Teck Reports Unaudited Second Quarter Results for 2020
Teck Resources Limited today announced its second quarter 2020 results, outlining how the company has taken action to protect its people and position for improved margins and future growth as the world comes through the COVID-19 pandemic.
“We remain focused on protecting our people and communities, while continuing to operate responsibly and safely to support the economic recovery in the wake of the pandemic,” said Don Lindsay, President and CEO. “We took steps during the quarter to further strengthen our financial position, reduce costs and position Teck to significantly improve margins towards the end of 2020 and early 2021 as we complete major capital projects.”
– All operations are currently producing with comprehensive COVID-19 prevention measures in place.
– COVID-19 had a significant negative effect on prices and demand for our products and our financial results in Q2 2020.
– Adjusted profit attributable to shareholders(1) (2) in Q2 2020 of $89 million or $0.17 per share.
– Adjusted EBITDA(1) (2) in Q2 2020 of $485 million.
– Completed Elkview Operations plant expansion, reducing steelmaking coal operating costs and improving margins while maintaining total production capacity.
– QB2 construction activities gradually and safely ramping back up with over 3,000 people currently on site, 4,000 expected by the end of July and increasing to pre-suspension levels with a workforce of 8,000 by the end of October, as conditions allow.
– Neptune Bulk Terminals upgrade project progressing in line with budget and schedule.
– Achieved approximately $250 million in operating cost reductions and $430 million in capital cost reductions to date from expected spending contemplated at the end of June 2019.
– Reduced near-term debt maturities and further strengthened liquidity by adding a US$1 billion revolving credit facility.
– Issued updated guidance for 2020.
– Named to the Best 50 Corporate Citizens in Canada ranking by Corporate Knights for the 14th consecutive year.
Financial Summary Q2 2020
– Reduced near-term debt maturities and enhanced already strong liquidity with the following measures:
– Obtained a new US$1.0 billion unsecured two-year revolving credit facility;
– Issued US$550 million of 10-year, 3.9% Notes;
– Purchased US$268 million of 2021, 2022 and 2023 Notes; and
– Paid down US$266 million of our US$4 billion revolving credit facility.
Liquidity of $6.9 billion, including $430 million of cash, as at July 22, 2020.
COVID-19 Impact on our Business
– All of our mines are currently producing.
– Economic impacts of the pandemic have reduced demand and prices for our products.
– We continue to act to protect the safety and health of our employees, contractors and the communities in which we operate in accordance with guidance from governments and public health authorities.
– We expensed $260 million in costs associated with COVID-19 in Q2 2020, of which $75 million were borrowing costs that would otherwise have been capitalized had QB2 construction not been suspended.
Steelmaking Coal Business Update
– We continue to focus on increasing margins and not volumes in our steelmaking coal business.
– Second quarter sales reached 5 million tonnes, higher than originally expected despite steelmakers cutting production quicker in response to COVID-19 than during the Global Financial Crisis in 2008-2009. Chinese steel production returned to pre COVID-19 levels during the quarter and established new average daily record highs in May and June.
– We completed the major expansion of our Elkview Operations plant in Q2:
Increases Elkview’s annual capacity to 9 million tonnes from 7 million tonnes;
Replaces higher cost production and lower quality steelmaking coal from Cardinal River Operations while maintaining our overall steelmaking coal production capacity; and
Taking into account the lower costs and higher average price for Elkview products and assuming a US$150 per tonne coal price and a $1.38 CAD/U.S. dollar exchange rate, shifting production to an expanded Elkview Operations translates to an increase of approximately $160 million in annualized EBITDA.
Steelmaking coal adjusted site cost of sales(1) (2) increased in the second quarter to $68 per tonne with reduced production due to COVID-19. Adjusted site cost of sales are expected to decrease over the remainder of 2020 and we expect to end the year below $60 per tonne due to:
– A declining strip ratio, as planned;
The Elkview plant expansion and the closure of our Cardinal River Operations; and
Benefits of our cost reduction and RACE21™ programs.
Neptune Bulk Terminals Upgrade Progress
– The Neptune Bulk Terminal upgrade project will secure a long term, low cost and reliable supply chain solution for our steelmaking coal business unit. We continue to advance the project, and major equipment deliveries remain on track.
– To date, COVID-19 related issues have not substantially impacted works on the critical path and the project remains in line with the previously announced capital estimate and schedule.
– Terminal operations are suspended for five months beginning in May in order to improve productivity and safety at the terminal as we advance construction. Construction is progressing according to plan, with completion expected in Q1 2021. Production volumes have been adjusted due to the impact of COVID-19 on demand for steelmaking coal and to reflect lower port capacity.
Strong Financial Position
– We have a strong financial position to weather the effects of the COVID-19 pandemic and we have taken steps to enhance it further during Q2 including:
– Adding a two-year unsecured revolving credit facility for US$1.0 billion;
Issuing US$550 million of 10-year, senior unsecured notes, which bear interest at the rate of 3.9% per annum; and
Using the proceeds of the debt issuance to purchase US$268 million of 2021, 2022 and 2023 Notes and reduce drawings on our US$4 billion revolving credit facility.
– We have US$3.8 billion available on our US$4 billion revolving credit facility as at July 22, 2020. This facility is committed to Q4 2024 and does not have any earnings or cash flow based financial covenants, does not include a credit rating trigger and does not include a general material adverse effect borrowing condition.
– Since the launch of our cost reduction program at the beginning of Q4 2019, we have realized approximately $250 million in operating cost reductions and $430 million in capital cost reductions. These reductions are against our expected spending that was contemplated at the end of June 2019.
– We have issued updated guidance for the second half of 2020 (H2 2020) with revisions to reflect the continued uncertainty around the extent and duration of the impact of COVID-19 on demand and prices for our commodities. Summary guidance is outlined below and our usual guidance tables can be found on page 35 of Teck’s full second quarter results for 2020 at the link below.
– We have changed the categories under which we present our capital expenditures guidance. Going forward, we will present capital expenditures as sustaining, growth or capitalized stripping. We will continue to report QB2 capital expenditures separately. Spending previously categorized as major enhancement capital is now primarily considered sustaining capital and new mine development is now included in growth capital. The Neptune Bulk Terminals upgrade and our RACE21™ innovation-driven business transformation program are considered growth capital.
– We are nearing the end of the major capital deployment phase for the Neptune Bulk Terminals upgrade project (completion expected in Q1 2021).