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October 27, 2011
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Teck Reports Unaudited Third Quarter Results for 2011 3Q Results for the Three Months Ended September 30, 2011
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VANCOUVER, BRITISH COLUMBIA--(Marketwire - Oct.
27, 2011) - 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) reported third quarter profit attributable to shareholders of $814 million, or $1.38 per share, an increase of 158% from $316 million, or $0.54 per share, in the third quarter of 2010.
"We had a very strong third quarter," said Don Lindsay, President and CEO.
"We set new records for each of revenue, gross profit and cash flow and our cash balance has grown to $4.5 billion today.
Our coal division accomplished an important milestone that clearly demonstrates the benefits of the capital we are investing.
We reached a new record in the quarter for total material moved, a critical step towards achieving our production growth targets."
Highlights and Significant Items
-- Record revenue of $3.4 billion in the third quarter was up 40% from
$2.4 billion in the same period a year ago.
-- Record gross profit, before depreciation and amortization, of $1.8
billion in the third quarter was 58% higher than $1.1 billion in the
third quarter of 2010 primarily due to higher copper and steelmaking
coal prices and increased sales volumes of copper and coal.
-- Record cash flow from operations of $1.4 billion in the third quarter
was 79% higher than $771 million a year ago.
-- Quarterly profit attributable to shareholders was $814 million, or $1.38
per share.
Adjusted quarterly profit was $742 million, or $1.26 per
share compared with $452 million, or $0.77 per share, in the third
quarter of 2010.
-- At October 26, our cash and short-term investments were $4.5 billion.
-- In our sales efforts to date, we have reached agreement with our
coal customers to sell 5.6 million tonnes of coal in the fourth quarter
at an approximate average price of US$255 per tonne.
We continue to
discuss further sales with our customers.
-- As part of our expansion plans we moved a record amount of waste burden
at our coal operations in the third quarter, which was 11% higher than
our previous record set in the second quarter of 2011 and 30% higher
than our historic average since 2008.
-- Union employees at the Highland Valley Copper operation ratified a new
five-year labour agreement in mid-October.
-- On October 26, 2011 we announced that we will pay an eligible dividend
of $0.40 per share on our outstanding Class A common shares and Class B
subordinate voting shares on January 3, 2012 to shareholders of record
at the close of business on December 15, 2011.
This represents a 33%
increase from the previous dividend.This managements discussion and analysis is dated as at October 26, 2011 and should be read in conjunction with the unaudited consolidated financial statements of Teck Resources Limited (Teck) and the notes thereto for the three months ended September 30, 2011 and with the audited consolidated financial statements of Teck and the notes thereto for the year ended December 31, 2010.
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 managements discussion and analysis for the year ended December 31, 2010, 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
Our ongoing primary focus on expanding coal and copper production is having a positive impact on our business and financial results.
Investments in new mining equipment, plant upgrades and people have resulted in substantial increases in coal production and sales.
Our investments at Carmen de Andacollo and Antamina have and will continue to generate increased copper production from those two operations and we continue to advance our other late stage copper development projects, particularly the Quebrada Blanca hypogene project and Relincho.
Our strong balance sheet, with cash of $4.5 billion and growing, provides the financial strength and liquidity necessary to fund our very attractive portfolio of growth assets.
Profit and Adjusted Profit(i)
Adjusted profit, which excludes the effect of certain transactions described in the table below, was $742 million, or $1.26 per share, in the third quarter of 2011 compared with $452 million, or $0.77 per share in the same period a year ago.
The higher adjusted profit was primarily due to higher copper and coal sales volumes and favorable prices for all our major products, especially copper and coal.
This was partially offset by the combined effects of a stronger Canadian dollar, higher operating costs and $113 million of after-tax negative pricing adjustments arising mainly from the decline of copper prices late in the quarter.
Profit attributable to shareholders was $814 million, or $1.38 per share, in the third quarter compared with $316 million or $0.54 per share in the same period last year.
Three months Nine months
ended September 30, ended September 30,
($ in millions) 2011 2010 2011 2010
----------------------------------------------------------------------------
Profit attributable to
shareholders as reported $ 814 $ 316 $ 2,031 $ 1,495
Add (deduct):
Asset sale gains (24) (127) (145) (766)
Foreign exchange (gains)
losses 15 (26) 10 (40)
Derivative (gains) losses (63) (51) (67) (67)
Collective agreement charge - - 26 -
Financing items - 340 - 369
--------------------------------------------
Adjusted profit $ 742 $ 452 $ 1,855 $ 991
--------------------------------------------
Adjusted earnings per share $ 1.26 $ 0.77 $ 3.14 $ 1.68
--------------------------------------------
(i) Our financial results are prepared in accordance with IFRS.
