Teck Reports Unaudited Fourth Quarter Results for 2013

Marketwired
0

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb 13, 2014) -

All dollar amounts expressed in this news release are in Canadian dollars unless otherwise noted.

Teck Resources Limited (TSX: TCK.A and TCK.B, NYSE: TCK, ("Teck")) reported annual adjusted profit attributable to shareholders of $1.0 billion, or $1.74 per share, compared with $1.8 billion or $3.03 per share in 2012. Fourth quarter adjusted profit attributable to shareholders was $227 million, or $0.40 per share, compared with $409 million, or $0.70 per share, in the fourth quarter of 2012.

"We were pleased with our operating performance in 2013," said Don Lindsay, President and CEO. "We achieved record annual steelmaking coal sales, had record throughput at three of our mines, implemented approximately $360 million in savings from our cost reduction program and, with our partners, announced that we are proceeding with the construction of the Fort Hills oil sands project. However, prices for all of our key products were down compared to last year, resulting in lower profits and cash flows than in 2012."

Highlights and Significant Items

  • Gross profit before depreciation and amortization in 2013 was $3.7 billion compared with $4.5 billion in 2012. Gross profit before depreciation and amortization was $875 million in the fourth quarter compared with $1.1 billion in the fourth quarter of 2012.

  • Cash flow from operations, before working capital changes, was $2.6 billion in 2013 compared with $3.7 billion last year. Cash flow from operations, before working capital changes, was $636 million in the fourth quarter compared with $862 million a year ago.

  • Profit attributable to shareholders was $961 million in 2013 compared with $1.1 billion in 2012. Profit attributable to shareholders was $232 million in the fourth quarter of 2013 compared with $200 million in the same period last year.

  • To date we have reached agreements with our coal customers to sell 5.9 million tonnes of coal in the first quarter of 2014 and we expect total sales in the first quarter, including spot sales, to be at or above 6.3 million tonnes.

  • Our cash balance was $2.5 billion at February 12, 2014.

  • We achieved a number of significant operating and sales records in the quarter and year, including:

    • record annual coal sales of 26.9 million tonnes as a result of increased global steel production;

    • new quarterly record copper production at 105,000 tonnes in the fourth quarter; and

    • record annual throughput at Greenhills, Antamina, Carmen de Andacollo and Red Dog.

  • At Highland Valley Copper, the mill optimization project achieved substantial mechanical completion in the quarter and commissioning of the new flotation facility has commenced.

  • We continue to implement our cost reduction program and to date our existing operations have identified over $380 million of annual, ongoing potential costs savings at constant production levels, of which $360 million have been implemented.

  • In October 2013, we and our partners Suncor Energy Inc. and Total E&P Canada Ltd. announced that we are proceeding with the construction of the Fort Hills oil sands project. The mine has an expected life of greater than 50 years, which meets our strategic goal of developing long life assets in stable jurisdictions.

  • On November 20 we announced an eligible dividend of $0.45 per share on our outstanding Class A common shares and Class B subordinate voting shares to be paid on January 2, 2014.

  • On January 21, 2014, we were ranked as one of the Global 100 Most Sustainable Corporations for 2014 by media and investment research company, Corporate Knights. This is the second consecutive year we have been included on the list.

  • Since mid-2013, the Canadian/U.S. dollar exchange rate has moved significantly in our favour. At the current exchange rate, EBITDA would be positively impacted by approximately $500 million if the current rate continues for the balance of 2014.

This news release is dated as at February 13, 2014. Unless the context otherwise dictates, a reference to "Teck," "the company," "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 31, 2012, 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.

Overview

Profits are lower than last year as a result of lower prices for all of our principal products, especially coal. Coal and copper prices declined by 23% and 8%, respectively, on an annual basis and 11% and 10% in the fourth quarter compared with the same period a year ago.

For 2013 we exceeded our production targets for the year and compared with 2012 production level our coal and zinc production both rose by 4%, while copper was lower by 2% due to lower ore grades, which were partially offset by mill throughput increases at most of our mines.

