Teck Resources Limited (TECK) Q4 2022 Earnings Call Transcript

Teck Resources Limited (NYSE:TECK) Q4 2022 Earnings Conference Call February 21, 2023 8:00 AM ET

Company Participants

Fraser Phillips - Senior Vice President, Investor Relations & Strategic Analysis

Jonathan Price - Chief Executive Officer

Greg Brouwer - Senior Vice President, Technology & Innovation

Crystal Prystai - Senior Vice President & Chief Financial Officer

Conference Call Participants

Orest Wowkodaw - Scotiabank

Greg Barnes - TD Securities

Lucas Pipes - B. Riley Securities

Brian MacArthur - Raymond James

Timna Tanners - Wolfe Research

Emily Chieng - Goldman Sachs

Lawson Winder - Bank of America

Carlos De Alba - Morgan Stanley

Dalton Baretto - Canaccord

Chris LaFemina - Jefferies

Alex Terentiew - Stifel

Operator

Ladies and gentlemen, convey you for opinionated by. Welcome to Teck's Fourth 4th 2022 Earnings Release Conference Call. At this time, each participants are successful listen-only mode. Later we will behaviour a question-and-answer session. [Operator Instructions] This convention telephone is being recorded Tuesday, February 21, 2023.

I would now for illustration to move nan convention telephone complete to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please, spell ahead.

Fraser Phillips

Thanks, Ariel. Good greeting aliases bully afternoon, everyone. Thanks for joining america for Teck's 4th fourth 2022 convention call. Please note, today's telephone contains forward-looking statements. Various risks and uncertainties whitethorn origin existent results to vary. Teck does not presume nan responsibility to update immoderate forward-looking statements.

Please mention to descent 2 for nan assumptions underlying our forward-looking statements. In addition, we will reference various non-GAAP measures passim this call. Explanations and reconciliations regarding these measures tin beryllium recovered successful our MD&A and nan latest property merchandise connected our website.

Now, we cognize there's a awesome woody to digest this morning. We've sewage 4 -- issued 4 property releases which you shouldn't now have. The first connected nan spin-off of nan steelmaking ember business; second, connected nan sunset for nan dual-class stock structure; nan 3rd connected nan dividend and stock buyback that was announced; and finally, of course, connected nan Q4 results. In addition, there's a transcript of our position to spell pinch nan releases. If you do not person each 5 documents, they are disposable on our website, its www.teck.com/separation.

And a agelong clip to talk nan strategical announcements we issued this morning, Jonathan Price, our CEO, will statesman today's telephone pinch a little overview of nan 4th fourth results. We'll past displacement to nan attraction of nan 3 strategical announcements and nan separation of Teck into 2 independent publically listed companies, related transactions pinch our steelmaking ember associated task partners and awesome customers Nippon and POSCO and nan six-year Sunset for Teck’s Class A shares. We will past reason today's convention pinch a question-and-answer period.

With that, I will move nan telephone complete to Jonathan.

Jonathan Price

Thank you, Fraser, and bully morning, everyone. Starting connected descent five, we are pleased to person achieved respective financial records successful 2022, including a grounds $9.6 cardinal successful adjusted EBITDA. This was driven by beardown commodity prices, peculiarly steelmaking coal, which reached caller heights during nan year. Each of our business units made important contributions to our profitability successful 2022.

In nan 4th quarter, nan resilience of our teams was demonstrated, arsenic we successfully managed done terrible wintertime conditions and short-term accumulation challenges, specifically successful Elkview, Highland Valley Copper and Trail.

However, we did autumn short of statement expert estimates for 4th fourth adjusted EBITDA and EPS. Variance was driven by lower-than-consensus gross profit, which was partially because of nan extended attraction activities that trailed during nan quarter, higher than statement non-operating expenses and nan timing of nan removal of Fort Hills from expert model.

Importantly, beardown profitability enabled america to present grounds rate returns to our shareholders successful 2022, including $1.4 cardinal successful stock buybacks and $532 cardinal successful dividends, while continuing to fortify our equilibrium expanse done nan repayment of $1.3 cardinal of indebtedness during nan year. And we are adding to this, pinch our announcement that nan Board has declared a dividend of $0.625 per stock to beryllium paid connected March 31. This consists of our guidelines quarterly dividend, of $0.125 per stock and a supplemental dividend of $0.50 per share.

In addition, nan committee has authorized up to $250 cardinal stock buyback. In total, these returns to shareholders include, a distribution of 40% of nan proceeds from nan waste of Fort Hills received earlier this month, successful accordance pinch our superior allocation framework. In aggregate, these returns bring full approved returns of complete $2.4 cardinal since nan commencement of 2022.

Now looking astatine Slide 6, we made important advancement against each of nan 4 pillars of our communal maturation strategy successful 2022. We precocious our flagship QB2 copper maturation projects, contempt COVID-related productivity impacts and challenging upwind subsurface conditions. It is presently ramping up and we look guardant to, doubling our consolidated copper accumulation erstwhile its reaches afloat capacity by nan extremity of 2023.

We besides precocious to walk nan worth for our industry-leading copper maturation pipeline, done associated partnerships astatine San Nicolás successful Mexico, and a caller scope of copper successful Minnesota. I will travel backmost to QB2 and our advancement successful copper maturation successful conscionable a moment.

As I mentioned earlier, we closed nan waste of Fort Hills successful February. Our exit from nan power business provides, a measurement alteration towards nan rebalancing of our portfolio And we proceed to equilibrium copper growth, and rate returns to shareholders arsenic demonstrated by our grounds rate returns successful 2022.

As of February 20, we person $8.2 cardinal of liquidity including $2.8 cardinal of cash. We besides made important advancement against our sustainability goals, during nan year. We secured 100% cleanable renewable powerfulness astatine QB2 successful 2025. And I'm especially, proud that we recorded our lowest ever precocious imaginable incident wave complaint past year. Full specifications of our performance, will beryllium successful our 2022 sustainability report, which will beryllium released connected March 16.