This news
release refers to adjusted profit, EBITDA and gross profit before
depreciation and amortization, which are not measures recognized under IFRS
in Canada and do not have a standardized meaning prescribed by IFRS or GAAP
in the United States.
For adjusted profit we adjust profit as reported to
remove the effect of certain kinds of transactions in these measures.
EBITDA is profit before net finance expense, income taxes, depreciation and
amortization.
Gross profit before depreciation and amortization is gross
profit with depreciation and amortization added back.
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 investors.Business Unit Results
Our third quarter business unit results are presented in the table below.
Three Months ended September 30
Gross profit before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2011 2010 2011 2010 2011 2010
----------------------------------------------------------------------------
Copper $ 808 $ 566 $ 439 $ 306 $ 362 $ 240
Coal 1,717 1,150 1,094 625 954 497
Zinc 855 698 281 214 255 189
----------------------------------------------------------------------------
Total $ 3,380 $ 2,414 $ 1,814 $ 1,145 $ 1,571 $ 926
----------------------------------------------------------------------------Gross profit from our copper business unit in the third quarter, before depreciation and amortization, increased by $133 million as a result of higher copper prices and the additional production from Carmen de Andacollos new copper concentrator, which commenced commercial production on October 1, 2010.
Partially offsetting these items were higher operating costs at most of our operations and the effect of the stronger Canadian dollar.
Copper production in the third quarter of 77,000 tonnes was slightly lower than a year ago as lower production and weather related problems at Quebrada Blanca were partly offset by higher production from Antamina and from additional production from Carmen de Andacollo.
Sales of 85,000 tonnes in the third quarter were 19% higher than in the same period a year ago, excluding pre-commercial sales from Carmen de Andacollo in 2010.
Copper prices averaged US$4.07 per pound in the third quarter of 2011, an increase of 24% from US$3.29 per pound in the same period a year ago.
Gross profit from our coal business unit in the third quarter, before depreciation and amortization, increased by $469 million primarily due to significantly higher prices and sales volumes, partially offset by higher unit operating costs and the effect of a stronger Canadian dollar.
Coal production in the third quarter increased by 9% to 6.0 million tonnes compared with the same period a year ago.
Movement of waste overburden was a record in the third quarter and was 20% higher than the same period a year ago, reflecting our significant investments in mobile equipment and manpower.
Sales volume increased by 11% in the third quarter compared with a year ago largely due to higher production levels.
Coal prices averaged US$285 per tonne in the third quarter, an increase of 43% from US$200 per tonne in the same period a year ago.
The significant increase in average US dollar selling prices for the third quarter, compared with the same quarter in 2010, reflected the strong demand in the third quarter for steelmaking coal in most market areas.
However, consistent with recent concerns about the global economic downturn and lower steel prices and steel production levels, coal markets weakened in terms of both price and volume at the end of the third quarter.
Gross profit from our zinc business unit in the third quarter, before depreciation and amortization, increased by $67 million compared with a year ago primarily from higher zinc and lead prices, as well as from continued strong silver prices.
Zinc production from Red Dog increased 10% from a year ago to 151,100 tonnes, due to higher ore grades.
Zinc concentrate sales from Red Dog increased by 10%, while lead sales decline by 48%, reflecting lower production due to lower ore grades and near-surface, weathered ore from Aqqaluk.
Refined zinc production from Trail was 7% higher than a year ago at 73,100 tonnes, as production disruptions were experienced in 2010.
In addition to changes arising from our conversion to IFRS and since the first quarter, price settlement adjustments are no longer included in revenue or gross profit.
The calculation of these adjustments has not changed, but we now include the adjustments in other operating income (expense) in our income statement rather than in revenue.
Negative price settlement adjustments totalled $192 million ($113 million after-tax) in the quarter compared with positive adjustments of $106 million in the same period a year ago.
Our year-to-date business unit results are presented in the table below:
Nine Months ended September 30
Gross profit before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2011 2010 2011 2010 2011 2010
----------------------------------------------------------------------------
Copper $ 2,330 $ 1,734 $ 1,335 $ 1,021 $ 1,115 $ 817
Coal 4,207 3,136 2,415 1,579 2,019 1,163
Zinc 2,005 1,637 604 486 531 415
----------------------------------------------------------------------------
Total $ 8,542 $ 6,507 $ 4,354 $ 3,086 $ 3,665 $ 2,395
----------------------------------------------------------------------------Revenues
Revenues from operations were a record $3.4 billion in the third quarter compared with $2.4 billion a year ago.
