in 2012 is 80 GWhs, which will result in 50,000 tonnes ofCO2 equivalent offsets.
OTHER COST AND EXPENSES
Other operating income, net of other expense, was 57 million in thethird quarter compared with 141 million of other expenses in thethird quarter of 2011. Included in other operating income was 55million of positive price adjustments in the third quarter of 2012primarily from rising copper prices in the period. This compares withnegative pricing adjustments of 192 million in the third quarter of2011 when copper prices declined sharply at the end of the quarter.
The table below outlines our outstanding receivable positions, whichwere provisionally valued at June 30, 2012, and our receivablepositions provisionally valued at, September 30, 2012.
Outstanding atOutstanding at
June 30, 2012September 30, 2012
------------------------------------------------
(pounds in millions)PoundsUS/lbPoundsUS/lb
----------------------------------------------------------------------------
Copper1713.441693.74
Zinc930.841840.95
----------------------------------------------------------------------------
Financing expenses were 143 million in the third quarter compared with160 million a year ago. The debt interest component of our financingexpense decreased to 106 million from 117 million in the thirdquarter of last year due to the lower interest rates on the new notesissued pursuant to our recent liability management transactionspartly offset by higher debt levels.
Other non-operating income, net of expenses, includes items thatarise from financial and other matters and includes such items asforeign exchange, debt refinancing costs, realized gains or losses onmarketable securities and gains and losses on the revaluation offixed price call options on certain of our high-yield notes. In thethird quarter of 2012, other non-operating expense was 179 million,which was primarily comprised of the 238 million charge on theredemption of a portion of our high-yield notes and a mark-to-marketgain of 59 million on the revaluation of our call option on ourhigh-yield notes. This compares with 82 million of other income inthe third quarter of 2011.
Income and resource taxes for the quarter were 186 million, or 49%of pre-tax profit, which is higher than the Canadian statutory incometax rate of 25%. This was mainly due to the effect of debt redemptioncosts, the new Chilean first category tax rate increase, resourcetaxes and higher tax rates in foreign jurisdictions. The debtredemption costs incurred in the quarter were not fully taxdeductible, and therefore, had a significant effect on increasing ouroverall tax rate this quarter. The tax rate on our adjusted earningswas 38% in both the quarter and on a year-to-date basis. We arecurrently shielded from cash income taxes, but not resource taxes inCanada. We remain subject to cash taxes in foreign jurisdictions.
OPERATING CASH FLOW, FINANCIAL POSITION AND LIQUIDITY
Cash flow from operations, before changes in non-cash working capitalitems, was 741 million in the third quarter compared with a record1.3 billion a year ago as a result of the effect of significantlylower commodity prices for all our main products.
Changes in non-cash working capital items resulted in a use of cashof 154 million in the third quarter compared with a source of cashof 81 million in the same period a year ago. The increase in workingcapital and resulting use of cash in the third quarter this year wasdue to higher accounts receivable and production inventoriesbalances. Accounts receivable increased primarily as a result ofhigher closing copper and zinc prices at September 30 compared withJune 30, 2012. Production inventories rose in the third quarter,which was mainly attributable to coal production exceeding salesvolumes by 776,000 tonnes.
Expenditures on property, plant and equipment were 478 million inthe third quarter and included 181 million on sustaining capital and297 million on major development projects. The largest component ofsustaining expenditures was 94 million at our coal operations. Majordevelopment expenditures included 32 million at Trail, 24 millionat Relincho, 27 million for Antamina's expansion, 50 million at theQuebrada Blanca hypogene project, 30 million for Quintette and 77million at our existing coal operations to incrementally expandproduction.
In August, we issued US1.75 billion of long-term notes with aneffective average interest rate of 4.0%. We used 738 million fromthe proceeds of the notes to retire US660 million of our high-yieldnotes. This resulted in an after-tax charge of 196 million in thequarter, including a write-off relating to the value of the embeddedcall options, which enabled us to complete the transaction. We alsorepaid our 10-year 7% notes when they became due in September, 2012.
We have committed and unused bank credit facilities aggregating 1.1billion, the majority of which mature in 2016.
On October 19, we issued a notice of redemption to redeem all US521million principal amount of our outstanding 10.75% senior notes duein 2019, with the redemption taking place on November 19, 2012. Weexpect to record an after-tax charge of approximately US259 millionin the fourth quarter in connection with the redemption. After thisredemption the average coupon rate on our outstanding notes will be4.8% with an average term to maturity of 16.5 years. On completion ofthis transaction, we will have retired all of our high-yield debt andwe do not expect any further significant charges on debt retirement.
OUTLOOK
We continue to experience volatile markets for our products.Commodity markets have historically been volatile, prices can changerapidly and customers can alter shipment plans. This can have asubstantial impact on our business. Ongoing economic uncertainties inEurope and the United States and less robust growth rates in China,India and other emerging markets have impacted both demand and pricesfor some of our products. We believe that the medium to longer termfundamentals for steelmaking coal are quite favorable, however, therecent weakness in the seaborne steelmaking coal market may wellpersist into the first half of 2013. Markets for copper remain steadywhile zinc markets have shown some weakness. In the meantime, theCompany's financial position is strong and we continuously monitorall aspects of our key markets as conditions evolve in order to be ina position to take whatever actions may be appropriate.