Now, coming backmost to our advancement connected copper maturation connected Slide 7. Our privilege for 2023, will beryllium nan ramp-up of QB2. We are successful commissioning of Line 1, astatine a concentrator and making last preparations to provender ore to nan mills. Construction and commissioning are progressing crossed each areas of nan project. Construction is fundamentally complete successful nan pipeline, powerfulness and mining areas.

We expect QB2 to scope afloat capacity by nan extremity of 2023. Our CapEx guidance for nan task remains unchanged to nan erstwhile disclosure. We expect QB copper accumulation of 150,000 to 180,000 tonnes successful 2023, expanding to a scope of 285,000 to 315,000 tonnes 2024 to 2026. It is important to statement that caller changes to IFRS, will effect portion costs for QB2 this year. We are now required to admit income proceeds and related costs associated pinch products sold, during nan ramp-up successful passion successful Phase 2 earnings, alternatively than capitalizing these amounts. Once QB2 is astatine afloat capacity, we expect mean nett rate portion costs of US$ 1.40 to US$ 1.60 per pound.

Turning to Slide 8. we are besides making meaningful advancement connected different projects successful our manufacture starring copper maturation pipeline. We initiated a feasibility study astatine San Nicolás past twelvemonth and expect completion successful early 2024. We are targeting submission of nan EIA successful nan first half of this year. Transaction pinch Agnico Eagle is expected to adjacent successful nan 2nd 4th of 2023.

We are continuing to beforehand a feasibility study for QB Mill description , representing a throughput summation of astir 50% successful QB. EIA licence exertion was submitted to nan Chilean regulator successful early 2023 and nan feasibility study is expected to beryllium completed later this year.

At Zafranal, we successfully completed a broad nationalist information convention and responded to nan SEIA observations past year. We are expecting receipt of nan SEIA licence successful nan first half of this year. And conscionable past week, we closed nan caller scope copper nickel LLC transaction pinch PolyMet to jointly beforehand some NorthMet and Mesaba. And successful Galore Creek, completion of nan pre-feasibility study is targeted for nan 2nd half of nan year. Overall, our advancement successful 2022 positions america good for our very breathtaking adjacent chapter.

So pinch that, we'd for illustration to move from nan 4th fourth results and talk nan transaction we announced today. The spin-off tech steelmaking ember business to shareholders and nan creation of 2 world-class independent companies.

Starting connected descent 10. This is simply a important and breathtaking time for our company, our shareholders and our people. As we return a awesome measurement guardant to unlock worth to Teck shareholders by establishing a way to abstracted our steelmaking ember and guidelines metals businesses.

As independent companies, Teck Metals and Elk Valley Resources aliases EVR will person simplified portfolios, allowing for heightened strategical and financial attraction and nan expertise to prosecute their ain tailored superior allocation strategy. We are assured this scheme positions some companies pinch greater success, while supporting a sustainable early for nan use of our employees, organization and indigenous peoples successful nan areas wherever we operate.

Importantly this separation will supply investors bully prime for allocating their portfolios betwixt 2 businesses and commodities pinch unsocial fundamentals and worth proposition. We will recognize our afloat imaginable astatine Teck Metals arsenic a premier maturation oriented shaper of captious metallic basal for nan power transition. And EVR will beryllium a pure-play precocious separator steelmaking ember producer. Teck Metals will clasp a important information of nan steelmaking ember rate flows during a modulation play to money our profit growth.

Concurrent pinch nan separation, we announced agreements pinch 2 of our steelmaking ember associated task partners and awesome customers to speech their number liking successful nan Elkview and Greenhills operations aliases liking successful EVR. Notably, Nippon Steel's $1 cardinal rate finance implies an $11.5 cardinal endeavor worth for our steelmaking ember assets. Lastly, we besides announced coming a sunset, a dual people stock structure, which would modernize Tech Metal's governance structure.

Now turning to descent 11. I want to supply immoderate discourse connected nan rationale for this transaction and why Teck is taking this measurement now. We admit that nan finance scenery has changed complete nan past 10 to 15 years. Previously broad-based request maturation crossed each commodities to support world improvement drove investor preferences for miners pinch diversified strategy. So arsenic a consequence we're often rewarded pinch premium valuation. In caller years, nan investor ground for guidelines metals and steelmaking ember businesses person go progressively divergent. This projected separation responds to that changing landscape. It will let investors to optimize their exposures to each of guidelines metals and steelmaking ember done nan creation of 2 world-class pure-play companies pinch compelling different worth propositions. Company's captious domiciled successful electrification and nan power modulation will thrust continued request maturation and premium valuation. High-quality steelmaking ember will stay an basal input of alloy accumulation basal for decarbonization infrastructure complete nan long-term.

Turning to Slide 12. Following nan separation, Teck Resources will go Teck Metals, a premier growth-oriented guidelines metallic company. Teck Metals is focused connected copper maturation and we are good positioned to capitalize connected nan beardown request generated by nan accelerating modulation to nan low-carbon economy. Foundation of our portfolio is our high-quality, low-cost and long-life operations, which are located successful well-established mining jurisdictions successful nan Americas. And we person important maturation imaginable and assets optionality done our industry-leading pipeline of copper improvement projects anchored by QB2.

With nan ramp-up of QB2 this year, we expect our copper accumulation to double successful nan adjacent term. And nan immense long-life deposit astatine Quebrada Blanca tin support aggregate description s. We presently person a small complete 8 cardinal tonnes of reserves and resources astatine QB and nan ore assemblage is unfastened successful aggregate directions for further imaginable increases. Beyond QB2, we person an charismatic suite of further projects diversified by geography, standard and clip to development. We person nan imaginable to adhd much than 1.5 cardinal tonnes of yearly copper balanced accumulation to our existent portfolio.

Teck Metals has nan imaginable to go 1 of nan apical 10 copper producers successful nan world. Importantly, rate travel from nan modulation superior building provides Teck Metals pinch continued backing to make prudent investments successful maturation balanced pinch disciplined returns to our shareholders and while maintaining our financial resilience. This transaction will unlock nan afloat imaginable of our industry-leading copper maturation portfolio, which is importantly undervalued comparative to our peers.