Revenues from our copper business unit increased by $242 million, primarily due to significantly higher copper prices and the additional production from Carmen de Andacollo, which contributed $150 million of the increase.
Coal revenues increased by $567 million compared with the third quarter of 2010 due to significantly higher realized coal prices and an 11% rise in sales volumes.
Revenues from our zinc business unit increased by $157 million due to higher zinc, lead and silver prices.
The effect of the stronger Canadian dollar partially offset the impact of higher commodity prices in each of our business units.
Average Prices and Exchange Rates(i)
Three months Nine months
ended September 30, ended September 30,
2011 2010 % Change 2011 2010 % Change
----------------------------------------------------------------------------
Copper (LME Cash -
US$/pound) 4.07 3.29 +24% 4.20 3.25 +29%
Coal (realized - US$/tonne) 285 200 +43% 258 175 +47%
Zinc (LME Cash - US$/pound) 1.01 0.91 +11% 1.04 0.96 +8%
Silver (LME PM fix -
US$/ounce) 39 19 +105% 36 18 +100%
Molybdenum (published price
- US$/pound) 15 15 - 16 16 -
Lead (LME Cash - US$/pound) 1.12 0.92 +22% 1.15 0.94 +22%
Cdn/U.S.
exchange rate
Bank of Canada) 0.98 1.04 -6% 0.98 1.04 -6%
(i) 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.BUSINESS UNIT RESULTS
The table below shows our production and sales of our major commodities.
Units
(000s) Production Sales
----------------------------------------------------------------------------
Third Quarter Year-to-date Third Quarter Year-to-date
--------------------------------------------------------
2011 2010 2011 2010 2011 2010 2011 2010
----------------------------------------------------------------------------
Principal products
Copper (note 1 & 2)
Contained
in concen-
trate tonnes 63 56 182 156 68 58 184 153
Cathode tonnes 14 23 50 72 17 23 51 75
--------------------------------------------------------
77 79 232 228 85 81 235 228
--------------------------------------------------------
Coal tonnes 5,952 5,450 16,087 17,081 6,143 5,531 16,660 17,217
Zinc
Contained
in concen-
trate tonnes 164 162 496 492 194 193 422 455
Refined tonnes 73 69 216 208 69 70 214 206
Other
products
Lead
Contained
in concen-
trate tonnes 19 27 62 93 46 86 46 89
Refined tonnes 20 17 64 59 21 16 63 57
Molybdenum
Contained
in concen-
trate pounds 2,825 2,214 7,046 5,892 2,566 1,922 7,144 5,796
----------------------------------------------------------------------------
1.
We include 100% of production and sales from our Highland Valley Copper,
Quebrada Blanca and Carmen de 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.
We include 22.5% of production and sales from
Antamina, representing our proportionate equity interest in Antamina.
2.
Includes pre-commercial production and sales volumes from Carmen de
Andacollo prior to September 30, 2010.
Production of copper contained in
concentrate during the pre-commercial start-up period in the three
months ended September 30, 2010 was 11,900 tonnes and 20,700 tonnes for
the nine months ended September 30, 2010.