We continue to focus on our cost reduction program at all of our sites. We have identified over $380 million of potential ongoing, annual operating cost savings across the company, of which $360 million have been implemented. An additional $150 million of one-time cost savings and deferrals have also been identified and implemented. We note that while we have achieved significant efficiencies through this program, there are offsetting factors such as lower grades, increased waste haul distances, higher fuel prices and contractual labour rate increases which tend to offset these cost control measures and that some of these will become more significant as mining progresses at each of our sites.

In October 2013, we and our partners Suncor and Total announced that we are proceeding with the construction of the Fort Hills oil sands project. The mine has an expected life of greater than 50 years, which meets our strategic goal of developing long life assets in stable jurisdictions. Planned capacity is 180,000 barrels per day of which our 20% share would be 36,000 barrels per day. First oil is planned for the end of 2017 with a ramp up to 90% of capacity within 12 months. Our share of the fully escalated capital cost is expected to be $2.94 billion.

We continue to review our capital spending on other projects and in respect of sustaining capital, reducing these amounts where we consider it prudent to do so.

Profit and Adjusted Profit*

Adjusted profit, which excludes the effect of certain transactions described in the table below, was $227 million, or per $0.40 share, in the fourth quarter of 2013 compared with $409 million, or $0.70 per share, in the same period a year ago. The decline in adjusted profit was primarily due to lower prices for our products, a decline in zinc and copper sales volumes due to timing of shipments and higher unit costs at our coal operations.

Profit attributable to shareholders was $232 million, or $0.40 per share, in the fourth quarter compared with $200 million or $0.34 per share in the same period last year. Profit last year was affected by a $259 million after-tax charge related to the refinancing of our remaining high-yield notes.

Three months
ended December 31,

Year ended
December 31,

($ in millions)

2013

2012

2013

2012

Profit attributable to shareholders as reported

$

232

$

200

$

961

$

1,068

Add (deduct):

Asset sales and provisions

(36

)

4

(9

)

(39

)

Foreign exchange (gains) losses

(2

)

(1

)

11

20

Derivative gains

2

(3

)

-

(98

)

Collective agreement charges

-

11

-

70

Financing items

-

259

-

784

Asset impairments and other

31

-

31

- Tax items - (61 ) 10 (29 ) Adjusted profit(*) $ 227 $ 409 $ 1,004 $ 1,776 Adjusted earnings per share* $ 0.40 $ 0.70 $ 1.74 $ 3.03

(*) This is a non-GAAP financial measure. See "Use Of Non-GAAP Financial Measures" for more information.

Business Unit Results

Our business unit results are presented in the tables below.

Three Months ended December 31

($ in millions)

Revenues

Gross profit
before
depreciation
and amortization(*)

Gross profit

2013

2012

2013

2012

2013

2012

Copper

$

762

$

895

$

384

$

463

$

269

$

355

Coal

963

1,010

352

435

167

304

Zinc

649

824

138

194

110

165

Energy

2

1

1

2

-

1

Total

$

2,376

$

2,730

$

875

$

1,094

$

546

$

825

(*) This is a non-GAAP financial measure. See "Use Of Non-GAAP Financial Measures" for more information.

Gross profit before depreciation and amortization from our copper business unit in the fourth quarter decreased by $79 million compared with a year ago. The decrease was primarily a result of lower realized copper prices, reduced by-product revenues and a 7% decrease in sales volumes due to the timing of shipments, which was behind production. These items were partly offset by lower operating costs, particularly at our Quebrada Blanca and Carmen de Andacollo Operations. Copper production in the fourth quarter was 105,000 tonnes, which was a new quarterly production record, compared with 103,000 tonnes a year ago and an increase of 15% from the third quarter of 2013. The higher production is a result of record mine and mill throughput at Antamina and improved production from Quebrada Blanca. Cash unit costs in the fourth quarter of 2013, before and after by-product credits, were US$1.90 and US$1.57 per pound, respectively. This compares with cash unit costs, before and after by-product credits, of US$2.08 and US$1.58 per pound, respectively, in the fourth quarter of 2012.