Turning to Slide 13. EVR will beryllium a pure-play world-class Canadian steelmaking ember company, high-quality, long-life assets that are high-margin operations focused connected semipermanent rate procreation and providing rate returns to shareholders. The existing Elk Valley operating squad will proceed to lead EVR and guarantee continuity of operating principles and responsible biology and societal stewardship. The squad will beryllium led by President and CEO, Robin Sheremeta who is presently Teck's Senior Vice President of Coal.

EVR will ain 4 producing steelmaking ember operations successful nan Elk Valley of British Columbia and nan precocious expanded ember handling installation astatine Neptune Terminals successful North Vancouver. Its high-quality low-emissions difficult coking ember merchandise is sought aft by nan world's largest steelmakers arsenic they activity to trim their ain emissions. This is demonstrated by nan statement pinch Nippon Steel and POSCO we announced today.

The important information by 2 of our awesome customers emphasizes nan semipermanent and captious value of high-quality steelmaking coal. And arsenic I mentioned earlier, nan $1 cardinal finance by Nippon Steel implies an endeavor worth of astir $11.5 cardinal further validating nan EVR worth proposition. Importantly, underpinned by an extended reserve guidelines pinch complete 30 years of Reserve Life, EVR has important equity worth accretion imaginable arsenic nan Transition Capital Structure is paid down arsenic shown successful nan chart astatine nan bottommost right.

Now turning to specifications of nan transaction connected Slide 14. At nan highest level nan separation is simply a spin-off that steelmaking ember business to shareholders. Teck Metals will clasp important entree to steelmaking ember rate flows successful nan shape of a royalty and preferred shares. The separation will beryllium implemented by measurement of a distribution of nan equity communal shares of EVR to existing Teck shareholders.

Shareholders will person 1 communal stock of EVR for each 10 shares of Teck Resources, together pinch nan stock of a full rate distribution of $200 million. Shareholders tin elite to maximize nan magnitude of rate aliases EVR communal shares they person taxable to proration done a Dutch auction process.

In information for nan transportation of nan steelmaking ember assets to EVR, EVR will rumor a gross gross royalty and preferred shares together called nan Transition Capital Structure, successful which Teck Metals will support an 87.5% interest. Further, successful speech for their number liking successful nan Elkview and Greenhills operations and an further $1.1 cardinal rate finance by Nippon Steel, Nippon Steel and POSCO will ain a mixed 12.5% liking successful some EVR communal shares and nan Transition Capital Structure.

Payable quarterly, nan royalty will beryllium based connected steelmaking ember revenue, mostly balanced 90% of EVR's free rate travel and payable successful later connected an aggregate magnitude of $7 cardinal successful royalty payments person been made aliases year-end 2028. EVR will besides rumor $4.4 cardinal pinch redeemable penchant shares pinch a 6.5% cumulative dividend. Teck Metals will proceed to beryllium listed connected nan Toronto and New York Stock Exchanges. EVR has applied for a listing connected nan TSX.

I'm looking astatine nan planned superior building for EVR successful much item connected Slide 15. Cash travel from operations will beryllium prioritized for usage to guarantee nan resiliency of operations including superior investments and fixed yearly contributions to a caller biology viewership spot which will supply immoderate semipermanent biology obligations. While nan TCS is successful place, 90% of free rate travel will spell to nan royalty and preferred stock redemptions. Once nan TCS is extinguished, 100% of free rate travel is retained by EVR. The remaining free rate travel will spell towards an first guidelines dividend of $0.20 per stock and supplemental shareholder returns by Galore Creek [ph] 50% of free rate travel aft TCS payments.

Importantly EVR will beryllium good capitalized astatine motorboat pinch $1 cardinal successful rate and moving superior and nary debt. Teck Metals is expected to clasp investment-grade in installments standing based connected preliminary indications.

Slide 16 provides item connected nan sensitivity connected nan proceeds from nan modulation superior building to changes successful steelmaking ember prices. TCS has leveraged nan difficult coking ember prices to supply elasticity and resiliency astatine EVR, while besides providing Teck Metals pinch continued entree to steelmaking ember rate flows during nan modulation period. This will let Teck Metals to prudently put successful our industry-leading copper maturation portfolio, while delivering rate returns to shareholders. TCS is forecast to supply Teck Metals pinch not little than $12 cardinal pretax proceeds complete time. Because of nan leverage to difficult coking ember prices a higher value situation we some accelerate payments and supply upside information for Teck Metals done nan royalty.

Assuming a US$185 per tonne semipermanent benchmark difficult coking ember value and a Canadian-US dollar speech complaint of 1.30, EPS should beryllium afloat paid successful astir 11 years. If semipermanent prices stayed astatine existent spot levels, TCS could beryllium paid successful only 7 years, while providing $34 cardinal successful mixed royalty payments and preferred stock redemptions connected a 100% ground complete that time.

Turning to descent 17. Another important measurement announced coming is nan projected six-year subset for nan aggregate voting authorities attached to nan Class A shares of Teck. This will modernize Teck Metals governance and supply a simplified and competitory superior structure.

On nan effective day each Teck's Class A communal stock will beryllium exchanged for 1 caller Class A communal stock and 0.67 of a Class B subordinate voting share. In position of nan caller Class A communal shares we'll supply that connected nan sixth day of nan effective day of nan Dual Class Amendment each caller Class A communal shares will beryllium automatically exchanged for Class B subordinate voting shares, which will beryllium renamed communal shares astatine which constituent nan Class A communal shares carrying aggregate voting authorities will beryllium eliminated.

Based connected nan 7.8 cardinal Class A communal shares presently outstanding and nan speech premium, nan further Class B shares issued connected nan effective day of nan amendment represents astir 1% dilution. The separation transaction and nan dual people amendment are taxable to 66 and two-third percent support by Class A and Class B shareholders voting separately by class.

In summation nan Dual Class Amendment is taxable to support by a mostly of Class B shareholders different than Temagami Mining Company, Sumitomo Metal Mining and Dr. Keevil. Those votes are expected to beryllium held astatine Teck's Annual and Special Meeting of Shareholders connected aliases astir April 26, 2023. In summation to Teck shareholder and Board approvals, nan separation is taxable to customary conditions including support by nan TSX. We expect that nan transaction will beryllium completed successful nan 2nd 4th of 2023 astatine which clip Teck Metals and EVR will statesman operating arsenic abstracted companies.

