Teck Resources Limited (TCK)

Q2 2011 Earnings Call

July 29, 2011 11:00 am ET

Executives

Donald Lindsay - Chief Executive Officer, President, Non Independent Director and Member of Executive Committee

Ronald Millos - Chief Financial Officer and Senior Vice President of Finance

Roger Higgins - Senior Vice President of Copper

Gregory Waller - Vice President of Investor Relations & Strategic Analysis

Ian Kilgour - Senior Vice President of Coal

Analysts

Jorge Beristain - Deutsche Bank AG

David Beard - Iberia Capital Partners

Garrett Nelson - BB&T Capital Markets

Greg Barnes - TD Newcrest Capital Inc.

David Lipner - Credit Agricole Securities (USA) Inc.

Oscar Cabrera - BofA Merrill Lynch

Harry Mateer - Barclays Capital

Alec Kodatsky - CIBC World Markets Inc.

Meredith Bandy - BMO Capital Markets Canada

Brian MacArthur - UBS Investment Bank

Presentation

Operator

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Ladies and gentlemen, welcome to Teck's Second Quarter 2011 Results Conference Call. [Operator Instructions] This conference call is being recorded on Friday, July 29, 2011. I would now like to turn the conference call over to Greg Waller, Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Gregory Waller

Good morning, everyone, and thanks for joining us this morning for our second quarter earnings conference call. Before we start, I'd like to draw your attention to the forward-looking information slides on Pages 2 and 3 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 statement.

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

Donald Lindsay

Thanks, Greg, and good morning, everyone. I'll start this morning with a review of the results for the quarter, and then I'll turn the presentation over to Ron Millos, our Senior Vice President, Finance and CFO, to address some more in-depth financial topics. We do have a number of other members of the management team on the call this morning and they, too, are available to answer your questions.

So turning to Slide 5. This quarter was a record quarter for revenues, for gross profit and EBITDA on a normalized or clean basis, despite having to adjust our guidance for coal down later in the quarter. The very strong quarter is a reflection of the strong fundamentals of our business, particularly the higher prices for both coal and copper. And I would note that the second quarter for Teck is traditionally a weaker quarter for us because of the seasonality related to Red Dog.

Underscoring our strong financial position is our $3.4 billion cash balance, and that is after having already paid $177 million in dividends this quarter. Since quarter end, we issued $2 billion in aggregate amount of notes, term notes. We expect to use the proceeds for general corporate purposes, including anticipated capital spending and debt repayment. Our net debt position is also about $3.4 billion, but it hasn't changed materially with our increased cash balance. And finally, in coal, the benchmark contract price for premium hard coking coal for the third quarter has been settled at USD $315 per metric ton. Our average price will, of course, depend on the volume of each product that we sell.

Turning to Slide 6. As already mentioned, Q2's record revenues stood at almost $2.8 billion, up over 27% from Q2 2010. And gross profit before depreciation and amortization was over $1.4 billion, which was up 31% over the second quarter of 2010 with expanding margins. Second quarter profit was $756 million and EBITDA was just over $1.4 billion. I would like to remind everyone that our profit is reported now under IFRS, and if you've not already done so, we urge you to go through the notes, to the financials to become more familiar with some of the changes.

On Slide 7, it shows our adjusted profit for the quarter, which removes unusual items in comparison to last year. Adjusted profit of $663 million or $1.12 per share on a fully diluted basis is almost double the adjusted profit per share last year.

We show our view of normalized or adjusted profit for the quarter on Slide 8. This quarter had 2 significant adjustments. The largest was the sale of our interest in the Carrapateena project, which had an after-tax impact of $99 million. The second is a one-time after-tax charge of $26 million related to the new 5-year labor agreement in our coal operations. And as usual, we had some modest adjustments related to the foreign exchange derivative losses. Adjusting for these items, profit was $663 million for the quarter or $1.12 per share.

Turning to our operating results for the quarter on Slide 9. In our Coal business, production and sales were down year-over-year. Our production for the quarter was 5.8 million tonnes and sales came in around 5.6 million tonnes. The average realized price for the second quarter was USD $272 per tonne, relative to benchmark prices of $330 for the premium quality of coal. The wider spread between realized price and the benchmark price was primarily due to the significant increase in the benchmark price this quarter and the carryover of sales of some coal and prices from the previous quarter, which were substantially lower. Also, the deferrals from customers impacted by the March earthquake and tsunami in Japan resulted in the realized price being somewhat lower than previously expected. Some of those cargoes have been pushed into the third quarter, and they will be still priced at the Q2 levels.

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