In our coal unit, gross profit before depreciation and amortization in the fourth quarter declined by $83 million compared with last year due primarily to lower realized coal prices and increased unit operating costs. Production in the fourth quarter was 6.7 million tonnes, or 5% higher than in the same period in 2012. Sales volumes of 6.5 million tonnes in the fourth quarter reflect continued demand for our products from customers in all market areas and were slightly ahead of levels a year ago. For the year, sales volumes of 26.9 million tonnes represent a record for the coal operations, 2.9 million tonnes above 2012 and 1.9 million tonnes above the previous high in 2004. Coal prices were 11% lower than a year ago and averaged US$142 per tonne in the fourth quarter. The lower coal price was partially offset by the effect of the stronger U.S. dollar. The cost of product sold in the fourth quarter, before transportation and depreciation charges, was $6 per tonne higher than the same period a year ago due to higher fuel costs, contracted labour rate increases and the completion of deferred maintenance activities. Operating costs also included a $3 per tonne charge related to the write-down of thermal coal inventories which forms a small portion of our production. Depreciation and amortization, before the inventory write-downs noted above, rose by $7 per tonne as a result of increasing amortization for capitalized stripping costs and new capital equipment investments made during the year, which are now being depreciated.

Gross profit before depreciation and amortization from our zinc business unit decreased by $56 million to $138 million in the fourth quarter compared with a year ago as a result of substantially lower sales volumes from Red Dog due to the timing of shipments. In 2012, poor weather in the third quarter caused delays to shipments originally scheduled for the third quarter which were then deferred to the fourth quarter. Trail's refined zinc production increased 3% from a year ago due to better roaster throughput and improved operating efficiencies. Refined lead and silver production was lower in the fourth quarter compared with a year ago, as throughput from the KIVCET lead furnace was affected by a series of production interruptions. Zinc and lead production from Red Dog in the fourth quarter was similar to a year ago.

Revenues

Revenues from operations were $2.4 billion in the fourth quarter compared with $2.7 billion a year ago. Revenues from our copper business unit decreased by $133 million from a year ago as a result of softer copper prices, reduced by-product revenues and lower sales volumes due to timing of shipments. Coal revenues decreased by $47 million compared with the fourth quarter of 2012 primarily due to weaker coal prices. Revenues from our zinc business unit decreased by $175 million compared with a year ago. The decrease was primarily due to substantially lower silver revenues from Trail and a 22% decrease in Red Dog's zinc sales volumes. The effect of the stronger U.S. dollar in the fourth quarter compared with a year ago partly offset the declines in commodity prices.

Average Prices and Exchange Rates*

Three months
ended December 31,

Year ended
December 31,

2013

2012

%
Change

2013

2012

%
Change

Copper (LME Cash - US$/pound)

3.24

3.59

-10%

3.32

3.61

-8%

Coal (realized - US$/tonne)

142

159

-11%

149

193

-23%

Zinc (LME Cash - US$/pound)

0.86

0.88

-2%

0.87

0.88

-1%

Silver (LME PM fix - US$/ounce)

21

33

-36%

24

31

-23%

Molybdenum (published price - US$/pound)

10

11

-9%

10

13

-23%

Lead (LME Cash - US$/pound)

0.96

1.00

-4%

0.97

0.94

+3%

CAD/U.S. exchange rate (Bank of Canada)

1.05

0.99

+6%

1.03

1.00

+3%

* Except for coal prices, the average commodity prices disclosed above are based on published benchmark prices and 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 price published in Platts Metals Week.

Our year-to-date business unit results are presented in the table below:

Year ended December 31

($ in millions)

Revenues

Gross profit
before
depreciation
and amortization

Gross profit

2013

2012

2013

2012

2013

2012

Copper

$

2,853

$

3,142

$

1,391

$

1,601

$

988

$

1,240

Coal

4,113

4,647

1,729

2,405

1,007

1,892

Zinc

2,410

2,550

534

497

429

391

Energy

6

4

5

4

2

1

Total

$

9,382

$

10,343

$

3,659

$

4,507

$

2,426

$

3,524

BUSINESS UNIT RESULTS

The table below shows our production and sales of our major products.