Capital Expenditures
A significant component of our capital spending program has beenrescheduled for a variety of reasons. This includes a delay atQuebrada Blanca Phase 2 as the resubmission of our Social andEnvironmental Impact Assessment is not expected to occur before thesecond quarter of 2013. At Quintette we have been delayed due toenvironmental permitting issues, but still expect to be in productionin 2014. At Relincho changes in plans for local infrastructureprojects necessitates a pause before the completion of thefeasibility study. Spending on Fort Hills has decreased this year dueto the focus on developing a cost-driven project schedule. We havealso deferred the construction of the Number 4 slag furnace at Trailand we are considering delay of a number of other projects. Thisrescheduling will result in deferrals of capital expenditures ofapproximately 300 million in 2012 and 1.2 billion in 2013. Ourannual budgeting cycle occurs in the fourth quarter of each year andour capital and operating budgets for 2013 have not yet beenfinalized.
The amount and timing of actual capital expenditures is alsodependent upon being able to secure permits, equipment, supplies,materials and labour on a timely basis and at expected costs toenable the projects to be completed as currently anticipated. We maychange capital spending plans for the balance of this year and next,depending on commodity markets, our financial position, results offeasibility studies and other factors. As a result, our forecastcapital expenditures for 2012 are now expected to be approximately1.8 billion, which is lower than our previous guidance of 2.1billion and our original guidance of 2.3 billion. This is summarizedin the following table:
----------------------------------------------------------------------------
( in millions)SustainingDevelopmentTotal
----------------------------------------------------------------------------
Copper195670865
Coal350300650
Zinc90110200
Energy-7070
Corporate25-25
----------------------------------------------------------------------------
6601,1501,810
----------------------------------------------------------------------------
We also expect to invest approximately 138 million in 2012 for ourshare of costs for the Fort Hills oil sands project, including ourearn-in commitments, compared with our previous guidance of 220million.
Foreign Exchange, Debt Revaluation and Interest Expense
The sales of our products are denominated in U.S. dollars, while asignificant portion of our expenses are incurred in local currencies,particularly the Canadian dollar. Foreign exchange fluctuations canhave a significant effect on our operating margins, unless suchfluctuations are offset by related changes to commodity prices.
Our U.S. dollar denominated debt is subject to revaluation based onchanges in the Canadian/U.S. dollar exchange rate. As at September30, 2012, all of our U.S. dollar denominated debt is designated as ahedge against our U.S. dollar denominated foreign operations andworking capital items. As a result, any foreign exchange gains orlosses arising on our designated U.S. dollar debt are recorded inother comprehensive income.
FINANCIAL INSTRUMENTS AND DERIVATIVES
We hold a number of financial instruments and derivatives, which arerecorded on our balance sheet at fair value with gains and losses ineach period included in other comprehensive income and profit for theperiod as appropriate. The most significant of these instruments aremarketable securities, foreign exchange forward sales contracts,energy price option contracts, metal-related forward contracts,prepayment rights on certain senior debt notes and settlementsreceivable and payable. Some of our gains and losses on metal-relatedfinancial instruments are affected by smelter price participation andare taken into account in determining royalties and other expenses.All are subject to varying rates of taxation depending on theirnature and jurisdiction.
QUARTERLY EARNINGS AND CASH FLOW
(in millions, except
for share data)2012
----------------------------------------------------------------------------
Q3Q2Q1
Revenues2,5052,5612,547
Gross profit694735918
EBITDA721790781
Profit (note 1)180268218
Earnings per share0.310.460.37
Cash flow from
operations587768644
----------------------------------------------------------------------------
(in millions, except
for share data)20112010
----------------------------------------------------------------------------
Q4Q3Q2Q1Q4Q3
Revenues2,972 3,380 2,796 2,366 2,716 2,414
Gross profit1,2121,5711,1978971,127926
EBITDA1,3041,6601,4611,0341,013921
Profit (note 1)637814756461325316
Earnings per share1.08 1.38 1.28 0.78 0.55 0.54
Cash flow from
operations1,1991,3836217541,156771
----------------------------------------------------------------------------
1.Attributable to shareholders of the company.
OUTSTANDING SHARE DATA
As at October 23, 2012 there were 576,661,370 Class B subordinatevoting shares and 9,353,470 Class A common shares outstanding. Inaddition, there were 6,887,546 director and employee stock optionsoutstanding with exercise prices ranging between 4.15 and 58.80 pershare. More information on these instruments and the terms of theirconversion is set out in Note 21 of our 2011 year end financialstatements.
INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintainingadequate internal control over financial reporting. Any system ofinternal control over financial reporting, no matter how welldesigned, has inherent limitations. Therefore, even those systemsdetermined to be effective can provide only reasonable assurance withrespect to financial statement preparation and presentation. Therehave been no changes in our internal control over financial reportingduring the quarter ended September 30, 2012 that have materiallyaffected, or are reasonably likely to materially affect, internalcontrol over financial reporting.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This news release contains certain forward-looking information andforward-looking statements as defined in applicable securities laws.All statements other than statements of historical fact areforward-looking statements. These forward-looking statements,principally under the heading "Outlook," but also elsewhere in thisdocument, include estimates, forecasts, and statements as tomanagement's expectations with respect to, among other things,anticipated production at our business units and individualoperations and expectation that we will meet our production guidance,sales volume and selling prices for our products (includingsettlement of coal contracts with customers), plans and expectationsfor our development projects, forecast operating costs and costs ofproduct sold, expected progress, costs and outcomes of our variousprojects and investments, including but not limited to thosedescribed in the discussions of our operations, the sensitivity ofour profit to changes in commodity prices and exchange rates, theimpact of potential production disruptions, the impact of currencyexchange rates, future trends for the company, progress indevelopment of mineral properties, increased coal and copperproduction as a result of our expansion plans, timing of completion,costs and results of our mill modernization program at HighlandValley Copper, 2012 production guidance for Quebrada Blanca,statements under the heading "Copper Development Projects," includingthe expected resubmittal of the environment impact assessment forQuebrada Blanca Phase 2, the timing of the feasibility study anddrilling for Relincho, our expectation that coal sales will not beimpacted by greater use of shipping terminals other than Westshoreterminals, our expectation that average trail lengths will increasein 2013, the timing of permit approval, production and anticipatedproduction levels from the Quintette coal mine, timing and results ofthe Neptune Bulk Terminals capacity expansions, the impact ofmeasures to manage selenium discharges and costs and impacts relatedthereto, timing of construction at our new acid plant in Trail, thestatements under the heading "Energy" regarding timing of sanction,production permitting decisions, timing of final SIRs on our Frontierproject and our responses thereto, anticipated capital expendituresand demand and market outlook for commodities, These forward-lookingstatements involve numerous assumptions, risks and uncertainties andactual results may vary materially.
These statements are based on a number of assumptions, including, butnot limited to, assumptions regarding general business and economicconditions, the supply and demand for, deliveries of, and the leveland volatility of prices of, zinc, copper and coal and other primarymetals and minerals as well as oil, and related products, the timingof the receipt of regulatory and governmental approvals for ourdevelopment projects and other operations, our costs of productionand production and productivity levels, as well as those of ourcompetitors, power prices, continuing availability of water and powerresources for our operations, market competition, the accuracy of ourreserve estimates (including with respect to size, grade andrecoverability) and the geological, operational and price assumptionson which these are based, conditions in financial markets, the futurefinancial performance of the company, our ability to attract andretain skilled staff, our ability to procure equipment and operatingsupplies, positive results from the studies on our expansionprojects, our coal and other product inventories, our ability tosecure adequate transportation for our products, our ability toobtain permits for our operations and expansions, our ongoingrelations with our employees and business partners and jointventurers. With respect to the Quebrada Blanca Phase 2, assumptionsare based on receiving comments from all interested parties and ourability to address the comments in a satisfactory manner. Theforegoing list of assumptions is not exhaustive. Events orcircumstances could cause actual results to vary materially.
Factors that may cause actual results to vary materially include, butare not limited to, changes in commodity and power prices, changes inmarket demand for our products, changes in interest and currencyexchange rates, acts of foreign governments and the outcome of legalproceedings, inaccurate geological and metallurgical assumptions(including with respect to the size, grade and recoverability ofmineral reserves and resources), unanticipated operationaldifficulties (including failure of plant, equipment or processes tooperate in accordance with specifications or expectations, costescalation, unavailability of materials and equipment, governmentaction or delays in the receipt of government approvals, industrialdisturbances or other job action, adverse weather conditions andunanticipated events related to health, safety and environmentalmatters), union labour disputes, political risk, social unrest,failure of customers or counterparties to perform their contractualobligations, changes in our credit ratings, unanticipated increasesin costs to construct our development projects, difficulty inobtaining permits, inability to address concerns regarding permits ofenvironmental impact assessments, and changes or furtherdeterioration in general economic conditions. Our Fort Hills projectis not controlled by us and construction, sanction and productionschedules may be adjusted by our partner.
Statements concerning future production costs or volumes, and thesensitivity of the company's profit to changes in commodity pricesand exchange rates are based on numerous assumptions of managementregarding operating matters and on assumptions that demand forproducts develops as anticipated, that customers and othercounterparties perform their contractual obligations, that operatingand capital plans will not be disrupted by issues such as mechanicalfailure, unavailability of parts and supplies, labour disturbances,interruption in transportation or utilities, adverse weatherconditions, and that there are no material unanticipated variationsin the cost of energy or supplies.
We assume no obligation to update forward-looking statements exceptas required under securities laws. Further information concerningrisks and uncertainties associated with these forward-lookingstatements and our business can be found in our Annual InformationForm for the year ended December 31, 2011, filed on SEDAR and onEDGAR under cover of Form 40-F.
WEBCAST
Teck will host an Investor Conference Call to discuss its Q3/2012financial results at 11:00 AM Eastern time, 8:00 AM Pacific time, onWednesday, October 24, 2012. A live audio webcast of the conferencecall, together with supporting presentation slides, will be availableat our website at www.teck.com. The webcast is also available atwww.earnings.com. The webcast will be archived at www.teck.com.