Sales of copper contained in
concentrate during the pre-commercial start-up in the three months ended
September 30, 2010 were 10,600 tonnes and 16,600 tonnes for the nine
months ended September 30, 2010.REVENUES AND GROSS PROFIT
QUARTER ENDED SEPTEMBER 30
Our revenue, gross profit before depreciation and gross profit by business unit are summarized in the table below:
Gross profit
before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2011 2010 2011 2010 2011 2010
----------------------------------------------------------------------------
Copper
Highland Valley
Copper $ 262 $ 187 $ 142 $ 103 $ 119 $ 77
Antamina 195 163 145 105 140 98
Quebrada Blanca 140 156 58 83 35 56
Carmen de Andacollo 172 22 78 4 58 -
Duck Pond 39 38 16 11 10 9
----------------------------------------------------------------------------
808 566 439 306 362 240
Coal (note 1) 1,717 1,150 1,094 625 954 497
Zinc
Trail 492 340 52 30 40 18
Red Dog 416 401 227 184 213 171
Other 4 9 1 3 1 3
Inter-segment sales (57) (52) 1 (3) 1 (3)
----------------------------------------------------------------------------
855 698 281 214 255 189
----------------------------------------------------------------------------
TOTAL $ 3,380 $ 2,414 $ 1,814 $ 1,145 $ 1,571 $ 926
----------------------------------------------------------------------------
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 mines, and have a 95% partnership interest in the Elkview mine and
an 80% joint venture interest in the Greenhills mine.REVENUES AND GROSS PROFIT
NINE MONTHS ENDED SEPTEMBER 30
Our revenue, gross profit before depreciation and gross profit by business unit are summarized in the table below:
Gross profit
before
depreciation and
($ in millions) Revenues amortization Gross profit
----------------------------------------------------------------------------
2011 2010 2011 2010 2011 2010
----------------------------------------------------------------------------
Copper
Highland Valley Copper $ 722 $ 607 $ 394 $ 360 $ 332 $ 287
Antamina 597 469 439 304 423 288
Quebrada Blanca 423 501 209 298 143 214
Carmen de Andacollo 482 62 246 25 187 9
Duck Pond 106 95 47 34 30 19
----------------------------------------------------------------------------
2,330 1,734 1,335 1,021 1,115 817
Coal (note 1) 4,207 3,136 2,415 1,579 2,019 1,163
Zinc
Trail 1,498 1,091 208 112 171 75
Red Dog 669 679 388 358 352 325
Other 15 27 2 7 2 6
Inter-segment sales (177) (160) 6 9 6 9
----------------------------------------------------------------------------
2,005 1,637 604 486 531 415
----------------------------------------------------------------------------
TOTAL $8,542 $6,507 $ 4,354 $ 3,086 $ 3,665 $ 2,395
----------------------------------------------------------------------------
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 mines, and have a 95% partnership interest in the Elkview mine and
an 80% joint venture interest in the Greenhills mine.COPPER
Highland Valley Copper (97.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2011 2010 2011 2010
----------------------------------------------------------------------------
Tonnes milled (000s) 10,763 10,822 30,631 31,376
Copper
Grade (%) 0.24 0.26 0.26 0.27
Recovery (%) 86.8 87.7 87.6 86.9
Production (000s tonnes) 22.8 24.1 70.0 74.6
Sales (000s tonnes) 26.8 23.8 73.5 74.8
Molybdenum
Production (million
pounds) 2.0 2.0 5.1 5.0
Sales (million pounds) 1.8 1.5 5.3 4.9
Cost of sales ($ millions)
Operating costs $ 111 $ 75 $ 303 $ 222
Distribution costs $ 9 $ 9 $ 25 $ 25
Depreciation and
amortization $ 23 $ 26 $ 62 $ 73
Gross profit summary ($
millions)
Before depreciation and
amortization $ 142 $ 103 $ 394 $ 360
Depreciation and
amortization (23) (26) (62) (73)
----------------------------------------------------------------------------
After depreciation and
amortization $ 119 $ 77 $ 332 $ 287
----------------------------------------------------------------------------Highland Valley Coppers third quarter gross profit of $142 million, before depreciation and amortization, compared with $103 million in the same period a year ago.
Significantly higher copper prices in the quarter were partly offset by higher operating costs and the effect of the stronger Canadian dollar.
Copper production of 22,800 tonnes was 5% lower than the same period last year primarily as a result of lower ore grades.
Molybdenum production of 2.0 million pounds was similar to the corresponding period last year.
Higher cost of sales in the quarter was primarily due to sales volumes exceeding production by 18% in the quarter and to increased waste stripping.
Site expenditures during the quarter were similar to the same period last year, as cost improvement measures offset higher consumable costs, such as diesel fuel.
A significant milestone was achieved in the quarter, with completion of the two-year waste stripping and buttress placement project on the east wall of the Valley pit.
Over the coming months, higher grade ore will be sourced from the Valley pit as new production areas are established on the east wall.
With the buttress project now complete, focus will be on starting the two-year pre-stripping program for the Lornex pit extension, which will begin when related permits are received.
A $475 million mill modernization project was approved in the third quarter.
Due to the age of the processing plant, significant capital investment would otherwise be required to sustain operations to the end of the current mine life.
This project is being undertaken rather than repairing and replacing existing equipment, which would cost $210 million and would result in significant production downtime.