Units
(000's)

Production

Sales

Fourth Quarter

Year-to-date

Fourth Quarter

Year-to-date

(note 1)

2013

2012

2013

2012

2013

2012

2013

2012

Principal products

Copper

Contained in concentrate

tonnes

88

88

304

307

83

90

303

305

Cathode

tonnes

17

15

60

66

16

16

59

67

105

103

364

373

99

106

362

372

Coal

tonnes

6,667

6,358

25,622

24,652

6,480

6,422

26,911

23,989

Zinc

Contained in concentrate

tonnes

158

157

623

598

166

207

578

578

Refined

tonnes

69

67

290

284

73

67

294

287

Other products

Lead

Contained in concentrate

tonnes

25

26

97

95

40

50

100

96

Refined

tonnes

21

24

86

88

22

23

85

88

Molybdenum

Contained in concentrate

pounds

2,236

3,040

8,322

12,692

2,220

3,620

8,386

13,016

(1) We include 100% of production and sales from our Highland Valley Copper, Quebrada Blanca and Carmen de Andacollo Operations in our production and sales volumes, even though we own 97.5%, 76.5% and 90%, respectively, of these operations, because we fully consolidate their results in our financial statements. We include 22.5% of production and sales from Antamina, representing our proportionate equity interest in Antamina.

REVENUES AND GROSS PROFIT

QUARTER ENDED DECEMBER 31

Our revenues, gross profit before depreciation and amortization, and gross profit by business unit are summarized in the table below:

($ in millions)

Revenues

Gross profit
before
depreciation
and amortization

Gross profit
(loss)

2013

2012

2013

2012

2013

2012

Copper

Highland Valley Copper

$

220

$

314

$

110

$

171

$

86

$

136

Antamina

250

257

180

191

168

174

Quebrada Blanca

111

119

36

9

(8

)

(17

)

Carmen de Andacollo

140

174

59

72

33

50

Duck Pond

40

31

(2)

15

(11

)

7

Other

1

-

1

5

1

5

762

895

384

463

269

355

Coal (note 1)

963

1,010

352

435

167

304

Zinc

Trail

428

499

33

25

20

13

Red Dog

280

376

109

170

94

153

Other

2

1

(4)

(1

)

(4

)

(1

)

Inter-segment sales

(61

)

(52

)

-

-

-

-

649

824

138

194

110

165

Energy

2

1

1

2

-

1

TOTAL

$

2,376

$

2,730

$

875

$

1,094

$

546

$

825

(1) Our coal business unit represents our interest in six operating mines. We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal River Operations, and have a 95% partnership interest in the Elkview Mine and an 80% interest in the Greenhills Operations.

REVENUES AND GROSS PROFIT

YEAR ENDED DECEMBER 31

Our revenues, gross profit before depreciation and amortization, and gross profit by business unit are summarized in the table below:

($ in millions)

Revenues

Gross profit
before
depreciation
and amortization

Gross profit
(loss)

2013

2012

2013

2012

2013

2012

Copper

Highland Valley Copper

$

882

$

1,012

$

408

$

530

$

297

$

415

Antamina

822

897

596

682

549

644

Quebrada Blanca

422

499

121

115

3

16

Carmen de Andacollo

606

597

244

227

150

144

Duck Pond

113

130

19

42

(14

)

16

Other

8

7

3

5

3

5

2,853

3,142

1,391

1,601

988

1,240

Coal (note 1)

4,113

4,647

1,729

2,405

1,007

1,892

Zinc

Trail

1,751

1,865

112

59

61

9

Red Dog

874

892

418

440

364

384

Other

13

7

4

(2

)

4

(2

)

Inter-segment sales

(228

)

(214

)

-

-

-

-

2,410

2,550

534

497

429

391

Energy

6

4

5

4

2

1

TOTAL

$

9,382

$

10,343

$

3,659

$

4,507

$

2,426

$

3,524

(1) Our coal business unit represents our interest in six operating mines. We wholly own the Fording River, Coal Mountain, Line Creek and Cardinal River Operations, have a 95% partnership interest in the Elkview Mine and an 80% joint venture interest in the Greenhills Operation.

