VANCOUVER, BRITISH COLUMBIA -- (Marketwire) -- 07/22/09 -- Teck Resources Limited (TSX: TCK.A and TCK.B, NYSE: TCK) announced net earnings of $570 million, or $1.17 per share, in the second quarter. Our operating profit before depreciation was $841 million. Earnings from continuing operations before non-recurring items and positive pricing adjustments were $177 million. At June 30, 2009, our cash balance was $750 million.
Don Lindsay, President and CEO said, "Our major operations performed well in the second quarter. We have also made substantial progress with our debt reduction plan. The US$5.81 billion bridge loan related to our acquisition of Fording's assets has now been paid in full and the US$4 billion term loan has been reduced to US$2.74 billion. Our total debt has now been reduced by $4.6 billion since we completed the Fording transaction in October 2008, and we expect further reductions of approximately $1 billion upon the sale of the future gold production from our Andacollo mine and the Waneta Dam, which are expected to close later this year."
"We are also pleased to have CIC as a major investor in our company and to establish a relationship with a major financial institution with a deep understanding of China, the world's largest consumer of our principal products," said Mr. Lindsay.
Highlights and Significant Items
- Net earnings in the quarter were $570 million, or $1.17 per share.
- Operating profit before depreciation was $841 million.
- Earnings from continuing operations before non-recurring items and positive pricing adjustments were $177 million.
- Since we completed our acquisition of Fording in October 2008, our US$9.81 billion of bridge and term debt has been reduced by US$7.1 billion to US$2.74 billion. The reduction was from cash on hand, cash flow from operations, tax refunds, proceeds from asset sales, the 5, 7 and 10-year notes issued in May and the strategic investment by China Investment Corporation ("CIC") in July.
- With the amendments to and payments made on our bridge and term loans, debt due by the end of October 2009 has been reduced from US$6.3 billion to US$106 million.
- In July, Moody's Investor Services upgraded our credit rating to Ba2 with a positive outlook from Ba3 with a negative outlook.
- In May we issued US$4.225 billion of 5, 7 and 10 year notes and used the net proceeds to repay the majority of the bridge loan.
- In July, we issued 101.3 million Class B subordinate voting shares to a wholly-owned subsidiary of CIC for proceeds of US$1.5 billion and used the net proceeds to retire the outstanding balance of the bridge loan and reduce the balance of the term loan.
- In June, we entered into a memorandum of understanding to sell a one-third interest in the Waneta Dam to BC Hydro for $825 million. This transaction is subject to completion of due diligence, receipt of certain third-party consents and regulatory approvals and is expected to close in the fourth quarter of this year.
- We expect the sale of an interest in the future gold production from the Andacollo copper mine to Royal Gold, Inc. ("Royal Gold") to close in the third quarter. Gross proceeds to Andacollo, of which our share is 90%, are expected to be US$218 million and 1.2 million common shares of Royal Gold.
- We have completed negotiations with more than 80% of our traditional coal customers, with pricing consistent with previously announced settlements at US$128 per tonne for our highest quality coal products. We expect our 2009 coal sales to be at the upper end of our previously announced guidance range of 18 to 20 million tonnes. We expect our average realized selling price for the 2009 calendar year to be in the range of US$155 to US$160 per tonne. We have cancelled or reduced the length of our scheduled summer production curtailments where possible in order to meet customer demand.
- In July we announced the completion of statutory rail rate arbitration proceedings in respect of rates for certain westbound coal shipments that are expected to result in savings of approximately $70 million for the 2009 coal year. In addition, we have entered into an agreement that allows us to ship up to 3.5 million tonnes of coal for delivery by Canadian National Railway between Kamloops, BC and the Vancouver area ports through March 1, 2010. This important development provides for a choice of rail carriers for some coal exports from western Canadian mines for the first time that we are aware of.
- We expect copper production of approximately 250 million pounds in 2009 and approximately 185 million pounds in 2010 at our Highland Valley copper mine based on our preliminary assessment of recent geotechnical issues. We have engaged third party geotechnical consultants to further assess the extent of the issues. That work is expected to be completed by the end of the fourth quarter of 2009.