The project includes the construction of new flotation and pebble crushing plants adjacent to the existing circuits which will minimize downtime, while at the same time improve copper recovery by 2%, molybdenum recovery by 3% and average mill throughput by 10% over the life of the mine.
The higher throughput and recoveries, combined with modern process controls and lower maintenance requirements, are expected to lower unit operating costs by approximately 5%.
The project is scheduled for completion in the fourth quarter of 2013.
A new 5 year labour agreement was ratified early in the fourth quarter.
A one-time labour settlement cost of $44 million is expected to be recorded in the fourth quarter.
Antamina (22.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2011 2010 2011 2010
----------------------------------------------------------------------------
Tonnes milled (000s)
Copper-only ore 7,623 4,848 18,405 13,101
Copper-zinc ore 1,774 4,192 9,533 14,058
----------------------------------------------------------------------------
9,397 9,040 27,938 27,159
Copper (note 1)
Grade (%) 1.11 0.93 1.00 0.98
Recovery (%) 87.3 82.0 85.3 81.1
Production (000s tonnes) 93.2 71.2 238.7 217.8
Sales (000s tonnes) 86.8 85.2 239.4 222.5
Zinc (note 1)
Grade (%) 2.59 2.58 2.33 2.63
Recovery (%) 84.8 85.6 85.2 84.6
Production (000s tonnes) 31.4 87.7 187.8 308.7
Sales (000s tonnes) 33.6 84.1 188.4 321.9
Molybdenum
Production (million
pounds) 3.9 1.4 8.8 4.4
Sales (million pounds) 3.6 1.9 8.4 4.2
Cost of sales (US$ millions)
Operating costs $ 136 $ 149 $ 409 $ 402
Distribution costs $ 23 $ 24 $ 67 $ 75
Royalties and other costs
(note 2) $ 55 $ 61 $ 170 $ 166
Depreciation and
amortization $ 27 $ 28 $ 80 $ 67
Gross profit summary (our
22.5% share) ($ millions)
Before depreciation and
amortization $ 145 $ 105 $ 439 $ 304
Depreciation and
amortization (5) (7) (16) (16)
----------------------------------------------------------------------------
After depreciation and
amortization $ 140 $ 98 $ 423 $ 288
----------------------------------------------------------------------------
1.
Copper ore grades and recoveries apply to all of the processed ores.
Zinc ore grades and recoveries apply to copper-zinc ores only.
2.
In addition to royalties paid by Antamina, we also pay a royalty in
connection with the acquisition of our interest in Antamina equivalent
to 7.4% of our share of cash flow distributed by the mine.The increase in our 22.5% share of Antaminas gross profit, before depreciation and amortization, was due mainly to higher copper prices, partially offset by lower zinc sales.
Tonnes milled in the third quarter were 4% higher than a year ago.
The mix of mill feed in the third quarter was 81% copper-only ore and 19% copper-zinc ore, compared with 54% and 46%, respectively, in the same period a year ago.
Copper production was 93,200 tonnes compared with 71,200 tonnes in the third quarter of 2010 as a result of the higher proportion of copper-only ores processed in the quarter.
Zinc production decreased significantly to 31,400 tonnes from 87,700 tonnes in the same period a year ago due to the reduced copper-zinc ore processed in the quarter.
Molybdenum production was significantly higher in the third quarter compared with a year ago as a result of higher throughput of copper-only ores with higher molybdenum grades.
The forecast cost of the Antamina expansion project remains at US$1.3 billion.
The expansion is expected to increase ore throughput capacity to 130,000 tonnes per day, an increase of 30%, starting in the first quarter of 2012.
In October, the new ball mill was run successfully during pre-operational testing and the new SAG mill is being prepared for a similar test.
Ore is expected to be fed to the new mills before year end.
Overall, the project, which includes facilities which will not be completed until late 2012, is more than 70% complete.
Work on primary production facilities is over 80% complete.
The expansion is not based on a technical report filed under National Instrument 43-101.