COPPER

Highland Valley Copper (97.5%)

Operating results at the 100% level are summarized in the following table:

Three months ended
December 31,

Year ended
December 31,

2013

2012

2013

2012

Tonnes milled (000's)

11,750

11,660

44,861

45,383

Copper

Grade (%)

0.33

0.36

0.29

0.30

Recovery (%)

86.8

88.4

85.9

86.7

Production (000's tonnes)

33.7

37.4

113.2

116.3

Sales (000's tonnes)

28.4

36.8

111.6

117.0

Molybdenum

Production (million pounds)

1.7

2.5

6.1

10.0

Sales (million pounds)

1.6

3.1

6.2

10.0

Cost of sales ($ millions)

Operating

$

101

$

131

$

440

$

445

Distribution

$

9

$

12

$

34

$

37

Depreciation and amortization

$

24

$

35

$

111

$

115

Gross profit summary ($ millions) (note 1)

Before depreciation and amortization

$

110

$

171

$

408

$

530

Depreciation and amortization

(24

)

(35

)

(111

)

(115

)

After depreciation and amortization

$

86

$

136

$

297

$

415

(1) Results do not include a provision for the 2.5% non-controlling interest in Highland Valley Copper.

Highland Valley Copper's fourth quarter gross profit declined by $61 million, before depreciation and amortization, primarily due to lower copper prices and lower sales volumes of both copper and molybdenum.

Copper ore grades mined in the fourth quarter were higher than previously expected leading to a strong production quarter, although grades were not as high as the fourth quarter of 2012. Average copper grades in 2014 are expected to be similar to 2013, with lower grades expected in the first half of the year. Mill throughput was strong in the fourth quarter at 128,000 tonnes per day benefitting from the new pebble crushing facility commissioned in the third quarter. Molybdenum production declined to 1.7 million pounds from 2.5 million pounds a year ago primarily due to lower ore grades.

Operating costs in the fourth quarter of $101 million decreased as a function of the lower sales volumes in the period. Cost improvement initiatives were successful in offsetting other cost pressures associated with shutdown work and higher labour and material costs in the fourth quarter. Capitalized stripping costs in the fourth quarter of 2013 were $31 million compared with $19 million a year ago.

The mill optimization project achieved substantial mechanical completion in the quarter and commissioning of the new flotation facility has commenced. Approximately 40% of the plant feed has been transferred to the new plant which is performing as expected, with the remainder of feed expected to transfer by early March. In addition, Highland Valley is planning to relocate one of the semi-mobile crushers in the Valley pit with detailed engineering beginning in the first quarter of 2014. This sustaining capital project is expected to cost approximately $70 million and is expected to be complete by mid-2015.

Highland Valley Copper's production in 2014 is expected to be in the range of 110,000 to 120,000 tonnes of copper. Molybdenum production in 2014 is expected to be in the range of 5 to 6 million pounds.

Antamina (22.5%)

Operating results at the 100% level are summarized in the following table:

Three months ended
December 31,

Year ended
December 31,

2013

2012

2013

2012

Tonnes milled (000's)

Copper-only ore

8,447

8,619

32,468

32,160

Copper-zinc ore

4,074

3,133

14,571

14,323

12,521

11,752

47,039

46,483

Copper (note 1)

Grade (%)

1.15

1.16

1.07

1.10

Recovery (%)

87.5

88.7

87.2

87.9

Production (000's tonnes)

130.2

121.6

443.0

446.8

Sales (000's tonnes)

136.9

131.3

436.2

448.3

Zinc (note 1)

Grade (%)

1.78

1.73

2.12

1.85

Recovery (%)

81.9

82.5

84.4

80.7

Production (000's tonnes)

58.8

44.4

260.4

219.0

Sales (000's tonnes)

64.6

62.9

256.9

229.2

Molybdenum

Production (million pounds)

2.5

2.7

10.0

12.1

Sales (million pounds)

2.9

2.4

9.9

13.5

Cost of sales (US$ millions)

Operating (note 2)

$

196

$

189

$

652

$

620

Distribution

$

32

$

29

$

107

$

109

Royalties (note 3)

$

48

$

54

$

143

$

206

Depreciation and amortization

$

49

$

75

$

200

$

168

Gross profit summary (our 22.5% share) ($ millions)

Before depreciation and amortization

$

180

$

191

$

596

$

682

Depreciation and amortization

(12

)

(17

)

(47

)

(38

)

After depreciation and amortization

$

168

$

174

$

549

$

644

(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) Cost of sales in the fourth quarter of 2012 included a US$43 million one-time labour settlement charge.