This management's discussion and analysis is dated as at July 22, 2009 and should be read in conjunction with the unaudited consolidated financial statements of Teck Resources Limited (Teck) and the notes thereto for the six months ended June 30, 2009 and with the audited consolidated financial statements of Teck and the notes thereto for the year ended December 31, 2008. In this news release, unless the context otherwise dictates, a reference to "the company" or "us", "we" or "our" refers to Teck and its subsidiaries. Additional information, including our annual information form and management's discussion and analysis for the year ended December 31st 2008, is available on SEDAR at www.sedar.com.
This document contains forward-looking statements. Please refer to the cautionary language under the heading "CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION" below.
Earnings and Adjusted Earnings(i)
Net earnings were $570 million, or $1.17 per share, in the second quarter compared with $497 million or $1.12 per share in the same period last year. Net earnings in the second quarter included non-cash foreign exchange translation gains of $413 million on our long-term debt. Earnings also included positive after-tax pricing adjustments of $36 million from rising copper prices and an after-tax gain of $33 million from the sale of our Hemlo gold operations. Partly offsetting these items was the write-off of $87 million of previously capitalized debt financing fees as a result of the repayment of the majority of our bridge loan in the quarter.
(i) Our financial results are prepared in accordance with Canadian GAAP (GAAP). This news release refers to adjusted net earnings, comparative net earnings, operating profit and operating profit before depreciation and pricing adjustments, which are not measures recognized under GAAP in Canada or the United States and do not have a standardized meaning prescribed by GAAP. For adjusted net earnings and comparative net earnings, we adjust net earnings as reported to remove the effect of unusual and/or non-recurring transactions in these measures. Operating profit is revenues less operating expenses and depreciation and amortization. Operating profit before depreciation and pricing adjustments is operating profit with depreciation, amortization and pricing adjustments added or deducted as appropriate. Pricing adjustments are described under the heading "Average Commodity Prices and Exchange Rates" below. These measures may differ from those used by, and may not be comparable to such measures as reported by other issuers. We disclose these measures, which have been derived from our financial statements and applied on a consistent basis, because we believe they are of assistance in understanding the results of our operations and financial position and are meant to provide further information about our financial results to shareholders.
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Three months Six months
ended June 30 ended June 30
(in millions of dollars) 2009 2008 2009 2008
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Net earnings as reported $ 570 $ 497 $ 811 $ 842
Add (deduct):
(Earnings) loss from discontinued
operations (49) 3 66 (1)
Derivative (gains) losses 31 (12) 57 (10)
Asset impairment - 12 - 12
Asset sales and other (13) (4) (181) (12)
Foreign exchange gains on debt (413) - (210) -
Write-off of debt refinancing
fees 87 - 87 -
Tax items - - (30) (11)
-------------------------------------
Adjusted net earnings 213 496 468 820
Pricing adjustments (note 1) (36) 7 (79) (67)
-------------------------------------
Comparative net earnings $ 177 $ 503 $ 389 $ 753
-------------------------------------
(1) See FINANCIAL INSTRUMENTS AND DERIVATIVES section for further
information.
Business Unit Results
Our second quarter business unit results are presented in the table below:
Operating
profit before
depreciation
and pricing Operating
(in millions of dollars) Revenues adjustments profit
--------------------------------------------------------------------------
2009 2008 2009 2008 2009 2008
--------------------------------------------------------------------------
Copper $ 408 $ 773 $ 187 $ 523 $ 183 $ 461
Coal 954 544 515 322 394 309
Zinc 345 488 81 128 59 99
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Total $ 1,707 $ 1,805 $ 783 $ 973 $ 636 $ 869
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Operating profit from our copper business unit was $183 million in the second quarter after recording $56 million of positive pricing adjustments. This compares with an operating profit of $461 million in the second quarter of 2008 when pricing adjustments were negligible. The decline in operating profit was due to significantly lower copper prices, which were 45% lower compared with the same period last year. In addition, sales volumes were 30% lower than the second quarter of last year due to the timing of shipments, as some sales from Highland Valley Copper had been advanced into the first quarter.
