Teck Resources Limited (TSX: TECK.A and TECK.B) (NYSE: TECK) announced its unaudited second quarter results for 2022.

“This marks Teck’s fourth consecutive quarter of record-setting EBITDA and profitability, driven by strong commodity prices in the quarter, which enabled us to complete $572 million in share buybacks and pay down a further US$650 million in outstanding debt,” said Don Lindsay, President and CEO. “Our solid operational performance, strong balance sheet and $8.4 billion in liquidity all put Teck on a very strong footing as we manage through inflationary pressures and a slowdown in the global economy.”

Highlights

• Adjusted profit attributable to shareholders¹ was a quarterly record $1.8 billion or $3.30 per share in Q2 2022 and more than five times higher than the same period last year.
• Profit attributable to shareholders was a quarterly record of $1.7 billion or $3.12 per share in Q2 2022.
• Adjusted EBITDA¹ was a quarterly record $3.3 billion in Q2 2022 and more than three times higher than the same period last year. Profit before tax was a record $2.7 billion in Q2 2022.
• We generated cash flow from operations of $2.9 billion in Q2 2022, purchased US$650 million of our outstanding term notes and ended the quarter with a cash balance of $2.7 billion. As at July 26, 2022, our liquidity is $8.4 billion, including $3.3 billion of cash.
• In Q2 2022, we completed $572 million in Class B subordinate voting share buybacks, including US$436 million ($562 million) of the US$500 million previously announced in April and the remaining $10 million of the $100 million announced in Q1. We also returned $67 million to shareholders through dividends in the second quarter. On July 26, 2022, we declared a $0.125 per share dividend and authorized up to a US$500 million share buyback, in addition to the previously announced buybacks noted above. Additional buybacks will be considered regularly in the context of market conditions at the time.
• At QB2, we now have approximately 13,000 workers on the project and have seen steady progress through the quarter with our focus on system completion and handover, as we continue to target first copper late this year. Our capital cost estimate, before COVID-19 impacts, remains unchanged from our Q3 2021 guidance of US$5.26 billion with up to 5% additional contingency. Our capital cost guidance for COVID-19 impacts has increased to US$1.4—$1.5 billion due to the impact of inflation on labour costs, the ultimate impacts of the Omicron wave experienced in Q1 and ongoing inefficiencies including as a result of COVID-19 related absenteeism, which continues to run approximately 10%. We continue to target first copper from Line 1 in the later part of this year, however, if COVID-19 absenteeism and related vendor specialty craft availability continue into the fourth quarter, this may be delayed into January 2023.
• Our copper business unit gross profit increased 5% from a year ago, supported by an average realized copper price of US$4.28 per pound and copper sales volumes of 75,800 tonnes.
• Our zinc business unit gross profit more than doubled from a year ago, supported by an average realized zinc price of US$1.79 per pound and quarterly zinc in concentrate sales volumes of 55,800 tonnes. In July, we reached a five-year collective agreement at our Trail Operations.
• Record high realized steelmaking coal prices of US$453 per tonne drove a $2.3 billion gross profit increase in our steelmaking coal business unit, compared to the same period last year. Strong supply chain performance through our upgraded Neptune port enabled the rapid reduction of record-high inventory levels from early 2022, allowing us to capitalize on high steelmaking coal prices in the quarter. As the cornerstone of our supply chain transformation, our upgraded Neptune port supported improved supply chain reliability and resilience, avoiding the potential loss in revenue in excess of $1 billion since July 2021.
• While our underlying key mining drivers remain relatively stable, like others in the industry, we continue to face inflationary cost pressures. Inflationary pressures have increased our operating costs by 14% compared to the same period last year, of which approximately half relates to an increase in diesel costs.
• We set a goal to be a nature positive company by 2030, including through conserving or rehabilitating at least three hectares of land for every one hectare of land affected by our mining operations.

Note:

1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.

Financial Summary Q2 2022

Note:

1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.