(3) In addition to royalties paid by Antamina, we also pay a royalty in connection with the acquisition of our interest in Antamina equivalent to 7.4% of our share of cash flow distributed by the mine.

Our 22.5% share of Antamina's gross profit decreased by $11 million before depreciation and amortization in the fourth quarter, primarily due to lower copper prices. In 2012, gross profit included a one-time $10 million (US$43 million - 100% basis) labour settlement charge.

Mill throughput was 7% higher than the fourth quarter of 2012 at 136,000 tonnes per day, a quarterly record. The mix of mill feed in the fourth quarter was 67% copper-only ore and 33% copper-zinc ore, compared with 73% and 27%, respectively, in the same period a year ago. Copper production, on a 100% basis, rose by 8,600 tonnes compared with a year ago to a new quarterly record 130,200 tonnes. Zinc production increased to 58,800 tonnes from 44,400 tonnes in the same period a year ago primarily due to the higher amount of copper-zinc ore processed in the quarter.

Operating costs (100% basis) in the fourth quarter, before a one-time US$43 million labour settlement charge in 2012, increased to US$196 million, US$50 million higher than the fourth quarter of 2012, reflecting the higher throughput and sales volumes. Capitalized stripping costs were US$64 million (100% basis) in the fourth quarter compared with US$91 million in the same period of 2012.

Despite expected continued improvement in mill throughput rates, production in 2014 is expected to be significantly lower than 2013 as the mill feed will consist of lower grade ore, both from active mine phases and stockpiles, consistent with the mine plan. Antamina is a skarn deposit and grades can vary significantly depending on which phases of the open pit are being mined. A gradual return to higher production is expected after 2014 as grades improve.

Our 22.5% share of Antamina's copper production in 2014 is expected to be in the range of 75,000 to 80,000 tonnes and our 22.5% share of zinc production is expected to be in the range of 40,000 to 45,000 tonnes.

Quebrada Blanca (76.5%)

Operating results at the 100% level are summarized in the following table:

Three months ended
December 31,

Year ended
December 31,

2013

2012

2013

2012

Tonnes placed (000's)

Heap leach ore

1,650

1,495

6,140

6,625

Dump leach ore

1,543

5,668

10,078

25,361

3,193

7,163

16,218

31,986

Grade (TCu%) (note 1)

Heap leach ore

0.83

0.96

0.83

0.89

Dump leach ore

0.39

0.54

0.42

0.50

Production (000's tonnes)

Heap leach ore

9.8

9.3

31.6

39.5

Dump leach ore

6.3

5.0

24.6

22.9

16.1

14.3

56.2

62.4

Sales (000's tonnes)

14.6

15.1

55.3

62.2

Cost of sales (US$ million)

Operating

$

71

$

108

$

287

$

377

Distribution

$

1

$

2

$

6

$

7

Depreciation and amortization

$

41

$

27

$

114

$

99

Gross profit (loss) summary ($ millions) (note 2)

Before depreciation and amortization

$

36

$

9

$

121

$

115

Depreciation and amortization

(44

)

(26

)

(118

)

(99

)

After depreciation and amortization

$

(8

)

$

(17

)

$

3

$

16

(1) TCu% is the percent assayed total copper grade.

(2) Results do not include a provision for the 23.5% non-controlling interest in Quebrada Blanca.

Despite lower copper prices, Quebrada Blanca's gross profit before depreciation and amortization in the fourth quarter increased by $27 million primarily due to significantly improved operating costs.

Copper production increased by 13% compared with the same period a year ago and was significantly higher than the third quarter of 2013 primarily due to maintenance improvements and higher grades and throughput through the heap leach facilities. Production from the dump leach was also higher as previously placed material in inventory was irrigated to supplement production. As planned, the amount of dump leach ore placed and the associated grades continue to be significantly lower this year.