Operating profit from our coal business unit was $394 million in the quarter compared with $309 million in the second quarter of 2008. Our results in the second quarter reflect our 100% ownership interest in Teck Coal compared with a 40% direct interest last year. Despite our increased ownership, operating profits were significantly affected by lower sales volumes, reduced coal prices and higher unit operating costs resulting from lower production levels. Coal sales volumes on a 100% basis were 5.0 million tonnes in the second quarter compared with 6.6 million tonnes last year, as our customers reduced their coal deliveries in response to lower steel demand. Coal prices declined by 19% and, including the higher priced 2008 carryover tonnage, averaged US$165 per tonne in the second quarter. Partially offsetting these factors was a stronger US dollar compared with last year.
Operating profit from our zinc business unit was $59 million in the second quarter after recording $2 million of positive pricing adjustments. This compares with an operating profit of $99 million after the impact of $9 million of negative pricing adjustments in the second quarter of 2008. The reduction in operating profit was due to lower zinc and lead prices, which declined by 30% and 35% respectively from a year ago.
As a result of the sale of our Hemlo and Pogo gold operations, results from these two operations are included in discontinued operations.
Our year-to-date divisional results are presented in the table below.
Operating
profit before
depreciation
and pricing Operating
(in millions of dollars) Revenues adjustments profit
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2009 2008 2009 2008 2009 2008
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Copper $ 855 $ 1,489 $ 355 $ 895 $ 341 $ 896
Coal 1,828 765 1,034 348 823 324
Zinc 693 1,061 141 311 99 254
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Total $ 3,376 $ 3,315 $ 1,530 $ 1,554 $ 1,263 $ 1,474
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Revenues
Revenues from operations were $1.7 billion in the second quarter compared with $1.8 billion a year ago. Revenues from coal operations increased by $410 million, with the increase attributable to our increased ownership in Teck Coal. This was offset by reduced copper and zinc revenues of $508 million due to lower metal prices and lower copper sales volumes.
Average Metal Prices and Exchange Rates(i)
Three months Six months
ended June 30 ended June 30
2009 2008 % Change 2009 2008 % Change
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Copper (LME Cash - US$/pound) 2.12 3.83 -45% 1.84 3.68 -50%
Coal (realized - US$/tonne) 165 204 -19% 181 154 +18%
Zinc (LME Cash - US$/pound) 0.67 0.96 -30% 0.60 1.03 -42%
Gold (LME PM fix - US$/ounce) 922 897 +3% 915 912 -%
Molybdenum (published price-
US$/pound) 9 33 -73% 9 33 -73%
Lead (LME Cash - US$/pound) 0.68 1.05 -35% 0.60 1.18 -49%
Cdn/U.S. exchange rate
(Bank of Canada) 1.17 1.01 +16% 1.21 1.01 +20%
(i) The average commodity prices disclosed above are provided for information only. Our actual revenues are determined using commodity prices and other terms and conditions specified in our various sales contracts with our customers. The molybdenum price is the major supplier selling price published in Platts Metals Week.
Sales of metals in concentrate are recognized in revenue on a provisional pricing basis when title transfers and the rights and obligations of ownership pass to the customer, which usually occurs upon shipment. However, final pricing is typically not determined until a subsequent date, often in the following quarter. Accordingly, revenue in a quarter is based on current prices for sales occurring in the quarter and ongoing pricing adjustments from sales that are still subject to final pricing. These pricing adjustments result in additional revenues in a rising price environment and reductions to revenue in a declining price environment. The extent of the pricing adjustments also takes into account the actual price participation terms as provided in the concentrate sales agreements. In the second quarter we had positive pricing adjustments of $58 million ($36 million after non-controlling interests and taxes) compared with negative adjustments of $11 million ($7 million after non-controlling interests and taxes) last year. The amount consists of $31 million of pricing adjustments on sales from the previous quarter and $27 million on sales that were initially recorded at the average price for the month of shipment and subsequently revalued at quarter end forward curve prices.