Teck Resources Limited
Consolidated Statements of Income
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months endedNine months ended
September 30,September 30,
(Cdn in millions, except for
share data)2012201120122011
----------------------------------------------------------------------------
Revenues2,5053,3807,6138,542
Cost of sales(1,811)(1,809)(5,266)(4,877)
----------------------------------------------------------------------------
Gross profit6941,5712,3473,665
Other operating expenses
General and administration(33)(28)(95)(90)
Exploration(36)(33)(94)(72)
Research and development(5)(6)(14)(14)
Other operating income
(expense) (Note 3)57(141)30(57)
----------------------------------------------------------------------------
Profit from operations6771,3632,1743,432
Finance income27279178
Finance expense (Note 4)(143)(160)(459)(426)
Non-operating income (expense)
(Note 5)(179)82(534)116
Share of losses of associates(5)(3)(9)(4)
----------------------------------------------------------------------------
Profit before tax3771,3091,2633,196
Provision for income and
resource taxes(186)(470)(549)(1,087)
----------------------------------------------------------------------------
Profit for the period1918397142,109
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Profit attributable to:
Shareholders of the company1808146662,031
Non-controlling interests11254878
----------------------------------------------------------------------------
Profit for the period1918397142,109
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Earnings per share
Basic0.311.381.143.44
Diluted0.311.371.143.42
Weighted average shares
outstanding (millions)586.0590.8586.0590.8
Shares outstanding at end of
period (millions)586.0590.8586.0590.8
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Comprehensive Income
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months endedNine months ended
September 30,September 30,
(Cdn in millions)2012201120122011
----------------------------------------------------------------------------
Profit1918397142,109
Other comprehensive income (loss) in
the period
Currency translation differences
(net of taxes of (30), 43,
(31) and 24)(97)230(76)175
Available-for-sale financial
instruments (net of taxes of 16,
9, 14 and 11)(111)(56)(101)(86)
Cash flow hedges (net of taxes of
nil, (1), nil and nil)1(1)-(3)
Actuarial loss on retirement
benefit obligations (net of taxes
of 21, 71, 48 and 81)(49)(163)(106)(185)
----------------------------------------------------------------------------
Total other comprehensive income
(loss) for the period(256)10(283)(99)
----------------------------------------------------------------------------
Total comprehensive income (loss)
for the period(65) 8494312,010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other comprehensive income (loss)
attributable to:
Shareholders of the company(255)7(281)(101)
Non-controlling interests(1)3(2)2
----------------------------------------------------------------------------
(256)10(283)(99)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Comprehensive income (loss)
attributable to:
Shareholders of the company(75)8213851,930
Non-controlling interests10284680
----------------------------------------------------------------------------
(65) 8494312,010
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Cash Flows
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months endedNine months ended
September 30,September 30,
(Cdn in millions)2012201120122011
----------------------------------------------------------------------------
Operating activities
Profit1918397142,109
Items not affecting cash
Depreciation and amortization239243709689
Provision for deferred income
and resource taxes34210126489
Share of loss (gain) of
associates5394
Gain on sale of investments and
assets(25)(37)(51)(173)
Unrealized loss (gain) on
derivatives(60)(95)(113)(87)
Foreign exchange loss (gains)219259
Loss on debt repurchase238-652-
Finance income(27)(27)(91)(78)
Finance expense143160459426
Other1(13)22(5)
----------------------------------------------------------------------------
7411,3022,4613,383
Net change in non-cash working
capital items(154)81(462)(625)
----------------------------------------------------------------------------
5871,3831,9992,758
Investing activities
Property, plant and equipment(478)(364)(1,201)(862)
Financial investments and other
assets(50)(68)(259)(139)
Acquisition of SilverBirch Energy
Corporation--(432)-
Proceeds from the sale of
investments and other assets316337218
----------------------------------------------------------------------------
(497)(369)(1,855)(783)
Financing activities
Issuance of debt1,7471,9072,7301,907
Repayment of debt(1,032)(15)(2,334)(93)
Debt interest paid(138)(82)(369)(257)
Issuance of Class B subordinate
voting shares-114
Purchase and cancellation of Class
B subordinate voting shares--(6)-
Dividends paid(234)(177)(469)(354)
Distributions to non-controlling
interests(22)(13)(39)(41)
----------------------------------------------------------------------------
3211,621(486)1,166
Effect of exchange rate changes on
cash and cash equivalents(122)311(133)287
----------------------------------------------------------------------------
Increase (decrease) in cash and cash
equivalents2892,946(475)3,428
Cash and cash equivalents at
beginning of period3,6411,3144,405832
----------------------------------------------------------------------------
Cash and cash equivalents at end of
period3,9304,2603,9304,260
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Balance Sheets
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
September 30, December 31,
(Cdn in millions)20122011
----------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents3,9304,405
Current income and resource taxes receivable103101