So earlier we move to Q&A, I want to commencement wherever I began. We could not beryllium much excited astir this transformational transaction that will unlock important worth for our shareholders. We powerfully judge this transaction is nan champion pathway to abstracted and recognize nan afloat imaginable of nan 2 businesses. It will summation nan strategical and financial attraction for some organizations allowing nan 2 entities to prosecute tailored maturation and superior allocation strategies. We recognize their afloat potential.

It will alteration Teck Metals to unlock nan worth of our world-class copper maturation portfolio and capitalize connected nan opportunities created by nan power modulation funded by steelmaking ember rate flows during nan modulation play and position EVR arsenic a pure-play high-margin steelmaking ember shaper pinch vulnerability to beardown alloy fundamentals and a important equity worth appreciation potential, fruition imaginable arsenic nan modulation superior building is paid.

The separation will supply investors pinch nan elasticity to optimize portfolio allocation betwixt guidelines metals and steelmaking coal, pinch each institution providing vulnerability to different commodity fundamentals, superior return policies and worth propositions. Further nan Dual Class Share Sunset will modernize Teck Metals governance structure.

As we move forward, our intent and values which are profoundly embedded will guarantee wellness and information and sustainability are astatine a forefront of everything we do crossed some businesses. This includes, our unwavering committedness to go net-zero by 2050, and quality affirmative by 2030, and ongoing support for nan group and communities wherever we run for decades to come.

With that, operator, please unfastened nan statement for questions.

Question-and-Answer Session

Operator

Certainly. [Operator Instructions] The first mobility comes from Orest Wowkodaw of Scotiabank. Please spell ahead.

Orest Wowkodaw

Hi. Good morning, and congratulations connected nan projected transaction. I'm wondering, Jonathan, if you tin springiness america immoderate colour successful position of immoderate of nan options that were being evaluated, and why yet nan spin-out was nan chosen, I guess, avenue to abstracted nan business versus conscionable an outright waste of nan ember business?

Jonathan Price

Yeah, Orest, acknowledgment very overmuch for your question. This is thing that's been nether information by nan Board of Directors astatine Teck for a number of years now. And we've worked very difficult done a scope of alternatives to get to this constituent that we're announcing today. Ultimately, we decided that a separation via a spin-out of steelmaking ember business to Teck shareholders was nan optimal intends of creating these 2 awesome companies, Teck Metals and Elk Valley Resources. It sets some companies nether occurrence for Teck Metals of people this allows america to proceed to usage rate flows from nan ember business to money our unrivaled copper maturation portfolio, and continues to spell and present nan copper to nan world is going to request for electrification and de-carbonization.

In nan lawsuit of nan steelmaking ember business aliases Elk Valley Resources that will beryllium a world-class stand-alone company, pinch precocious margins long-life reserves and producing a merchandise that nan world needs for decades to travel to nutrient alloy required for nan infrastructure for de-carbonization.

Ultimately, nan creation of these 2 abstracted companies, we judge we'll springiness investors a prime to allocate costs wrong their portfolios based connected their priorities and based connected nan different strategies and superior allocation model that these companies will person going forward.

So Orest, it's been an extended process arsenic you would imagine, conducted complete an extended play of time, pinch – to spell alternatives connected nan table. But ultimately, nan Board and nan guidance squad concluded that this was nan optimal measurement forward.

Orest Wowkodaw

Thank you. And arsenic a follow-up connected your descent 16 that talks astir nan schematic sensitivities to nan proceeds, really should we deliberation astir nan benignant of your OpEx and CapEx assumptions moving guardant here? Does this presume benignant of 2023 guidance levels for some enactment flattish moving forward, aliases does this presume benignant of, I guess, revision present to nan norm pinch respect to CapEx and OpEx? I'm conscionable wondering, successful position of backing into nan 11-year TCS costs connected nan guidelines case.

Jonathan Price

Yes. I deliberation what you'll spot successful that Orest and I'll commencement pinch referencing nan ember value is utilized location that they bespeak nan statement prices complete nan coming years, and past we make a semipermanent presumption that of US$ 185 per tonne for difficult coking coals. It would beryllium adjacent to opportunity that operating costs somewhat travel that profile.

In nan adjacent years, they bespeak elevated costs arsenic a consequence of nan inflationary situation that we're moving in. And arsenic we've said successful our quarterly, we expect elevated costs to clasp -- to stay done 2023 and of course, perchance into 2024. But beyond that, we would expect to spot immoderate reversion and simplification successful portion costs successful nan steelmaking ember business, which of course, is spell to beryllium required if we're going to spot nan benignant of reversion successful ember prices that we highlighted successful nan deck.

From a superior expenditure perspective, we do expect elevated levels to stay done nan existent twelvemonth and successful nan adjacent years, successful peculiar arsenic we proceed to make dense investments successful h2o guidance and h2o curen successful nan ember business. However, beyond that, nan investments successful h2o guidance curen should diminution and we'd expect to spot our sustaining superior revert backmost towards humanities semipermanent levels. So, Orest, that's a agelong reply I cognize but we do spot immoderate continued elevated portion costs and superior costs successful nan adjacent years, but we do expect to spot thing of a reversion successful nan years beyond that.

Operator

Our adjacent mobility comes from Greg Barnes of TD Securities. Please spell ahead.

Greg Barnes

Yes. Thank you. Jonathan, tin you talk astir nan timelines for each of this to really unwind, and it's 7 to 11 years connected nan TCS and six years connected nan sunset connected nan Class A. Was location immoderate logic you push them retired that agelong aliases is it conscionable maximizing nan opportunity?

Jonathan Price

So starting pinch nan TCS, Greg. What we've tried to execute location is getting a equilibrium betwixt continuing to money nan copper maturation portfolio for Teck Metals and of course, to recognize nan afloat worth of nan EVR business against nan desire to yet to abstracted nan 2 companies, and that's a equilibrium that I deliberation struck good done nan timelines here. Of course, arsenic you statement yet that will beryllium a usability of predominantly difficult coking ember prices but besides nan underlying rate travel procreation of nan EVR business.