At March 31, 2009 outstanding receivables included 113 million pounds of copper provisionally valued at an average of US$1.83 per pound and 95 million pounds of zinc valued at an average of US$0.60 per pound. During the second quarter, 96 million pounds of copper included in the March 31, 2009 receivables were settled at an average final price of US$2.11 per pound and 95 million pounds of zinc were settled at an average final price of US$0.65 per pound, resulting in positive after-tax pricing adjustments of C$21 million ($31 million before tax) in the quarter. Positive after-tax pricing adjustments on current quarter sales were C$15 million.
At June 30, 2009, outstanding receivables included 88 million pounds of copper provisionally valued at an average of US$2.31 per pound and 118 million pounds of zinc valued at an average of US$0.71 per pound.
Cash Flow from Operations
Cash flow from operations, before changes in non-cash working capital items, was $421 million in the second quarter compared with $733 million in the same period last year. The decline in cash flow was mainly due to lower operating profits from our copper division, partially offset by higher operating profits from our coal division as a result of our increased ownership in Teck Coal. The change in non-cash working capital was minimal in the second quarter compared with a $232 million use of cash in the same period last year primarily as a result of a reduction of accounts payable due to large tax payments related to significant earnings from 2007.
BUSINESS UNIT RESULTS
The table below shows our share of production and sales of our major commodities.
Units
(000's) Production Sales
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Second Year-to- Second Year-to-
Quarter date Quarter date
----------- ----------- ----------- -----------
2009 2008 2009 2008 2009 2008 2009 2008
--------------------------------- ----------- ----------- -----------
Principal
products
Copper
(note 1
and 2) tonnes 52 53 100 99 40 54 97 98
Copper
Cathode
(note 2) tonnes 26 27 53 53 18 27 45 52
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78 80 153 152 58 81 142 150
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Coal
(note 3)
Direct
share tonnes 4,279 2,601 8,245 4,958 5,004 2,630 8,691 4,933
Indirect
share tonnes - 781 - 1,488 - 789 - 1,480
------------------------------------------------------
4,279 3,382 8,245 6,446 5,004 3,419 8,691 6,413
------------------------------------------------------
Refined
zinc tonnes 60 61 118 135 63 69 120 142
Zinc
(note 1
and 4) tonnes 173 171 340 346 118 120 248 255
Major
by-products
Molybdenum
(note 1) pounds 1,793 1,728 3,704 3,369 1,783 2,198 3,650 3,810
Refined
lead tonnes 19 20 38 46 20 21 37 45
Lead
(note 1) tonnes 31 35 64 74 - 5 1 8
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(1) Production and sales volumes of base metals refer to metals contained
in concentrate.
(2) We include 100% of production and sales from our Highland Valley Copper,
Quebrada Blanca and Andacollo mines 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.
(3) The direct share of coal production included our 40% proportionate share
of production from Teck Coal until October 30, 2008 prior to our
acquisition of Fording and 100% thereafter. The indirect share of coal
production was the pro rata share of production represented by our
19.95% interest in units of Fording.
(4) The Lennard Shelf zinc mine ceased production in August 2008 and the
Pend Oreille zinc mine was placed on care and maintenance in February
2009.
REVENUES AND OPERATING PROFIT
QUARTER ENDED JUNE 30
Our revenue, operating profit before depreciation and pricing adjustments and operating profit by business unit are summarized in the table below:
Operating
profit (loss)
before
depreciation Operating
and pricing profit (loss)
($ in millions) Revenues adjustments (note 2)
--------------------------------------------------------------------------
2009 2008 2009 2008 2009 2008
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Copper
Highland Valley Copper $ 154 $ 259 $ 55 $ 171 $ 74 $ 160
Antamina 138 256 75 189 89 178
Quebrada Blanca 77 190 41 116 17 92
Carmen de Andacollo 21 43 10 29 (1) 24
Duck Pond 18 25 6 18 4 7
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408 773 187 523 183 461
Coal (note 1) 954 544 515 322 394 309
Zinc
Trail 281 402 39 64 26 52
Red Dog 94 97 48 64 40 50
Other 11 35 (1) (9) (2) (12)
Inter-segment sales (41) (46) (5) 9 (5) 9
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345 488 81 128 59 99
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TOTAL $ 1,707 $ 1,805 $ 783 $ 973 $ 636 $ 869
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(1) On October 30, 2008, we completed the acquisition of Fording's assets
which increased our direct ownership interest in Teck Coal from 40% to
100%. The results summarized in the above table reflect our increased
ownership from October 30, 2008.