Trade accounts receivable1,2651,242
Inventories1,9371,641
----------------------------------------------------------------------------
7,2357,389
Financial and other assets1,0401,138
Investments in associates774715
Property, plant and equipment23,88423,150
Deferred income and resource tax assets194180
Goodwill1,6321,647
----------------------------------------------------------------------------
34,75934,219
----------------------------------------------------------------------------
LIABILITIES AND EQUITY
Current liabilities
Trade accounts payable and other liabilities1,3661,435
Dividends payable (Note 7 (c))-235
Current income and resource taxes payable3793
Debt (Note 6)65359
----------------------------------------------------------------------------
1,4682,122
Debt (Note 6)7,5416,676
Deferred income and resource tax liabilities5,4125,342
Retirement benefit obligations820691
Other liabilities and provisions1,4651,495
Equity
Attributable to shareholders of the company17,88017,721
Attributable to non-controlling interests173172
----------------------------------------------------------------------------
18,05317,893
----------------------------------------------------------------------------
34,75934,219
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Teck Resources Limited
Consolidated Statements of Changes in Equity
(Unaudited)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended
September 30,
(Cdn in millions)20122011
----------------------------------------------------------------------------
Class A common shares77
Class B subordinate voting shares
Beginning of period6,7436,795
Share repurchases(2)-
Issued on exercise of options25
----------------------------------------------------------------------------
End of period6,7436,800
Retained earnings
Beginning of period10,8588,840
Profit for the period attributable to
shareholders of the company6662,031
Dividends declared(234)(177)
Share repurchases(4)-
Actuarial loss on retirement benefit
obligations(106)(185)
----------------------------------------------------------------------------
End of period11,18010,509
Contributed surplus
Beginning of period9784
Share-based payment expense1310
Transfer to Class B subordinate voting shares
on exercise of options(1)(1)
----------------------------------------------------------------------------
End of period10993
Accumulated other comprehensive income (loss)
attributable to shareholders of the company
(Note 7(b))
Beginning of period1647
Other comprehensive income (loss) before
actuarial loss on retirement benefit
obligations(175)84
----------------------------------------------------------------------------
End of period(159)131
Non-controlling interests
Beginning of period172122
Profit for the period attributed to non-
controlling interests4878
Other comprehensive income (loss)(2)2
Other(6)6
Dividends or distributions(39)(41)
----------------------------------------------------------------------------
End of period173167
----------------------------------------------------------------------------
Total equity18,05317,707
----------------------------------------------------------------------------
----------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
Teck Resources Limited
Notes to Consolidated Financial Statements
(Unaudited)
1. BASIS OF PREPARATION
We prepare our financial statements in accordance with InternationalFinancial Reporting Standards ("IFRS") as issued by InternationalAccounting Standards Board ("IASB"). These condensed interimconsolidated financial statements have been prepared in accordancewith IAS 34, Interim Financial Reporting ("IAS 34"). These condensedinterim consolidated financial statements follow the same accountingpolicies and methods of application as our most recent annualfinancial statements. Accordingly, they should be read in conjunctionwith our most recent annual financial statements. These condensedconsolidated financial statements were approved for issue on October23, 2012.
2. ACQUISITION
In April 2012, we completed our purchase of SilverBirch EnergyCorporation ("SilverBirch") by way of a plan of arrangement for a netcash outlay of 432 million. Under the arrangement, substantially allof SilverBirch's assets, other than its 50% interest in the Frontierand Equinox oil sands projects, were transferred into SilverWillowEnergy Corporation ("SilverWillow"). As part of the arrangement, wealso transferred to SilverWillow our 50% interest in certain otheroil sands leases that were jointly owned with SilverBirch.SilverBirch shareholders, with the exception of Teck, received 8.50in cash and one share of a new company, SilverWillow EnergyCorporation ("SilverWillow"), for each SilverBirch common share.Following completion of the purchase, we now own 100% of the Frontierand Equinox oil sands projects, as well as 4.7 million common shares(8.7%) of SilverWillow issued in connection with the arrangement.
We recorded the purchase at 493 million, which was the fair value ofthe consideration given up and was comprised of 415 million of cashpaid to SilverBirch shareholders, 25 million in working capitalcontributed to SilverWillow, 12 million of oil sands leasescontributed to SilverWillow, 40 million of SilverBirch shares thatwe owned prior to the transaction and 1 million in transactionsfees.
We accounted for this transaction as an acquisition of assets andhave allocated the cost to the assets based on their relative fairvalues at the date of purchase. No goodwill arose on thistransaction. The oil sand leases acquired are recorded as explorationand evaluation costs within property, plant and equipment. The sharesof SilverWillow are recorded as investments in marketable securities,which are designated as available for sale financial assets andmeasured at fair value.