With respect to nan sunset proviso of nan Class A share, yet that would beryllium taxable of a speech betwixt nan mostly Class A shareholders and a typical committee of Teck’s Board of Directors. We deliberation that nan six years sunset provides Teck Metals pinch bully screen to proceed to present connected our unrivaled copper maturation pipeline, but yet provides a fixed timeline for look into a superior authorities structure.

Greg Barnes

And secondarily, some these transactions require votes from shareholders arsenic either 1 of votes limited connected nan different aliases they spell up independently of each other?

Jonathan Price

Yes. The votes for nan separation Greg and for nan changes to nan A Class stock structures are independent of 1 another.

Greg Barnes

So, 1 will spell up if nan different is not approved?

Jonathan Price

That's correct. Yes.

Greg Barnes

Okay. Thank you.

Operator

Our adjacent mobility comes from Lucas Pipes of B. Riley Securities. Please spell ahead.

Lucas Pipes

Thank you, very much. Good morning, everyone. My first mobility is connected nan superior return floor plan of Teck Metals. You mentioned discipline. How do you envision balancing superior returns astatine Teck Metals pinch nan desire to turn that business? Thank you, very much.

Jonathan Price

Yes. Thanks for nan question, Lucas. And fundamentally nan attack to superior allocation will stay unchanged. At Teck Metals arsenic it has been intact for nan past number of years. We will proceed to beforehand our copper maturation pipeline and we will proceed to put successful nan improvement of those copper projects passim nan Americas. However, we will proceed to attraction connected balancing that finance successful maturation against beardown rate successful position of shareholders, arsenic good arsenic maintaining nan instauration of a beardown equilibrium sheet.

I deliberation that's thing we did very good done 2022, wherever we invested important superior successful QB2 and past bringing that to a to completion, whilst yet approving and announcing astir $2.4 cardinal of returns to shareholders done a operation of dividends and buybacks. And besides buying backmost $1.3 cardinal of our indebtedness to amended nan equilibrium expanse transaction that we have. So that will stay unchanged.

Just arsenic a reminder, nan measurement nan superior allocation model operates is that nan first 30% of disposable rate travel is automatically returned to shareholders by measurement of dividends and buybacks. And beyond that, nan equilibrium of 70% could besides beryllium returned to shareholders aliases could beryllium allocated to caller maturation options successful nan portfolio and that will beryllium nan aforesaid allocation going forward.

Lucas Pipes

That's very helpful. Thank you. And then, a speedy follow-up connected Nippon Steel and POSCO respectively, well, 10% and 2.5% of some nan EVR and TCS gone connected to separation. Is that right?

Jonathan Price

Yes. That's perfectly correct, Lucas. And look, we couldn't beryllium much excited by nan investments that we've had present from Nippon Steel and from POSCO, they are some world-class steelmakers. They person been semipermanent customers of our business. It's awesome to proceed to person their engagement successful nan business here. In particular, nan $1 cardinal of rate received from Nippon, I deliberation is specified a beardown endorsement, some for nan value and valuation of EVR balanced to an endeavor worth of $11.5 billion, but also, nan semipermanent outlook for nan steelmaking ember business. So, arsenic I said, we couldn't beryllium happy pinch nan investments that we receive.

Operator

Our adjacent mobility comes from Brian MacArthur of Raymond James. Please spell ahead.

Brian MacArthur

Good morning, and convey you for taking my questions. Can you conscionable show maine what happened successful this scenario? I realize, it's a minimum 250 successful nan ember business and I understand there's a sunset successful 2028. But what happens if ember business has a really reliable twelvemonth spell down to nan 250, truthful you don't footwear retired thing for nan quarter, past nan ember value goes up a lot. Is location a catch-up system to get backmost that rate travel successful nan 4th you missed aliases do you conscionable play, but because you pat retired astatine nan debased end? Does that make consciousness to you, if you spot what I'm saying?

Jonathan Price

Yes. I wasn't rather sure, Brian astir nan 250 that you were referencing here. But essentially, location wouldn't beryllium a catch-up successful nan quarter. The rate flows will travel to nan TCS to Teck Metal erstwhile disposable -- sorry, you mean nan rate equilibrium successful the…

Brian MacArthur

Yes. The rate equilibrium nan 250. So 150, right, and technically for a quarter, I guess, I presume you salary nan prep, but you don't salary nan royalty. In nan adjacent quarter, your rate equilibrium goes up, because nan ember value is volatile, do you really dress up that mislaid payment, I guess, is what my mobility is, aliases is it conscionable nan clip timepiece keeps moving to 2028 and past what -- aliases nan $7 cardinal that you either make it aliases you don't make it?

Jonathan Price

Absolutely, you would still run connected nan $7 cardinal of royalty and nan $4.4 cardinal of they would beryllium unchanged. So I conjecture successful nan script you're taking it would conscionable return somewhat longer to retrieve those rate flows. Once nan ember business has recovered, its rate position backmost could beryllium $250 million. So there's nary imperishable nonaccomplishment of betterment of rate flows to tech metals it really conscionable extends nan duration.

Brian MacArthur

Perfect. Thank you. And nan 2nd mobility conscionable to beryllium very clear connected nan A shares, you're spinning retired these caller shares successful coal. They don't person As aliases Balance sheet, right? They're conscionable communal shares successful nan caller vehicle. So there's nary protective correct there.

Jonathan Price

That's precisely right. It will conscionable beryllium a azygous people of communal shares astatine EVR.

Brian MacArthur

Thank you very much. I’ll get backmost successful statement

Jonathan Price

Thanks, Brian.

Operator

Our adjacent mobility comes from Timna Tanners of Wolfe Research. Please spell ahead.

Timna Tanners

Hey, bully greeting everyone. Thanks for nan detail. Just trying to process it each still, but I wondered connected nan ember rotation if you could talk a small spot much about, could location beryllium further partners immoderate offtake agreements aliases is this conscionable purely a stake? Why does Toronto listed. And is location immoderate value embedded successful nan $11.5 cardinal aliases is that simply successful nan conclusion from nan magnitude that was paid by -- aliases that will beryllium paid by Nippon Steel?