(2) After depreciation, amortization and pricing adjustments.
REVENUES AND OPERATING PROFIT
SIX MONTHS ENDED JUNE 30
Our revenue, operating profit before depreciation and pricing adjustments and operating profit by business unit are summarized in the table below:
Operating
profit (loss)
before
depreciation Operating
and pricing profit (loss)
($ in millions) Revenues adjustments (note 2)
--------------------------------------------------------------------------
2009 2008 2009 2008 2009 2008
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Copper
Highland Valley Copper $ 340 $ 529 $ 106 $ 315 $ 146 $ 349
Antamina 264 446 138 298 166 325
Quebrada Blanca 171 361 82 197 24 164
Carmen de Andacollo 45 88 22 53 - 42
Duck Pond 35 65 7 32 5 16
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855 1,489 355 895 341 896
Coal (note 1) 1,828 765 1,034 348 823 324
Zinc
Trail 573 843 70 141 44 116
Red Dog 185 267 77 156 61 137
Other 25 75 - 5 - (8)
Inter-segment sales (90) (124) (6) 9 (6) 9
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693 1,061 141 311 99 254
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TOTAL $ 3,376 $ 3,315 $ 1,530 $ 1,554 $ 1,263 $ 1,474
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(1) On October 30, 2008, we completed the acquisition of Fording's assets
which increased our direct ownership interest in Teck Coal from 40% to
100%. The results summarized in the above table reflect our increased
ownership from October 30, 2008.
(2) After depreciation, amortization and pricing adjustments.
COPPER
Highland Valley Copper (97.5%)
Operating results at the 100% level are summarized in the following table:
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Three months Six months
ended June 30 ended June 30
2009 2008 2009 2008
--------------------------------------------------------------------------
Tonnes milled (000's) 11,033 10,924 22,005 21,383
Copper
Grade (%) 0.32 0.31 0.31 0.31
Recovery (%) 86.0 84.3 85.1 83.7
Production (000's tonnes) 30.2 28.1 57.6 54.7
Sales (000's tonnes) 21.2 28.2 55.7 53.8
Molybdenum
Production (million pounds) 1.6 0.9 3.0 1.7
Sales (million pounds) 1.5 1.0 2.8 1.8
Cost of sales ($ millions)
Operating costs $ 61 $ 80 $ 152 $ 144
Distribution costs $ 6 $ 7 $ 14 $ 14
Depreciation and amortization $ 13 $ 11 $ 28 $ 21
Operating Profit ($ millions)
Before depreciation $ 87 $ 171 $ 174 $ 370
After depreciation $ 74 $ 160 $ 146 $ 349
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Highland Valley Copper's operating profit, before positive pricing adjustments, was $42 million in the second quarter compared with $161 million a year ago. Positive pricing adjustments of $32 million were recorded in the quarter compared with $1 million of negative price adjustments last year. The decline in operating profit was due to significantly lower copper prices and timing of shipments, as approximately 4,000 tonnes of shipments that had been scheduled to occur in the second quarter were shipped in the first quarter.
Copper production in the second quarter increased by 7% to 30,200 tonnes compared with the same period last year as a result of higher ore grades and improved mill recoveries.
As previously announced, certain geotechnical issues have been indentified which will restrict access to ore in the Valley pit for at least the next 18 months. The shortfall is expected to be partially made up with lower grade ore from the Lornex and Highmont pits. Although the mill is expected to run at full capacity, the blend of ores available will have lower grades, throughput rates and recovery. Based on preliminary assessments, we now expect that Highland Valley's copper production will be approximately 115,000 tonnes in 2009 and approximately 85,000 tonnes in 2010.
