TECK COMINCO CEO Discusses Q3 2010 Results - Earnings Call Transcript

TECK COMINCO CEO Discusses Q3 2010 Results - Earnings Call Transcript
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TECK COMINCO CL B (

TCK

)

Q3 2010 Earnings Call

October 27, 2010 11:00 am ET

Executives

Greg Waller - VP, IR

Don Lindsay - CEO

Ron Millos - SVP, Finance and CFO

Analysts

Meredith Bandy - BMO Capital Markets

Oris Walkada - Canaccord Genuity

Val Durrani - Goldman Sachs

Duncan McKeen - Macquarie

Greg Barnes - TD Newcrest

David Charles - GMP Securities

Adam Gillespie - Goldman Sachs

David Donovan - RBC Capital Markets

Presentation

Operator

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Welcome to Teck’s Third Quarter 2010 Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. This conference call is being recorded on Wednesday, October 27, 2010.

I would now like to turn the call over to Greg Waller, Vice President Investor Relations & Strategic Analysis. Please go ahead.

Greg Waller

Thank you for joining us this morning for our third quarter 2010 earnings conference call. Before we start, I would like to draw your attention to the forward-looking information slides on pages two and three of our presentation package. This presentation contains forward-looking information regarding our business. Various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking information or statements.

At this point, I would like to turn the call over to Don Lindsay.

Don Lindsay

I will start today with the review of the results for the quarter and then turn the presentation over to Ron Millos, our Senior Vice President, Finance and CFO to address some more in-depth financial topics and I do have a number of other members of the management team here on the call this morning and available to answer your questions.

Turning to Slide 5, there are a number of highlights in the quarter. With this quarter was a record revenues at over $2.5 billion. Operating profit before depreciation and amortization was $1.23 billion, and that was up almost 25% over the previous quarter of this year.

Earnings were $331 million, but our earnings were impacted by a $340 million after-tax charge resulting from our previously announced debt refinancing, so with adjustments for these items earnings were $467 million and EBITDA for the quarter was $912 million.

Turning to Slide 6, and continuing with the highlights for the quarter. Our business fundamentals are very strong with higher copper production going forward from here since we have achieved commercial production at Andacollo and we have very strong copper pricing.

During this quarter we took advantage of the historical low interest rates to refinance the portion of our long-term debt, these transactions replaced debt that had an maturity of 6 years with debt with an average maturity of 18 years. We have also reduced our future interest expense by approximately $85 million per year.

We show our review of comparative readings for the quarter on Slide 8. We had a number of unusual items this quarter to adjust for. After sales generated gains in the quarter, we had some modest exchange and derivative losses and most significant item; however, is the above mentioned charge related to the debt refinance, which was $340 million on an after-tax basis.

Adjusting for these items, earnings were $467 million for the quarter, or $0.79 cents per share. I should note that we had unusually higher stock and corporate expenses this quarter that impacted earnings by about $0.03 cents per share, as a result of the increase in our share price and adjust for this, adjusted earnings would be $0.82 per share, which is much closer to the consensus estimate of the quarter.

On the next slide, we have summarized the guidance we gave last quarter and the performance relative to that guidance. Our guidance was largely met with this quarter except for coal sales. Coal sales were hampered by Westshore throughput issues that we announced previously. However, Westshore has made changes in the operating practices and are catching up on delayed shipments.

We do not expect any impediment for capacity in achieving our 2011 plant sale. Coal costs came in above the calendar 2010 target due to higher strip ratios, higher diesel fuel prices, and the reduced sales volume. Having said that, we still expect total cost to be in the range of $0.90 per tonne for the calendar 2010, which is consistent with our previous guidance.

Turning to our operating results for the quarter, in our coal business, production was almost 4% higher on a year-over-year basis, but sales were down reflecting the congestion of Westshore.

Our sales of 5.5 million tonnes for the quarter were at the high end of our revised guidance range. The average realized price of $200 per the tonne was at the top guidance range of $195 to $200. Although the benchmark price was $225 per tonne quarter for the quarter, we continue to deliver some coal is carried over from the 2009 and 2008 coal years, and that impacted the realized price as well as the minor amounts of lower quality coal that we produced.

Unit site costs were $62 per tonne. We expect site costs to be in the range of $56 to $58 per tonne for the calendar year 2010. Unit transportation costs at $33 per tonne were higher than last year. For calendar 2010, we expect it to end up in the range of $31 to $34 per tonne.

We reached agreement with Canadian Pacific this quarter on a very important long-term rail contract, and we were very pleased with this agreement. This collaborative 10-year deal gives us the certainty we need to realize our growth strategy in coal and to deliver our increased production on a timely basis to our key markets.

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