Jonathan Price

Yes. Thanks for nan questions, Tim. I mean, it is conscionable a consecutive rotation of nan ember business here. We don't person plans for further finance into that business and we don't person plans for further offtake associated pinch that business.

As I said, we're incredibly excited by nan investments we person secured from Nippon and POSCO, but thing successful nan words beyond that astatine this constituent successful time. The $11.5 cardinal endeavor value, of course, reflects nan semipermanent outlook for nan business based connected emblematic accumulation operating costs and superior assumptions. And of course, location is an embedded steelmaking ember value successful that arsenic well. We deliberation it's an perfectly adjacent valuation for nan business and we were very happy to spot Nippon Steel pinch their $1 cardinal finance for 9%.

Timna Tanners

Okay. Thanks. And conscionable connected nan past mobility conscionable wondering if it would beryllium conscionable Toronto listed aliases why that decision?

And nan 2nd mobility was conscionable connected QB2. Just to clarify, it sounds for illustration there's really not immoderate update connected QB2 from erstwhile we heard from you past successful position of speech from nan remark connected nan accounting for costs. Is location thing we're missing aliases is it precisely nan aforesaid guidance arsenic earlier successful position of volumes and cadence?

Jonathan Price

Yes. Sorry conscionable -- yes, sorry, I missed your mobility connected nan TSX. Yes, EVR will beryllium listed connected nan TSX. Only there's nary magic down that. That's conscionable wherever we've elected to person that. It's nan Canadian company, and whilst mining institution and good connected nan TSX.

With respect to QB2, that's successful very bully shape. We are successful rubbing region to this production. And I'm going to manus complete to Red Conger concisely who tin conscionable springiness you a somewhat much information -- elaborate update connected position and erstwhile that accumulation is expected.

Red Conger

Yes, bully greeting Timna. We're really successful an breathtaking portion of nan task correct now. We're commissioning each of nan instrumentality from nan seashore each nan measurement up to nan concentrator astatine elevation. We're really happy pinch nan desalinization works and really that's moving and we're pushing h2o up nan elevation now to nan concentrator.

At nan concentrator, we've tally each of nan motors, nan large mills, a batch of those pieces and commissioning require lengthy runs of eight, 12 hours consistently. We've done each of those successfully. There were a mates of items pinch cardinal conveyor belts wherever 1 we're re-splicing it correct now we weren't happy pinch that configuration.

And different conveyor wherever we're doing a small other activity connected nan tensioning mechanism. So, it's fresh to go. We've already crushed stone successful nan superior crusher and we're -- it's imminent pushing stone done those grinding mills and getting each nan remainder of nan instrumentality going. So, very, very breathtaking clip for america connected nan project.

Timna Tanners

Okay, great. Thank you.

Operator

Our adjacent mobility comes from Emily Chieng of Goldman Sachs. Please spell ahead.

Emily Chieng

Good greeting Jonathan and acknowledgment for taking my question. My first is astir nan Teck Metals business. It sounds for illustration there's going to beryllium a batch of copper maturation location successful nan portfolio. But really are you reasoning astir nan zinc assets? They astatine immoderate constituent go non-core aliases is location still finance location ahead?

Jonathan Price

Hi Emily, acknowledgment very overmuch for that question. No, zinc remains perfectly halfway to Teck Metals going guardant arsenic it is coming successful nan portfolio. What we've said astir zinc is we don't expect that to beryllium an area of maturation astatine nan aforesaid grade that we're focused connected copper. But certainly, we'd for illustration to support our existent levels of accumulation location aliases thereabouts successful Teck Metals going forward.

Obviously, we person a ample position successful which we expect to proceed to run for a agelong time. As we've said earlier nan existent unfastened trim excavation comes towards extremity of life successful nan early 2030s. And we're moving now connected nan hold beyond that which would impact america going connected nan crushed astatine is that is thing that looks very charismatic fixed nan value of nan resources that we person there. And we would afloat intend to support nan way and refining operations that we have.

So, it will stay very overmuch a halfway business for us. It's a very beardown cash-generative business for us. Give aliases return you to astir $1 cardinal of EBITDA a twelvemonth and don't devour a awesome trader capital. So, it's a coagulated contributor to nan group and will proceed to beryllium a halfway portion of Teck Metals going forward.

Emily Chieng

Great. That makes sense. And a follow-up is conscionable astir nan dual people stock building illness chat there. During nan sunset period, does this mean -- what does this mean for nan voting authorities of nan Class A shareholders? Does this fundamentally preclude Teck from immoderate M&A during this period?

Jonathan Price

So, location will beryllium nary alteration to nan voting authorities until we ended nan six-year period. So, arsenic is today.

Emily Chieng

Great, very clear. Thank you.

Operator

Our adjacent mobility comes from Lawson Winder of Bank of America. Please spell ahead.

Lawson Winder

Hi. Good morning, Jonathan and team. Thanks for nan update and congratulations connected an absorbing transaction. I wanted to get your thoughts connected nan measurement that nan Class A shares, are being converted. So efficaciously each people stock being converted, positive you're getting 0.67% of Class B. And I'd emotion to perceive your views on, really that benignant of valuation gets arrived at?

Jonathan Price

Yeah. Look, ultimately, Lawson that was a speech betwixt nan mostly holders of nan Class A shares and nan typical committee of nan Board. It reflects information for valuable voting authorities essentially, that will beryllium foregone done this sunset.

But importantly, this represents only 1% dilution of Teck shares overall. So successful that context, we deliberation that nan valuations struck present benchmarks very good against present.

Lawson Winder

Okay. That's fair. Obviously I understood that you can't opportunity a batch there. And I besides wanted to follow-up connected QB2 and conscionable get an thought for really nan ramp-up to first ore accumulation mightiness look. So nan -- from erstwhile you provender first ore to nan mill to erstwhile you person first ore like, really agelong will it return for that to travel done nan process?

Jonathan Price

Sorry, nan timing from first ore to nan mill, nan first concentrate.

Lawson Winder

Yeah. Exactly, convey you.

Jonathan Price

Greg, do you want to adhd a spot of colour to that?

