Teck Resources Limited (TSX: TECK.A and TECK.B) (NYSE: TECK) provided select unaudited fourth quarter and 2021 sales and production results in light of the impacts of recent logistics disruptions in British Columbia, Canada, as well as an update on the ongoing impact of COVID-19 across the business, and commentary regarding the outlook for 2022.
Strong steelmaking coal pricing and increased sales should result in strong cash flow in H1 2022
Demand for our steelmaking coal remains strong and the FOB price has risen from US$356 per tonne at the end of December to US$445 per tonne. At the same time, record high clean coal inventories at our mines are expected to result in sales exceeding production by 1.2 – 1.5 million tonnes in 2022. The strong pricing environment and increased sales volumes should result in strong cash flow in the first half of 2022.
Weather conditions have affected logistics
Since our last guidance update on December 5, 2021, weather conditions have continued to negatively affect infrastructure recovery efforts in B.C. Interruptions and substantial reductions to rail service and port activities persisted from mid-November into the first two weeks of January as extreme cold-weather conditions followed heavy rains and mudslides, which affected critical transportation corridors. The provincial state of emergency declared on November 17, 2021 was lifted on January 18, 2022.
As a result, our realized fourth quarter steelmaking coal sales were 5.1 million tonnes, slightly below the low end of our previously revised guidance of 5.2 – 5.7 million tonnes. Our 2021 steelmaking coal production was 24.6 million tonnes, within our previously revised guidance of 24.5 – 25.0 million tonnes. Strong logistics chain performance leading up to the heavy rain events, including at our expanded Neptune port facility, resulted in historically low clean steelmaking coal inventories at our operations, mitigating impacts on production volumes. However, due to ongoing weather-related logistical challenges which have continued through January, clean steelmaking coal inventories at our mine sites are currently near record-high levels. Further transportation disruptions have the potential to require production cutbacks to manage inventory levels. CN and CP reported meaningful progress on recovery in mid-January, with demonstrable improvements to train fluidity last week. We expect to substantially recover delayed fourth quarter sales in the first half of 2022.
Despite the fourth quarter impacts of rail and port disruptions on sales, 2021 unaudited adjusted site cash cost of sales1 and transportation costs are $65 and $44 per tonne, within our previous guidance ranges of $64 – $66 and $44 – $46 per tonne, respectively. Logistics challenges and inflationary pressures drove higher fourth quarter adjusted site cash cost of sales1 and transportation costs of $72 and $49 per tonne, respectively, above the upper range of our annual guidance.
Increased costs in the fourth quarter were more than offset by continued strong prices. Realized steelmaking coal prices1 in the fourth quarter averaged US$351 per tonne. The increase in steelmaking coal prices from the third quarter further resulted in positive pricing adjustments of approximately $70 million.
(1) This is a Non-GAAP Ratio.
The logistics chain disruptions had minimal impact to production at Highland Valley Copper, though the disruptions did result in sales of copper in concentrate from the operation being 5,600 tonnes lower than production in Q4 2021. The shortfall in sales versus production volumes at Highland Valley Copper was partially offset by strong sales at our other operations, and total copper in concentrate sales were only 1,500 tonnes lower than production in the fourth quarter.
Overall, inflationary pressures and workers’ participation related to strong copper prices resulted in fourth quarter net cash unit costs1 of US$1.52/lb for the copper business unit.
(1) This is a Non-GAAP Ratio.
The recent surge in COVID-19 cases has the potential to have a negative impact on our operations. An increase in cases in southeastern British Columbia has resulted in rising absenteeism at our steelmaking coal operations in the Elk Valley. While the absenteeism has so far not had a major impact on production, the situation poses a risk to Q1 2022 production. However, in recent days we have seen some improvement, with the number of employees returning from COVID-19 isolation exceeding the number of new cases.
At our QB2 project in Chile we achieved our best quarter to date in Q4 with some of our strongest rates of progress in December. However, during January a significant rise in COVID-19 cases in Chile has resulted in an increase in absenteeism.
Like others in the industry, and as previously disclosed, we are seeing inflationary cost pressures, notably in diesel prices, supplies and labour costs. Increases experienced in fourth quarter operating results across our business are expected to continue into 2022.
Sustaining capital spending is expected to increase in 2022 over 2021 levels due to one-time projects, including the relocation of the maintenance and office facilities at the Elkview mine to allow access to the next phase of mining, a major smelter turnaround at Trail to replace the Kivcet furnace hearth at the end of its 20-year useful life, and our haulage truck rebuild program, inflationary pressures, and the inclusion of sustaining capital for QB2 for the first time. In total we expect these factors to increase 2022 sustaining capital by approximately $500 million over 2021 levels.
Construction on QB2 continues to progress as we position for start-up in the second half of the year. COVID-19 related capital costs have experienced ongoing cost pressures as a result of continued absenteeism and labour inefficiencies related to COVID-19 and contractual concessions have been required to manage these impacts on contractors. Given our experience with the sudden onset of Omicron, we have modified our prior assumptions and now assume that the impacts of COVID-19 will not end prior to the completion of construction. We are continuing to manage these costs and, to counter the adverse effects associated with construction in this environment, have put in place a variety of mitigation measures and incentives, many of which are aimed at attracting talent, employee retention and minimizing absenteeism. Based on our current assumptions, including with respect to exchange rates, we are updating our COVID-19 capital cost guidance to US$900-$1,100 million from our previous estimate of US$600 million. As noted previously, certain non-COVID-19 cost pressures related to weather and subsurface conditions, are currently estimated to require additional contingency of up to 5% of our capital estimate of US$5.26 billion, unchanged from our Q3 2021 guidance. We expect to spend approximately C$2.2 – C$2.5 billion of QB2 development capital on a consolidated basis in 2022, inclusive of COVID-19 capital.
Our fourth quarter and full year 2021 financial results are scheduled for release on February 24, 2022. We will issue our usual capital and operating guidance for 2022 at that time.
As one of Canada’s leading mining companies, Teck is committed to responsible mining and mineral development with major business units focused on copper, zinc, and steelmaking coal, as well as investments in energy assets. Copper, zinc and high-quality steelmaking coal are required for the transition to a low-carbon world. Headquartered in Vancouver, Canada,
Silver Viper Minerals Corp. (TSX-V: VIPR) (OTC: VIPRF) is plea... READ MORE
G2 Goldfields Inc. (TSX-V: GTWO) (OTCQX: GUYGF) is pleased to ann... READ MORE
Collective Metals Inc. (CSE: COMT) is pleased to announce that th... READ MORE
Laramide Resources Ltd. (TSX: LAM) (ASX: LAM) (OTCQX: LMRXF) is p... READ MORE
Marathon Gold Corporation (TSX: MOZ) announces its financial resu... READ MORE
We acknowledge the [financial] support of the Government of Canada.