Operating costs decreased by US$37 million in the fourth quarter and by US$90 million in 2013 compared with 2012. The restructuring plan put in place for 2013 has been very successful in lowering the operating cost structure. Maximizing heap leach throughput and further cost reduction will continue to be a major focus as grades are expected to continue to gradually decline. Capitalized stripping costs in the fourth quarter were US$8 million compared with US$12 million a year ago. Depreciation expense rose in the fourth quarter as a result of increasing amortization of capitalized deferred stripping costs.

Work continues to progress on updating the permits for the existing facilities for the supergene operation with an anticipated mine life that has cathode production extending into 2020. Submission of the social and environmental impact assessment ("SEIA") for the supergene facilities is anticipated in the second quarter of 2014.

Quebrada Blanca's production in 2014 is expected to be in the range of 45,000 to 50,000 tonnes of copper cathode. Sales in the first quarter of 2014 are expected to be lower than production due to the recent port strikes in Chile.

Carmen de Andacollo (90%)

Operating results at the 100% level are summarized in the following table:

Three months ended
December 31,

Year ended
December 31,

2013

2012

2013

2012

Tonnes milled (000's)

4,837

4,233

18,048

16,723

Copper

Grade (%)

0.48

0.54

0.48

0.52

Recovery (%)

88.6

87.1

87.7

86.8

Production (000's tonnes)

20.6

19.7

76.8

75.8

Sales (000's tonnes)

18.5

20.0

78.8

72.8

Gold (note 1)

Production (000's ounces)

14.9

16.7

68.0

57.6

Sales (000's ounces)

12.8

17.4

67.1

56.3

Copper cathode

Production (000's tonnes)

1.4

0.8

4.4

4.0

Sales (000's tonnes)

1.1

1.1

4.1

4.4

Cost of sales (US$ million)

Operating

$

70

$

94

$

322

$

341

Distribution

$

8

$

9

$

30

$

28

Depreciation and amortization

$

24

$

23

$

91

$

84

Gross profit summary ($ millions) (note 2)

Before depreciation and amortization

$

59

$

72

$

244

$

227

Depreciation and amortization

(26

)

(22

)

(94

)

(83

)

After depreciation and amortization

$

33

$

50

$

150

$

144

(1) Carmen de Andacollo processes 100% of gold mined, but 75% of the gold produced is for the account of Royal Gold Inc.

(2) Results do not include a provision for the 10% non-controlling interest in Andacollo.

The decrease in Carmen de Andacollo's fourth quarter gross profit before depreciation and amortization was primarily due to lower realized copper prices and an 8% decline in sales volumes as a result of timing of shipments.

An increase in mill throughput and recoveries as a result of blasting and process improvement initiatives helped to increase copper production in the fourth quarter compared with a year ago, and offset a decline in the copper grades. Consistent with the mine plan, copper grades are expected to continue to decline in 2014 and future years. Further mill throughput improvement initiatives are anticipated to offset planned grade declines, although this is expected to place additional cost pressure on the operation.

Operating costs in the fourth quarter decreased by US$24 million to US$70 million compared with a year ago, partly due to the 8% decline in sales volumes and to lower energy costs. Capitalized stripping costs in the fourth quarter and last year were minimal.

Carmen de Andacollo's production in 2014 is expected to be in the range of 65,000 to 75,000 tonnes of copper contained in concentrate and approximately 5,000 tonnes of copper cathode. Cathode production is currently planned until mid-2015, but further extensions could be possible depending on economics and ore sources available. We do not expect the recent port strikes in Chile to affect Carmen de Andacollo's concentrate shipments in the first quarter of 2014.

Duck Pond (100%)

Duck Pond incurred an operating loss, before depreciation and amortization, of $2 million in the fourth quarter compared with gross profit of $15 million in the same period a year ago primarily as a result of lower copper prices in addition to substantially higher unit operating costs. Copper and zinc production in the fourth quarter were 3,700 tonnes and 3,200 tonnes, respectively, compared with 3,500 tonnes and 4,200 tonnes, respectively, last year. Copper and zinc sales in the fourth quarter were 5,400 tonnes and 4,600 tonnes, respectively, compared with 3,600 tonnes and 4,200 tonnes, respectively, last year.