Greg Brouwer

Yeah, Lawson, deliberation astir nan first half of this twelvemonth is nan ramp-up period, and arsenic we get towards nan extremity of nan year, nan installation will beryllium moving astatine afloat speed, and that guidance scope that we provided would person copper accumulation commensurate pinch that.

Lawson Winder

Okay. So possibly I inquire different way, do you expect to nutrient ore successful Q1?

Greg Brouwer

Yeah. We'll make first copper successful Q1, for sure.

Lawson Winder

Okay. Okay, fantastic. Thanks for clearing that up.

Operator

Our adjacent mobility comes from Carlos De Alba of Morgan Stanley. Please spell ahead.

Carlos De Alba

Yeah. Thank you. Good morning, Jonathan and team. Just connected nan transaction EVR, fixed nan imaginable biology and remediation considerations of that business, those authorities successful Canada you person to o.k. nan transaction aliases person you discussed pinch them this -- nan spin-off scheme truthful that they are alert and there's nary imaginable issues down nan road?

And nan 2nd mobility is conscionable to clarify, nan EVR will commencement pinch nary debt, right, truthful fundamentally debt-free going forward.

Jonathan Price

Yeah. So I'll conscionable reside nan 2nd question. First, you're precisely right. EVR will beryllium debt-free. Talking past conscionable astir nan biology and outer approvals you asked about, location are nary required approvals for nan separation. There is an support required for nan TSX for nan listing for nan size of my shareholder support we don't require thing from regulators aliases government.

We person engaged pinch some Provincial and Federal Government, regarding this transaction and we've besides critically engaged pinch nan indigenous groups who are coming successful nan Elk Valley and very overmuch progressive pinch our steelmaking ember business there. We don't require approvals from them but of course, we will proceed to support very beardown and productive relationships pinch that going forward.

Carlos De Alba

All right. Great. Thank you.

Operator

Our adjacent mobility comes from Dalton Baretto of Canaccord. Please spell ahead.

Dalton Baretto

Thanks. Good morning, Jonathan and squad and congratulations. My first mobility is connected nan proceeds from EVR into Teck Metals. Jonathan, tin you show maine if location are immoderate restrictions connected nan usage of proceeds successful Teck Metals aliases do you person afloat c launch, really you usage those margins?

Jonathan Price

Yes. Hi, Dalton. Thanks for nan question. No regularisation astatine each connected nan usage of proceeds that Teck Metals receives from EVR. As mentioned previously, our attraction will beryllium to deploy those to assistance pinch nan maturation of our copper portfolio while balancing returns to shareholders and maintaining a beardown equilibrium sheet. So we will usage those proceeds successful a mode that's very accordant pinch our strategy.

Dalton Baretto

Okay. And past erstwhile you're moving Teck Metals, does nan strategy stay nan aforesaid aliases will you look to beryllium much fierce connected things for illustration M&A to accelerate nan maturation profile?

Jonathan Price

So nan strategy will stay nan same, Dalton. The attraction is connected copper maturation and nan attraction of our copper maturation is done our integrated pipeline of projects whilst returning rate to shareholders, truthful nary alteration successful that respect. And of course, we support for a number of years what has been a cardinal portion of our strategy which is to usage rate flows from nan steelmaking ember business to support that superior allocation strategy.

Dalton Baretto

Okay. Thanks. And past possibly 1 past one. You're harvesting telephone it 90% of nan free rate travel backmost into Teck Metals from EVR. So Teck Metals doesn't really look very different than nan business coming erstwhile you see wherever those costs are coming from. So what benignant of gives you comfortableness that you will rerate connected nan backmost of this?

Jonathan Price

Just I mean 1 constituent of explanation there, whilst 90% of nan free rate travel from EVR goes to nan Transition Capital Structure, 87.5% of that goes to Teck Metals and 12.5% goes location to Nippon and POSCO conscionable a explanation there. Look, we are creating 2 wholly abstracted businesses present pinch abstracted listings, pinch abstracted guidance teams and abstracted Boards.

We do admit of people that done nan modulation superior building this is arsenic it's described a transition, which will spell connected for a number of years until we spot a complete separation aliases financial independency of nan 2 companies. And of course, we deliberation arsenic that is paid down past that will create worth accretion aliases equity accretion for EVR and will progressively person Teck Metals been arsenic an wholly independent of guidelines metals company.

Dalton Baretto

Thanks, Jonathan. That’s each for me.

Operator

Our adjacent mobility comes from Chris LaFemina of Jefferies. Please spell ahead.

Chris LaFemina

Thank you, operator. Thanks for taking my questions. I person a mates of questions astir alteration successful power provisions. I deliberation I publication location that successful nan lawsuit of EVR and a alteration of power nan – nan royalty costs that Teck Metals would person would summation from 90% to 92.5% of nan free rate flow. What happens successful nan arena that Teck Metals becomes a imaginable acquisition target? Is location immoderate alteration of power astir Teck's ownership and EVR? Any benignant of poison pill location that would trim nan worth to a imaginable purchaser of Teck, if you would to beryllium acquired? And past sorry, truthful first mobility is astir americium I correct astir nan alteration successful power connected EVR and past secondly alteration your power connected Teck, if Teck wherever to beryllium acquired? Thank you.

Jonathan Price

Yes, you're correct connected some fronts. It mean, nan first lawsuit location is simply a step-up from 90% to 92.5%. And location would beryllium nary implications pinch respect to immoderate acquisition aliases waste of nan Teck Metals.

Chris LaFemina

Okay. Thank you.

Operator

Our adjacent mobility is simply a follow-up from Orest Wowkodaw, Scotiabank. Please spell ahead.

Orest Wowkodaw

Hi. Thanks for taking nan follow-up. Jonathan conscionable funny fixed nan spin-out of nan ember business do you -- you evidently person a batch of copper maturation options internally. Do you spot advancing those -- immoderate of those maturation options quicker than you would person previously? I'm conscionable wondering if fixed now you've sewage a very clear attraction connected ember rate travel coming into nan business to money copper whether we should expect that you whitethorn bring guardant immoderate of those soul copper projects?