Quebrada Blanca (76.5%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2011 2010 2011 2010
----------------------------------------------------------------------------
Tonnes placed (000s)
Heap leach ore 1,546 1,930 4,825 5,940
Dump leach ore 5,002 5,848 17,258 13,061
----------------------------------------------------------------------------
6,548 7,778 22,083 19,001
Grade (TCu%) (note 1)
Heap leach ore 0.93 0.81 0.93 0.90
Dump leach ore 0.50 0.42 0.47 0.47
Production (000s tonnes)
Heap leach ore 6.7 12.2 23.0 41.9
Dump leach ore 6.9 8.5 22.7 22.7
----------------------------------------------------------------------------
13.6 20.7 45.7 64.6
Sales (000s tonnes) 15.5 20.7 46.0 67.1
Cost of sales (US$ million)
Operating costs $ 82 $ 69 $ 213 $ 189
Distribution costs $ 2 $ 2 $ 5 $ 7
Depreciation and
amortization $ 23 $ 26 $ 67 $ 81
Gross profit summary ($
millions) (note 2)
Before depreciation and
amortization $ 58 $ 83 $ 209 $ 298
Depreciation and
amortization (23) (27) (66) (84)
----------------------------------------------------------------------------
After depreciation and
amortization $ 35 $ 56 $ 143 $ 214
----------------------------------------------------------------------------
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.The decline in Quebrada Blancas gross profit, before depreciation and amortization, was due to lower sales volumes as a result of reduced production levels, as described below.
Copper production of 13,600 tonnes was 34% lower than the third quarter of 2010 as operations were adversely affected by a severe snow storm in early July, followed by heavy rains.
The unusual precipitation contaminated leach solutions and caused difficulties with irrigation in both the heap and dump leach pads.
In addition, Quebrada Blanca is now transitioning from a high grade heap leach operation to a lower grade dump leach operation and processing a greater proportion of dump leach ore in the quarter compared with a year ago.
Operating costs rose at Quebrada Blanca in the third quarter compared with the same period a year ago as a result of higher prices for sulphuric acid, diesel, fuel oil and other consumables.
In addition, the effect of a stronger Chilean peso negatively impacted costs for salaries, benefits and contractor payments.
Quebrada Blancas production in 2011 is now estimated to be approximately 63,000 tonnes compared with our previous guidance of 71,000 tonnes as a result of the issues caused by the heavy rains in January and unusual snow conditions in early July.
Following the previously announced geotechnical issues in the fourth quarter of last year and new infill drilling in the area, a detailed review of the mine design and production plan was recently completed.
As a result of shallower pit wall angles and associated mining constraints, production is now expected to be approximately 70,000 tonnes per year for the next 3 years, with a gradual reduction thereafter towards the end of cathode production now extending into 2018.
Although cathode production will be stretched over an additional year as a result of these design changes, total cathode produced from the supergene reserve is expected to be the same.
The concentrate project is unaffected.
A new agreement with the staff union was successfully renegotiated in the quarter.
The labour agreement with the workers union expires on January 31, 2012 and negotiations are ongoing.
Quebrada Blanca has been sued for patent infringement in connection with a method it has employed to re-mine heap leach stock piles with a view to enhancing leach recoveries.
Quebrada Blanca is vigorously defending the action, and has brought parallel proceedings to have the patent declared invalid.
While Quebrada Blanca is advised that there are defenses to the infringement suit and good grounds on which the patent should be declared invalid, there can be no assurance that the matter will be ultimately resolved in Quebrada Blancas favour.
While it is not possible at this time to definitively estimate the extent of any potential damages, those damages are not expected to be material.
Carmen de Andacollo (90%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2011 2010 2011 2010
----------------------------------------------------------------------------
Tonnes milled (000s) 3,703 3,506 10,988 5,999
Copper (note 1)
Grade (%) 0.49 0.45 0.51 0.46
Recovery (%) 86.7 78.6 87.6 76.6
Production (000s tonnes) 15.8 11.9 48.8 20.7
Sales (000s tonnes) 17.9 10.6 46.8 16.6
Gold (note 2)
Production (000s ounces) 11.8 9.8 38.5 16.4
Sales (000s ounces) 13.5 13.0 35.3 13.0
Copper cathode
Production (000s tonnes) 1.1 2.4 4.5 7.6
Sales (000s tonnes) 1.1 2.9 4.7 8.3
Cost of sales (US$ million)
Operating costs $ 90 $ 16 $ 226 $ 35
Distribution costs $ 6 $ - $ 16 $ 1
Depreciation and
amortization $ 21 $ 4 $ 61 $ 15
Gross profit summary ($
millions) (note 3)
Before depreciation and
amortization $ 78 $ 4 $ 246 $ 25
Depreciation and
amortization (20) (4) (59) (16)
----------------------------------------------------------------------------
After depreciation and
amortization $ 58 $ - $ 187 $ 9
----------------------------------------------------------------------------
1.
Includes pre-commercial production and sales volumes from Carmen de
Andacollo prior to September 30, 2010.