Duck Pond's production in 2014 is expected to be in the range of 14,000 to 16,000 tonnes of copper and approximately 15,000 tonnes of zinc.

After thorough exploration of the Lower Duck deposit, studies have concluded that an extension to the underground mine at depth is not economic. The current deposits being mined are expected to be exhausted in the first half of 2015, after which time the mine will be permanently closed. Closure and reclamation costs, which have been provided for, are estimated to be $10 million.

Copper Development Projects

Quebrada Blanca Phase 2

During the fourth quarter, detailed design for the Quebrada Blanca Phase 2 project continued with the level of engineering activities and associated costs being ramped down. A further slowdown in activities will continue in the first half of 2014. Certain commitments have been made by Quebrada Blanca in connection with the development of Quebrada Blanca Phase 2, including with respect to certain long-lead equipment and power purchase contracts. Quebrada Blanca is evaluating ways to manage its exposure in connection with these commitments in light of the permitting delays at Quebrada Blanca.

As previously announced, the permits for our existing facilities need to be updated before resubmission of the Phase 2 SEIA. Timing for resubmission of the Phase 2 SEIA will depend to some extent on progress on updating permits for the existing facilities.

Relincho

A feasibility study was completed in the quarter on our 100% owned Relincho project and concludes that developing a 173,000 tonnes-per-day concentrator and associated facilities would cost approximately US$4.5 billion (in August 2013 dollars, not including working capital or interest during construction) with an estimated mine life of 21 years based on mineral reserves.

The total mineral reserve and mineral resource estimates for the project, as at December 31, 2013, are set out in the tables below. Mineral resources are reported separately from and do not include that portion of mineral resources that are classified as mineral reserves.

Mineral Reserves

Tonnes (000's)

%Cu

%Mo

Proven

435,300

0.38

0.016

Probable

803,800

0.37

0.018

Total

1,239,100

0.37

0.017

Mineral Resources

Tonnes (000's)

%Cu

%Mo

Measured

79,900

0.27

0.009

Indicated

317,100

0.34

0.012

Inferred

610,800

0.38

0.013

Reserves have been reported within designed life of mine pits created during the feasibility study assuming US$2.80/lb copper and US$13.70/lb molybdenum prices with a mining cost of US$0.95 per tonne moved, a processing cost of US$9.13 per tonne milled, and with assumed metallurgical recoveries of 88.8% for copper and 47.2% for molybdenum.

Estimated key project operating parameters are summarized in the following table.

Years 2-6*

Life of Mine

Strip ratio (tonnes waste/tonnes ore)

1.28:1

1.28:1

Tonnes milled (nominal tonnes per day)

173,000

173,000

Copper grade (%Cu)

0.41%

0.37%

Molybdenum grade (%Mo)

0.018%

0.017%

Contained copper production (tonnes per annum)

228,000

207,000

Contained molybdenum production (tonnes per annum)

5,300

5,100

C1 cash costs (US$)**

1.53

1.72

* First five years at full production rate.

** C1 cash costs are presented after by-product credit assuming US$10.00 per pound of molybdenum.

Estimates of mineral reserves and resources have been prepared under the general supervision of Rodrigo Marinho, P.Geo., who is an employee of Teck and a qualified person for the purposes of National Instrument 43-101.

Given current economic conditions, no significant activities are planned for Relincho in 2014. We will work on optimization studies that will focus on capital and operating cost reductions and explore other ways to enhance the value of the project.

Other Copper Projects

A small technical work program at Galore Creek is planned for 2014 to incorporate the results of recent drilling activity and engineering studies, with no significant field activity planned. No significant work was done in the fourth quarter at Schaft Creek. Some engineering studies will continue, but no drilling activities are planned for 2014.

COAL (100%)

Operating results at the 100% level are summarized in the following table:

Three months ended
December 31,

Year ended
December 31,

2013

2012

2013

2012

Production (000's tonnes)

6,667

6,358

25,622

24,652

Sales (000's tonnes)

6,480

6,422

26,911

23,989

Average sale price

US$/tonne

$

142

$

159

Advertisement

Recommended Stories