Remedial actions are expected to include at least 40 million tonnes of additional soil stripping above the east wall before the planned placement of a rock buttress to provide long term stability and release of the 2013 extension ore. In addition, a smaller buttress is currently being constructed on the south wall to provide stability for the current production areas in the Valley pit. Based on preliminary estimates, Highland Valley's life-of-mine ore reserves will not be affected by the changes to the east wall design, but are expected to be reduced by approximately 2%, depending on the final design of the south wall remedial actions. Final remedial designs and a new life-of-mine plan are expected to be completed by the end of the fourth quarter of 2009.
The permit amendment for the next phase of mine life extension to 2019 was received in the second quarter and pre-production stripping of the west wall has commenced. West wall stripping is currently scheduled for completion in 2013.
Antamina (22.5%)
Operating results at the 100% level are summarized in the following table:
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Three months Six months
ended June 30 ended June 30
2009 2008 2009 2008
--------------------------------------------------------------------------
Tonnes milled (000's)
Copper-only ore 3,360 4,950 7,163 8,842
Copper-zinc ore 5,077 2,779 9,127 5,405
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8,437 7,729 16,290 14,247
Copper (note 1)
Grade (%) 1.19 1.38 1.20 1.30
Recovery (%) 80.5 90.2 81.9 90.1
Production (000's tonnes) 80.9 94.5 159.9 168.6
Sales (000's tonnes) 74.4 103.0 162.8 165.7
Zinc (note 1)
Grade (%) 2.79 3.74 2.86 3.67
Recovery (%) 81.0 86.8 82.2 87.6
Production (000's tonnes) 108.6 91.4 201.0 169.0
Sales (000's tonnes) 102.0 102.5 187.5 160.5
Molybdenum
Production (million pounds) 1.1 3.8 3.2 7.6
Sales (million pounds) 1.1 5.4 3.6 8.9
Cost of sales (US$ millions)
Operating costs $ 86 $ 126 $ 206 $ 211
Distribution costs $ 27 $ 51 $ 47 $ 73
Royalties and other costs
(note 2) $ 50 $ 79 $ 58 $ 132
Depreciation and amortization $ 25 $ 37 $ 49 $ 67
Our 22.5% share of operating
profit ($ millions)
Before depreciation $ 94 $ 187 $ 178 $ 339
After depreciation $ 89 $ 178 $ 166 $ 325
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(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 to
the vendor of our interest in Antamina equivalent to 7.4% of our share
of cash flow distributed by the mine.
Our 22.5% share of Antamina's operating profit, before positive pricing adjustments, was $70 million in the second quarter compared with $179 million in the same period last year. Our share of positive pricing adjustments in the second quarter was $19 million compared with $1 million of negative price adjustments in the same period a year ago.
Tonnes milled in the second quarter increased 9% compared with 2008, as the SAG mill motor was increased to a higher speed in June compared to a reduced SAG mill speed in the same period last year. As a result of mine sequencing, the concentrator processed 40% copper-only ore and 60% copper-zinc ore in the quarter compared to 64% copper-only and 36% copper-zinc during the second quarter last year.
Despite higher mill throughput, copper production in the second quarter was 14% lower at 80,900 tonnes compared with 94,500 tonnes last year primarily due to the lower proportion of copper-only ore throughput and lower grades and recoveries in the quarter. Zinc production in the quarter increased by 19% over last year to 108,600 tonnes due to processing a greater amount of copper-zinc ore.
Sales volumes of copper were 28% lower than the second quarter of last year reflecting the lower production levels, while sales volumes of zinc were similar to the second quarter last year.
We are currently negotiating changes to Antamina's labour agreement, which expires on July 24, 2009.