Jonathan Price

Look, Orest, I mean, I deliberation successful 1 consciousness present there's nary existent alteration to nan strategy for Teck Metals, which is to create that copper maturation pipeline and this transaction per se doesn't awesome a alteration aliases an acceleration of that. Of course, we're ever looking astatine nan optimal gait of improvement of nan projects we person successful nan portfolio and nan optimal series of those projects recognizing that we can't do everything astatine once.

As you cognize good permitting could beryllium 1 of nan top restrictions successful position of nan timing of nan improvement arsenic I mentioned that nan apical of nan telephone we're precocious attraction connected study that licence crossed a scope of our projects here. And fixed nan attraction connected captious minerals from a number of governments astir nan world, it could beryllium that permitting timelines are reduced somewhat, but arsenic I mentioned this transaction successful and disconnected itself doesn't alteration nan strategy because we've already been very focused connected nan improvement of copper projects successful nan portfolio.

Orest Wowkodaw

That's perfect. Thanks. And tin you conscionable punctual us, what's your existent scheme for nan timing of nan QB mill description ?

Jonathan Price

So we person submitted a licence exertion this 4th and we are successful nan process of completing a feasibility study, which will beryllium done by nan extremity of this year. And truthful we said that there's immoderate imaginable for an support for nan QB mill description successful early 2024.

Orest Wowkodaw

Great. Thank you truthful much.

Jonathan Price

Welcome.

Operator

Our adjacent mobility comes from Alex Terentiew of Stifel. Please spell ahead.

Alex Terentiew

Good morning, everybody. I cognize there's a batch of specifications successful present and I truthful admit you guys beryllium doing this telephone earlier today. But a mobility for you connected nan Teck ember spin-out EVR. I know, you mentioned that you expect Teck Metals to clasp investment-grade in installments rating. But really do we deliberation astir nan aliases really will nan rate flows from that beryllium allocated to Teck? I'm conscionable trying to deliberation of successful position of EBITDA calculations and immoderate covenants aliases immoderate ratios that we could deliberation of for Teck going forward?

Jonathan Price

Yes. I will induce our CFO, Crystal Prystai to conscionable talk a small spot astir really those rate flows will beryllium treated. We person had received preliminary indications from nan 3 in installments standing agencies that screen america Fitch, Moody's and S&P and nan preliminary indications are that we will support investment-grade ratings for Teck Metals, but I'll fto Crystal will concisely explicate really those rate flows will beryllium treated.

Crystal Prystai

Hi, Alex. Thanks for your question. Just successful nan discourse of nan curen connected our financial statements possibly that's nan astir important spot to start. We will, successful Teck Metals, deconsolidate our liking successful nan ember business portion connected closing of nan transaction. So, successful our unadjusted profit figures, you won't spot nan results from nan ember business portion reflected there.

But fixed nan recurring quality of nan rate flows coming successful to Teck Metals, we are readying to set our EBITDA for some nan royalty and nan building dividends and redemption. So, you should expect to spot those coming done our adjusted EBITDA calculations arsenic good arsenic adjusted EPS and you could exemplary it that way.

Alex Terentiew

Okay, great. Thank you.

Operator

Our adjacent mobility comes from Lucas Pipes of B. Riley Securities. Please spell ahead.

Lucas Pipes

Thank you very overmuch operator. Thank you for taking my mobility follow-up question. I judge Nippon and POSCO are receiving authorities to nan coal, is that successful speech for their anterior interest? How should we deliberation astir nan offtake rates? Thank you very much.

Jonathan Price

Yes. So, some Nippon and POSCO has been associated task partners successful and POSCO arsenic good successful Greenhill, truthful it's portion of what's happened present is simply a conversion of those interests to their interests successful equity and nan modulation superior building here. They will clasp off-take agreements semipermanent off-take agreements pinch EVR.

I want to talk astir commercialized successful position of those contracts, but substantially akin to nan benignant of agreements that we've had pinch that successful nan past. So, nary important alteration there.

Lucas Pipes

All right. I admit it. Thank you and again, champion of luck.

Jonathan Price

Thanks Lucas.

Operator

This concludes nan question-and-answer session. I will now manus nan telephone backmost complete to Mr. Phillips for closing remarks.

Fraser Phillips

Thanks Ariel and acknowledgment everyone. Just earlier I manus it complete to Jonathan for his closing remarks, I conscionable want to opportunity that again tons to digest. I'm judge location will beryllium plentifulness of different questions. Please scope retired to maine aliases Helen aliases so anybody connected nan IR team. We'll beryllium happy to do our champion to get successful touch pinch you and person a speech and we will beryllium delighted to thief out.

With that, Jonathan, complete to you for immoderate last remarks.

Jonathan Price

Yes. Thanks Fraser and acknowledgment everyone for joining nan telephone coming and for nan bully questions. We astatine Teck couldn't beryllium much excited astir this transformational transaction that we've announced today. We judge it will unlock important worth for our shareholders. And we do judge that this transaction building is nan champion pathway that separates and realizes nan afloat imaginable of some of these awesome businesses.

As I mentioned, it will summation strategical and financial attraction from some organizations, allowing nan 2 entities to prosecute tailored maturation and superior allocation strategies into nan future.

Teck Metals, this is astir unlocking nan worth of nan world-class copper maturation portfolio and capitalizing connected nan opportunities presented by nan power modulation continuing to beryllium funded by steelmaking ember rate flows done nan transmission period.

And of course, we group up EVR arsenic a pure-play high-margin steelmaking ember producer, exposed to beardown semipermanent alloy fundamentals and we person nan imaginable for beardown equity worth accretion arsenic nan superior building is paid down.

Critically, nan separation provides our investors elasticity to take and optimize their portfolio allocation betwixt guidelines metals and steelmaking ember fixed that some companies supply vulnerability to different commodity fundamentals and superior return policies.

And finally, of course, Dual Class Share Sunset will modernize nan Teck Metals governance structure.

So pinch that, convey you very much. We look guardant to pursuing up this speech pinch you beyond this call. And yes, erstwhile again, convey you, a very breathtaking time today.

Operator

This concludes today's convention call. You whitethorn disconnect your lines. Thank you for participating, and person a pleasant day.