3. OTHER OPERATING INCOME (EXPENSE)
-----------------------------------------------------------------------
-----
-----------------------------------------------------------------
-----------
Three monthsNine months
ended Septemberended September
30,30,
(Cdn in millions)2012201120122011
----------------------------------------------------------------------------
Gain (loss) on sale of operating assets22(1) 26129
Commodity derivatives-13(4)-
Pricing adjustments (a)55(192)65(214)
Share-based compensation (Note 7(a))(4)43(11)48
Provision for closed properties(7)9(15)3
Other(9)(13)(31)(23)
----------------------------------------------------------------------------
57(141) 30(57)
----------------------------------------------------------------------------
----------------------------------------------------------------------------
a. Pricing Adjustments
Sales and purchases of metals in concentrates and cathodes arerecognized on a provisional pricing basis when title transfers andthe rights and obligations of ownership pass to the customer, whichusually occurs on shipment. However, the final pricing for theproduct sold and purchased is not determined at that time as it iscontractually linked to market prices at a subsequent date. Thesearrangements have the characteristics of a derivative instrument asthe value of our receivables and payables will vary as prices for theunderlying commodities vary in the metal markets. These pricingadjustments result in gains (losses from purchases) in a rising priceenvironment and losses (gains for purchases) in a declining priceenvironment and are recorded as other operating income (expense). Theprofit impact of gains and losses on these financial instruments ismitigated by smelter price participation, royalty interests, taxesand non-controlling interests. It should be noted that while theseeffects arise on the sale of concentrates, we also purchaseconcentrates at our Trail refinery where the opposite effects occur.
4. FINANCE EXPENSE
-----------------------------------------------------------------------
-----
-----------------------------------------------------------------
-----------
Three monthsNine months
ended September 30, ended September 30,
(Cdn in millions)2012201120122011
----------------------------------------------------------------------------
Debt interest106117332301
Discount and financing fee
amortization361217
Pension interest accretion25257474
Decommissioning and restoration
provision accretion14125139
Other35710
Less capitalized interest(8)(5)(17)(15)
----------------------------------------------------------------------------
143160459426
----------------------------------------------------------------------------
----------------------------------------------------------------------------
5. NON-OPERATING INCOME (EXPENSE)
-----------------------------------------------------------------------
-----
Three monthsNine months
ended September 30,ended September 30,
(Cdn in millions)2012201120122011
----------------------------------------------------------------------------
Foreign exchange gains (losses)(2)(17)(25)(9)
Other derivative gains (losses)596211980
Debt repurchase and financing
costs(238)-(652)-
Gain on sale of investments2382444
Other-(1)-1
----------------------------------------------------------------------------
(179)82(534)116
----------------------------------------------------------------------------
6. DEBT
-----------------------------------------------------------------------
-----
SeptemberDecember
(Cdn in millions)30, 201131, 2011
----------------------------------------------------------------------------
CarryingCarrying
ValueValue
----------------------------------------------------------------------------
7.0% notes due September 2012 (US200 million)-203
9.75% notes due May 2014 (US530 million) (b)-514
5.375% notes due October 2015 (US300 million)294304
10.25% notes due May 2016 (US659 million) (b)-629
3.15% notes due January 2017 (US300 million)293303
3.85% notes due August 2017 (US300 million)290300
2.50% notes due February 2018 (US500 million) (a)487-
3.00% notes due March 2019 (US500 million) (a)487-
10.75% notes due May 2019 (US1,043 million) (b)481991
4.5% notes due January 2021 (US500 million)487504
4.75% notes due January 2022 (US700 million)683706
3.75% notes due February 2023 (US750 million) (a)726-
6.125% notes due October 2035 (US700 million)673696
6.0% notes due August 2040 (US650 million)636658
6.25% notes due July 2041 (US1,000 million)9711,005
5.20% notes due March 2042 (US500 million) (a)484-
5.40% notes due February 2043 (US500 million) (a)486-
Antamina senior revolving credit facility due April
201522117
Quebrada Blanca bridge loan due November 201229-
Other77105
----------------------------------------------------------------------------
7,6067,035
Less current portion of long-term debt(65)(359)
----------------------------------------------------------------------------
7,541 6,676
----------------------------------------------------------------------------
a) Notes Issued
In February 2012, we issued US500 million of senior unsecured notesdue March 2019 and US500 million of senior unsecured notes due March2042. The 2019 notes bear interest at the rate of 3.00% per annum andwere issued at 99.705% of face value. The 2042 notes bear interest atthe rate of 5.20% per annum, were issued at 99.533% of face value.Net proceeds from these two issues were US987 million afterunderwriting discounts and issue costs.
In August 2012, we issued US500 million of senior unsecured notesdue February 2018, US750 million of senior unsecured notes dueFebruary 2023 and US500 million of senior unsecured notes dueFebruary 2043. The 2018 notes bear interest at a rate of 2.50% perannum and were issued at 99.690% of face value. The 2023 notes bearinterest at a rate of 3.75% per annum and were issued at 99.188% offace value. The 2043 notes bear interest at a rate of 5.40% per annumand were issued at 99.808% of face value. Net proceeds from thesethree issues were US1,727 million after underwriting discounts andissue costs.
The notes are callable at any time by repaying the greater of theprincipal amount plus accrued interest and the present value of theprincipal and interest amounts discounted at a comparable treasuryyield plus a stipulated spread. The 2023, 2042 and 2043 notes arecallable at 100% at any time on or after November 1, 2022, September1, 2041 and August 1, 2042 respectively. Our obligations under thesenotes are guaranteed by our wholly owned subsidiary, Teck MetalsLimited.