Production of copper contained in
concentrate during the pre-commercial start-up period in the three
months ended September 30, 2010 was 11,900 tonnes and 20,700 tonnes for
the nine months ended September 30, 2010.
Sales of copper contained in
concentrate during the pre-commercial start-up in the three months ended
September 30, 2010 was 10,600 tonnes and 16,600 tonnes for the nine
months ended September 30, 2010.
2.
Carmen de Andacollo processes 100% of gold mined, but 75% of the gold
produced is for the account of Royal Gold Inc.
3.
Results do not include a provision for the 10% non-controlling interest
in Andacollo.The increase in Carmen de Andacollos gross profit was attributable to significantly higher sales volumes as a result of production from the new copper concentrator, which commenced commercial production on October 1, 2010.
During the third quarter, concentrator throughput was 40,250 tonnes per day compared with design capacity of 55,000 tonnes per day.
Plans to increase plant throughput to meet or exceed design capacity through a series of steps are progressing on schedule.
The installation of a small crusher to feed coarse ore to the pebble crusher was successfully completed in August.
We increased power to the SAG mill motor, increasing its capacity by 10% by the end of September.
In addition, we plan to install a 20,000 tonne per day pre-crusher plant during the first quarter of 2012.
Concentrate recoveries continue to be above design in the quarter.
The estimated cost for these optimization initiatives is approximately US$15 million.
Operating costs in the third quarter were US$90 million compared with US$16 million last year, with the increase attributable to production from the new copper concentrator.
We are conducting a feasibility study to examine adding an additional SAG mill, ball mill and other associated plant and equipment aimed at increasing annual production of contained copper to 100,000 to 120,000 tonnes.
The study will include drilling to confirm additional ore reserves and will address the key issues of availability of process water and permitting requirements.
The study is expected to be completed by the end of the fourth quarter of 2011.
The planned plant throughput and production improvements noted above are not based on a technical report filed under National Instrument 43-101.
The labour agreement with the workers union expires on December 31, 2011 and negotiations are ongoing.
Duck Pond (100%)
Duck Ponds gross profit, before depreciation and amortization, was $16 million in the third quarter compared with $11 million in the same period last year.
Copper and zinc production in the quarter were 3,500 tonnes and 5,900 tonnes of contained metal, respectively, compared with 3,700 tonnes and 4,900 tonnes respectively last year.
Increased zinc production was a result of higher feed grade to the mill during the quarter.
Copper Development Projects
Quebrada Blanca Phase 2
Work continues on the Quebrada Blanca concentrate project.
Following the completion of engineering studies in late 2010 on the development of the hypogene resource that underlies the supergene deposit currently being mined at Quebrada Blanca, a full feasibility study commenced in early 2011.
The feasibility study is expected to be completed by early 2012.
As contemplated in previous studies, production would be approximately 200,000 tonnes of copper per year in concentrate plus approximately 5,100 tonnes of molybdenum per year in concentrate.
Should we have a positive feasibility study and a decision to undertake project development, production could commence in early 2016.
Infill and exploration drilling is ongoing with encouraging results and a new reserve and resource estimate will be forthcoming.
Although we have not disclosed preliminary cost estimates for the Quebrada Blanca project, work to date suggests that, consistent with the recently released estimate for Galore Creek, industry-wide cost pressures will affect the capital cost.
Relincho
Prefeasibility work has been completed for a major greenfields copper project at Relincho.
The orebody is amenable to the production of copper concentrates by conventional grinding and flotation, with no significant risks in mining and ore treatment.
A clean, saleable product can be produced.
Significant infrastructure is required to support the production facilities.
The attractiveness of the project is enhanced by our 100% ownership of the property, exploration potential outside of the known deposit area, a relatively easy terrain for construction, close proximity to services, moderate altitude, benign climate and an excellent land tenure position.
The prefeasibility work indicates that developing the 140,000 tonnes per day Relincho concentrator and associated facilities has an estimated initial capital cost of US$3.9 billion, with possible concentrate production in 2017.
Copper concentrate tonnage would average 650,000 tonnes per year in the first five years of full production, containing 195,000 tonnes of copper, and averaging 600,000 tonnes per year (180,000 tonnes per year contained copper) over the 22-year mine life.
Annually, an average 12,000 tonnes of molybdenum concentrate (6,000 tonnes per year contained molybdenum) could be produced as a by-product over the life of the mine.
After by-product credits, the C1 cash cost of producing copper is expected to average US$1.30 over the life of the mine.