Quebrada Blanca (76.5%)
Operating results at the 100% level are summarized in the following table:
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Three months Six months
ended June 30 ended June 30
2009 2008 2009 2008
--------------------------------------------------------------------------
Tonnes placed (000's)
Heap leach ore 2,048 1,958 3,884 3,627
Dump leach ore 2,631 2,082 4,204 4,582
--------------------------------------------------------------------------
4,679 4,040 8,088 8,209
Grade (TCu%) (note 1)
Heap leach ore 1.16 1.38 1.19 1.30
Dump leach ore 0.57 0.60 0.54 0.62
Production (000's tonnes)
Heap leach ore 15.7 16.5 31.4 32.0
Dump leach ore 6.1 5.0 12.0 10.4
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21.8 21.5 43.4 42.4
Sales (000's tonnes) 14.3 22.1 35.5 42.0
Cost of sales (US$ million)
Operating costs $ 29 $ 60 $ 69 $ 113
Inventory adjustments (note 2) $ - $ 10 $ - $ 33
Distribution costs $ 2 $ 2 $ 4 $ 4
Depreciation and amortization $ 21 $ 24 $ 48 $ 44
Operating profit ($ millions)
Before depreciation $ 42 $ 116 $ 83 $ 208
After depreciation $ 17 $ 92 $ 24 $ 164
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(1) TCu% is the percent assayed total copper grade.
(2) Inventory adjustments consist of mark-to-market adjustments of work in
process inventory at the time of the acquisition of the mine in August
2007, which were charged to earnings as the inventory was sold.
(3) Results do not include a provision for the non-controlling interests'
23.5% share of Quebrada Blanca.
Quebrada Blanca's operating profit, before pricing adjustments, was $16 million compared with $91 million in the second quarter of 2008. Positive pricing adjustments were negligible, both this year and last.
Copper production in the second quarter of 21,800 tonnes was similar to last year. Sales volumes of 14,300 tonnes in the second quarter were 35% lower than the same period last year due to the timing of shipments.
Operating costs in the second quarter, before changes in inventory, were US$45 million compared with US$62 million a year ago as a result of lower fuel, sulphuric acid and other consumable costs. Quebrada Blanca is also realizing the benefits of operating its power house more efficiently which has partially reduced the need to purchase power from significantly higher priced third party sources. In addition, second quarter operating costs in 2008 had been affected by a US$9 million signing bonus related to new collective bargaining agreements.
Carmen de Andacollo (90%)
Operating results at the 100% level are summarized in the following table:
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Three months Six months
ended June 30 ended June 30
2009 2008 2009 2008
--------------------------------------------------------------------------
Tonnes placed (000's)
Heap leach ore 879 960 1,838 1,853
Dump leach ore 363 50 600 265
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1,242 1,010 2,438 2,118
Grade (TCu%) (note 1)
Heap leach ore 0.60 0.66 0.62 0.64
Dump leach ore 0.31 0.27 0.30 0.25
Production (000's tonnes)
Heap leach ore 3.9 3.9 8.1 7.7
Dump leach ore 0.8 1.3 1.9 2.7
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4.7 5.2 10.0 10.4
Sales (000's tonnes) 3.7 5.0 9.0 10.3
Cost of sales (US$ million)
Operating costs $ 10 $ 11 $ 17 $ 23
Inventory adjustments (note 2) $ - $ 2 $ - $ 8
Distribution costs $ 1 $ 1 $ 2 $ 2
Depreciation and amortization $ 8 $ 5 $ 19 $ 13
Operating profit (loss)
($ millions)
Before depreciation $ 9 $ 29 $ 23 $ 55
After depreciation $ (1) $ 24 $ - $ 42
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(1) TCu% is the percent assayed total copper grade.
(2) Inventory adjustments consist of mark-to-market adjustments of work in
process inventory at the time of the acquisition of the mine in August
2007, which were charged to earnings as the inventory was sold.
(3) Results do not include a provision for the non-controlling interests'
10% share of Andacollo.
Andacollo incurred an operating loss of $1 million in the second quarter compared with an operating profit of $24 million in the second quarter of 2008. Pricing adjustments in each period were minimal.
Copper production of 4,700 tonnes in the second quarter was consistent with the current mine plan, but 10% lower than a year ago as the mine is transitioning from mining the supergene deposit to the primary hypogene zone scheduled for commissioning later this year.
Sales volumes in the second quarter were 26% lower than the same period last year, due to the timing of shipments.