The net proceeds of these issues, in addition to cash on hand, wereused to finance the redemptions described below and for the amountdue on maturity of our 7.00% notes due September 2012. Net proceedsnot used to retire or redeem indebtedness may be used for othergeneral corporate purposes, including capital expenditures, sharerepurchases or as general working capital.
b) Notes Redeemed
During the first quarter, we redeemed US1.051 billion aggregateprincipal amount of outstanding notes. The notes redeemed werecomprised of US530 million of the 9.75% notes due 2014 and US521million of the 10.75% notes due 2019. The total payment, includingthe premium for the repurchase, was US1.29 billion. We recorded anaccounting charge of 414 million in the first quarter in connectionwith the redemption.
During the third quarter, we redeemed all of the approximatelyUS659.5 million principal amount of the outstanding 10.25% notes due2016. The total payment, including the premium for the repurchase,was US738 million. We recorded an accounting charge of C238 millionin the third quarter in connection with the redemption.
7. EQUITY
a) Share-Based Compensation
During the first three quarters of 2012, we granted 1,524,821 Class Bsubordinate voting share options to employees. These options have aweighted average exercise price of 39.24, a term of 10 years andvest in equal amounts over three years. The weighted average fairvalue of Class B subordinate voting share options issued wasestimated at 12.15 per share option at the grant date using theBlack-Scholes option-pricing model. The option valuations were basedon an average expected option life of 4 years, a risk-free interestrate of 1.38%, a dividend yield of 2.04% and an expected volatilityof 43%.
During the first three quarters of 2012, we issued 683,460 deferredand restricted share units to employees and directors. Deferred andrestricted share units issued vest immediately for directors and vestin three years for employees. The total number of deferred andrestricted share units outstanding at September 30, 2012 was2,597,026.
A share-based compensation expense of 11 million (2011 - 48 millionrecovery) was recorded for the nine months ended September 30, 2012in respect of all outstanding share options and units.
b) Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss)are:
-----------------------------------------------------------------------
-----
-----------------------------------------------------------------
-----------
September 30, December 31,
(Cdn in millions)20122011
----------------------------------------------------------------------------
Currency translation adjustment(66)10
Unrealized gains (losses) on investments (net of
tax of 12 and (2))(98)3
Unrealized gains on cash flow hedges (net of tax
of nil and nil)11
----------------------------------------------------------------------------
(163)14
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Accumulated other comprehensive income (loss)
attributable to:
Shareholders of the company(159)16
Non-controlling interests(4)(2)
----------------------------------------------------------------------------
(163)14
----------------------------------------------------------------------------
----------------------------------------------------------------------------
c) Dividends of 0.40 per share were declared on our Class A commonshares and Class B subordinate voting shares with a record date ofJune 15, 2012, and were paid on July 3, 2012.
8. SEGMENT INFORMATION
Based on the primary products we produce and our developmentprojects, we have five reportable segments - copper, coal, zinc,energy and corporate - which is the way we report information to ourChief Executive Officer. The corporate segment includes all of ourinitiatives in other commodities, our corporate growth activities andgroups that provide administrative, technical, financial and othersupport to all of our business units. Other operating expensesinclude general and administration costs, exploration, research anddevelopment, and other operating income (expense). Sales betweensegments are carried out at arm's length.
-----------------------------------------------------------------------
-----
-----------------------------------------------------------------
-----------
Three months ended September 30, 2012
(Cdn in millions)CopperCoalZinc EnergyCorporateTotal
----------------------------------------------------------------------------
Segment revenues7631,0777271-2,568
Less: Inter-segment revenues--(63)--(63)
----------------------------------------------------------------------------
Revenues7631,0776641-2,505
----------------------------------------------------------------------------
Gross profit26333398--694
Other operating income
(expenses)343(23)-(31)(17)
----------------------------------------------------------------------------
Profit from operations29733675-(31)677
Net finance expense(1)(7)(6)-(102)(116)
Non-operating income
(expenses)----(179)(179)
Share of losses of associates---(4)(1)(5)
----------------------------------------------------------------------------
Profit before tax29632969(4)(313)377
----------------------------------------------------------------------------
Capital expenditures2012016376478
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended September 30, 2011
(Cdn in millions)CopperCoalZinc EnergyCorporateTotal
----------------------------------------------------------------------------
Segment revenues8081,717913--3,438
Less: Inter-segment revenues--(58)--(58)
----------------------------------------------------------------------------
Revenues8081,717855--3,380
----------------------------------------------------------------------------
Gross profit362954255--1,571
Other operating income
(expenses)(195)-(18)-5(208)
----------------------------------------------------------------------------
Profit from operations167954237-51,363
Net finance expense-(9)(6)-(118)(133)
Non-operating income
(expenses)2734--2182
Share of profit (loss) from
associates----(3)(3)
----------------------------------------------------------------------------
Profit before tax194979231-(95) 1,309
----------------------------------------------------------------------------
Capital expenditures15015632215364
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended September 30, 2012
(Cdn in millions)CopperCoalZinc EnergyCorporateTotal
----------------------------------------------------------------------------