As a result of the studies completed to date, a decision was made in the third quarter to commence a full feasibility study which is expected to be complete by the end of 2012.
Infill and exploration drilling is ongoing and a new resource and reserve estimate is expected at year end.
Galore Creek
Work on the prefeasibility study for the Galore Creek project was completed in July 2011.
Additional environmental and engineering work is ongoing.
Review of the study and the additional work will enable the partners to consider next steps for advancing the project.
The copper development objectives above are not based on technical reports filed under National Instrument 43-101.
COAL
Teck Coal Partnership (100%)
Operating results at the 100% level are summarized in the following table:
Three months ended Nine months ended
September 30, September 30,
2011 2010 2011 2010
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Production (000s tonnes) 5,952 5,450 16,087 17,081
Sales (000s tonnes) 6,143 5,531 16,660 17,217
Average sale price
US$/tonne $ 285 $ 200 $ 258 $ 175
C$/tonne $ 279 $ 208 $ 252 $ 182
Operating expenses (C$/tonne)
Cost of product sold $ 70 $ 61 $ 75 $ 59
Transportation $ 31 $ 33 $ 32 $ 31
Depreciation and amortization $ 23 $ 24 $ 24 $ 24
Gross profit summary ($ millions)
Before depreciation and
amortization $ 1,094 $ 625 $ 2,415 $ 1,579
Depreciation and amortization (140) (128) (396) (416)
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After depreciation and
amortization $ 954 $ 497 $ 2,019 $ 1,163
----------------------------------------------------------------------------Gross profit in the third quarter, before depreciation and amortization, was nearly double last year due primarily to significantly higher selling prices and higher sales volumes, partially offset by the effects of the stronger Canadian dollar and higher unit cost of product sold.
Production for the third quarter increased by 9% compared with the same quarter of 2010.
The strike at our Coal Mountain mine in the third quarter of 2010 reduced our production by approximately 300,000 tonnes in the comparative quarter.
Movement of overburden waste required to expose raw coal was 20% higher in the third quarter compared with the same quarter in 2010 and represents a new record, exceeding the previous record set in the second quarter of 2011 by 11%.
Our investments in mobile equipment and manpower made in accordance with our growth strategy have increased our capacity to move waste and expose raw coal.
With the Greenhills processing plant expansion project now complete and with the scheduled annual plant maintenance shutdowns completed at the other mines, we expect to see increased clean coal production in the fourth quarter.
The project to upgrade and expand the capacity of the processing plant at our Elkview mine is currently expected to be completed in December 2011.
The increase in third quarter sales volume compared with the same quarter in 2010 primarily reflects the higher production levels.
The significant increase in average selling prices for the third quarter compared with the same quarter in 2010 reflects strong demand for high quality steelmaking coal in most market areas throughout the majority of the quarter and relatively limited supply available on the seaborne market.
We have agreed prices with our quarterly contract customers for the fourth quarter of 2011.
Pricing of approximately US$285 per tonne for our highest quality product is consistent with prices reportedly achieved by our competitors.
We currently expect our average selling prices for the fourth quarter of 2011 to be in the range of US$250 to US$255 per tonne, which reflects a range of coal products of various qualities, as well as the impact of carryover volumes from previous periods and spot sales during the quarter.
Unit cost of product sold, before transportation and depreciation charges of $70 per tonne, increased by 15%, or $9 per tonne over the same quarter of 2010.
The increase in strip ratios, measured as the volume of waste material moved per tonne of clean coal produced, contributed approximately $5 per tonne to the increase in unit costs.
Diesel prices were 30% higher in the third quarter compared with the same quarter in 2010, which impacted our unit costs by approximately $3 per tonne.
Mining contractors are also currently being used to supplement our own workforce and equipment in order to maximize our production levels, which added approximately $3 per tonne to our unit costs in the third quarter.
Partially offsetting these cost increases was the benefit of improved raw coal release in the third quarter, which resulted in a build-up of raw coal inventory stockpiles that benefitted our reported unit cost of product sold by approximately $2 per tonne compared to the third quarter of 2010.
Excluding the impact of the $40 million union labour settlement costs recorded in the second quarter, our unit cost of product sold has continued to fall in each successive quarter of 2011, from $76 per tonne in the first quarter, to $73 per tonne in the second quarter, to $70 per tonne in the third quarter.
We expect our annual cost of product sold to fall within a range of $71 to $76 per tonne with unit costs trending furthe
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