The development of Andacollo's concentrate project is progressing, with commissioning scheduled for the fourth quarter of 2009 and commercial production levels expected in the first quarter of 2010. The development consists of the construction of a 55,000 tonne per day concentrator and tailings facility and is expected to produce 76,000 tonnes (168 million pounds) of copper and 53,000 ounces of gold in concentrate annually over the first 10 years of the project. The capital cost forecast for the project is US$425 million using a US$1 equals 535 Chilean pesos exchange rate, of which US$331 million has been spent from inception to June 30, 2009.
On April 6, 2009, Andacollo announced the sale of an interest in future gold production from the Andacollo mine to Royal Gold, Inc. ("Royal Gold"). Proceeds to Andacollo are expected to be US$218 million and 1.2 million common shares of Royal Gold. Royal Gold will be entitled to payment based on 75% of the payable gold produced until total cumulative production reaches 910,000 ounces of gold, and 50% thereafter. Closing is subject to customary conditions and is expected to occur in the third quarter of 2009.
Duck Pond (100%)
Duck Pond's operating profit was $4 million in the second quarter as a result of $4 million of positive pricing adjustments. This compares with an operating profit of $7 million in the same period last year. Copper and zinc production in the quarter was 3,600 tonnes and 5,700 tonnes, respectively, compared with 3,700 tonnes and 5,100 tonnes in the same period last year.
Underground ramp development to access the lower portion of the orebody was completed in the second quarter with new primary mining areas scheduled for production in the third quarter. The availability of these lower ore zones is expected to improve mill throughput and recovery going forward.
Development Projects
During the second quarter an Advanced Concept Study was completed on the Quebrada Blanca Hypogene project and a Pre-feasibility Study was commenced. The Pre-feasibility Study is scheduled to be completed in the second quarter of 2010. Work on our Galore Creek, Relincho and other copper development projects was limited during the second quarter.
COAL
Teck Coal Partnership (100%)
Operating results at the 100% level are summarized in the following table:
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Three months Six months
ended June 30 ended June 30
2009 2008 2009 2008
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Production (000's tonnes) 4,279 6,504 8,245 12,396
Sales (000's tonnes) 5,004 6,575 8,691 12,333
Average sale price
US$/tonne $ 165 $ 204 $ 181 $ 154
C$/tonne $ 191 $ 207 $ 210 $ 155
Operating expenses (C$/tonne)
Cost of product sold $ 55 $ 45 $ 57 $ 46
Transportation $ 33 $ 39 $ 34 $ 38
Depreciation and amortization $ 24 $ 5 $ 24 $ 5
Our share of operating profit
($ millions) (note 1)
Before depreciation $ 515 $ 322 $1,034 $ 348
After depreciation $ 394 $ 309 $ 823 $ 324
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(1) Results of Teck Coal represent our 100% direct interest commencing
October 30, 2008 and 40% prior to that date.
On October 30, 2008, we acquired all the assets of Fording, which consisted of Fording's 60% interest in Teck Coal (formerly Elk Valley Coal Partnership). The transaction increased our interest in the partnership from an effective interest of 52% to a 100% interest. We began to fully consolidate the results of Teck Coal on October 30, 2008.
The lower production and sales volume levels in the second quarter and the first half of 2009, compared with the same periods in 2008, reflect reduced demand for steel and hard coking coal. Significant decreases in coal sales to steel mills in Europe and the Americas were partially mitigated by increased demand from Chinese customers for seaborne coking coal, which has been sold at prevailing spot prices. A portion of the lost sales volume with our long-term contract customers was replaced by spot sales into the thermal and PCI coal markets. We expect our sales of thermal and PCI coals to comprise approximately 14% of our sales volume for the 2009 calendar year and approximately 10% for the 2009 coal year, which is consistent with our expected long-term average thermal and PCI product mix of 10%. We also expect the recent trend towards increased spot sales to continue in the future as we seek to contract with our traditional customers for annual tonnages that more closely match their requirements and buying patterns.
The lower average U.S. dollar selling prices in the second quarter compared with the same quarter in 2008 primarily reflect the lower contract price settlements for the 2009 coal year that commenced April 1.