Segment revenues2,2473,6371,8883-7,775
Less: Inter-segment revenues--(162)--(162)
----------------------------------------------------------------------------
Revenues2,2473,6371,7263-7,613
----------------------------------------------------------------------------
Gross profit8031,323221--2,347
Other operating income
(expenses)4(2)(33)-(142)(173)
----------------------------------------------------------------------------
Profit from operations8071,321188-(142) 2,174
Net finance expense(4)(25)(17)-(322)(368)
Non-operating income
(expenses)----(534)(534)
Share of profit (loss) from
associates---(6)(3)(9)
----------------------------------------------------------------------------
Profit before tax8031,296171(6)(1,001) 1,263
----------------------------------------------------------------------------
Capital expenditures52248113544191,201
----------------------------------------------------------------------------
Goodwill4291,203---1,632
----------------------------------------------------------------------------
Total assets7,708 17,2895,1491,7442,869 34,759
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine months ended September 30, 2011
(Cdn in millions)CopperCoalZinc EnergyCorporateTotal
----------------------------------------------------------------------------
Segment revenues2,3304,2072,183--8,720
Less: Inter-segment revenues--(178)--(178)
----------------------------------------------------------------------------
Revenues2,3304,2072,005--8,542
----------------------------------------------------------------------------
Gross profit1,1152,019531--3,665
Other operating income
(expenses)(117)-(41)-(75)(233)
----------------------------------------------------------------------------
Profit from operations9982,019490-(75) 3,432
Net finance expense(3)(23)(16)-(306)(348)
Non-operating income
(expenses)2734--55116
Share of profit (loss) from
associates----(4)(4)
----------------------------------------------------------------------------
Profit before tax1,0222,030474-(330) 3,196
----------------------------------------------------------------------------
Capital expenditures374376593914862
----------------------------------------------------------------------------
Goodwill4581,203---1,661
----------------------------------------------------------------------------
Total assets7,532 16,9163,0061,1405,046 33,640
----------------------------------------------------------------------------
----------------------------------------------------------------------------
9. CONTINGENCIES
We consider provisions for all our outstanding and pending legalclaims to be adequate. The final outcome with respect to actionsoutstanding or pending as at September 30, 2012, or with respect tofuture claims, cannot be predicted with certainty. Significantcontingencies not disclosed elsewhere in the notes to our financialstatements are as follows:
Upper Columbia River Basin (Lake Roosevelt)
Teck American continues studies under the 2006 settlement agreementwith the U.S. EPA to conduct a remedial investigation on the UpperColumbia River in Washington State.
The Lake Roosevelt litigation involving Teck Metals Ltd. in theFederal District Court for the Eastern District of Washingtoncontinues. In April, an order for summary judgment was issuedstriking Teck Metals Ltd.'s defense of apportionment. In July, theUnited States Court of Appeals for the Ninth Circuit denied ourapplication for leave to appeal that decision on an interlocutorybasis.
In September, Teck Metals entered into an agreement with theplaintiffs, agreeing that certain facts were established for purposesof the litigation. The agreement stipulates that some portion of theslag discharged from our Trail Operations into the Columbia Riverbetween 1896 and 1995, and some portion of the effluent dischargedfrom Trail Operations, have been transported to and are present inthe Upper Columbia River in the United States, and that somehazardous substances from the slag and effluent have been releasedinto the environment within the United States. These facts areexpected to provide the minimum requirements to allow the court tofind in favour of the plaintiffs on their claim for a declaratoryjudgment that TML is liable under CERCLA for response costs, theamount of which will be determined in a subsequent phase of the case.In October, the Federal District Court for the Eastern District ofWashington heard argument with respect to personal jurisdiction andcertain legal issues with respect to CERCLA.
The subsequent hearing, with respect to claims for natural resourcedamages and costs, is expected to be deferred while the remedialinvestigation and feasibility study being undertaken by Teck Americanare completed, which is currently expected to occur in 2015.
There is no assurance that we will ultimately be successful in ourdefense of the litigation or that we or our affiliates will not befaced with further liability in relation to this matter. Until thestudies contemplated by the EPA settlement agreement and additionaldamage assessments are completed, it is not possible to estimate theextent and cost, if any, of remediation or restoration that may berequired or to assess our potential liability for damages. Thestudies may conclude, on the basis of risk, cost, technicalfeasibility or other grounds, that no remediation should beundertaken. If remediation is required and damage to resources found,the cost of remediation may be material.
10. SEASONALITY OF SALES
Due to ice conditions, the port serving our Red Dog mine is normallyonly able to ship concentrates from July to October each year. As aresult, zinc and lead concentrate sales volumes are generally higherin the third and fourth quarter of each year than in the first andsecond quarter.
11. SUBSEQUENT EVENT
On October 19, 2012, we announced the issuance of a notice to redeem,on November 19, 2012, all of the approximately US521.3 millionprincipal amount of the outstanding 10.75% senior notes due 2019.Based on current interest rates, we expect to record an after-taxexpense of approximately US259 million in the fourth quarter of 2012in connection with the redemption of the 2019 Notes.
Contacts:
Teck Resources Limited
Greg Waller
Vice President, Investor Relations & Strategic Analysis
604.699.4014
Teck Resources Limited
Marcia Smith
Senior Vice President, Sustainability and External Affairs
604.699.4616
www.teck.com
SOURCE: Teck Resources Limited
http://www.teck.com
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