Key Updates

Executing on our copper growth strategy – QB2 a long-life, low-cost operation with major expansion potential

• We now have approximately 13,000 workers on the project, despite the impact COVID-19 continues to have on workforce absenteeism;
• Focus continues to be on system completion and handover;
• We have completed construction of the 220kV Transmission System;
• We are continuing sequential energization of electrical substations;
• We have commenced pumping of seawater into the pretreatment area of the desalination plant for commissioning;
• We have completed the starter dam to its design elevation;
• Our capital cost estimate, before COVID-19 impacts, remains unchanged from our Q3 2021 guidance of US$5.26 billion with up to 5% additional contingency;
• Our capital cost guidance for COVID-19 impacts has increased to US$1.4—$1.5 billion due to the impact of inflation on labour costs, the ultimate impacts of the Omicron wave experienced in Q1 and ongoing inefficiencies including as a result of COVID-19 absenteeism, which continues to run approximately 10%; and

• We continue to target first copper from Line 1 in the later part of this year, however, if COVID-19 absenteeism and related vendor specialty craft availability continue into the fourth quarter, this may be delayed into January 2023.
• Click here for a photo gallery and click here for a video of construction progress on QB2.

Safety and sustainability leadership

• Our High Potential Incident Frequency remained low at a rate of 0.10 in the first half of 2022.
• We announced a Carbon Capture Utilization and Storage pilot project at our Trail Operations, which supports Teck’s Net Zero Climate Change Strategy including our goal to reduce the carbon intensity of our operations by 33% by 2030 and achieve net-zero emissions by 2050.
• We were named to the Best 50 Corporate Citizens in Canada ranking as one of the top 50 companies in Canada for corporate citizenship for the 16th consecutive year.

Guidance

• We have updated our 2022 annual guidance for unit costs across our business units, as well as steelmaking coal production volumes, steelmaking coal capital expenditures, and COVID-19 capital cost guidance for QB2, as outlined in summary below. Our usual guidance tables, including three-year production guidance, can be found on pages 31—35 of Teck’s full second quarter results for 2022 at the link below.
• Like others in the industry, we continue to face inflationary cost pressures, which have increased our operating costs by 14% compared to the same period last year, approximately half of which relates to diesel costs at our operations and in our transportation costs. Diesel prices have increased by 75% compared to the same period last year. The increases in the cost of certain key supplies, including mining equipment, fuel, tires and explosives, are being driven largely by price increases for underlying commodities such as steel, crude oil and natural gas. While our underlying key mining drivers remain relatively stable, inflationary pressures on diesel prices and other key input costs, as well as profit-based compensation and royalties continue to put upward pressure on our unit cost guidance through 2022.

Note:

1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.

Click here to view Teck’s full second quarter results for 2022.

USE OF NON-GAAP FINANCIAL MEASURES AND RATIOS

Our financial results are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. This document refers to a number of non-GAAP financial measures and non-GAAP ratios which are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS or by Generally Accepted Accounting Principles (GAAP) in the United States.

The non-GAAP financial measures and non-GAAP ratios described below do not have standardized meanings under IFRS, may differ from those used by other issuers, and may not be comparable to similar financial measures and ratios reported by other issuers. These financial measures and ratios have been derived from our financial statements and applied on a consistent basis as appropriate. We disclose these financial measures and ratios because we believe they assist readers in understanding the results of our operations and financial position and provide further information about our financial results to investors. These measures should not be considered in isolation or used in substitute for other measures of performance prepared in accordance with IFRS.

Adjusted profit attributable to shareholders – For adjusted profit attributable to shareholders, we adjust profit attributable to shareholders as reported to remove the after-tax effect of certain types of transactions that reflect measurement changes on our balance sheet or are not indicative of our normal operating activities.

EBITDA – EBITDA is profit before net finance expense, provision for income taxes, and depreciation and amortization.

Adjusted EBITDA – Adjusted EBITDA is EBITDA before the pre-tax effect of the adjustments that we make to adjusted profit attributable to shareholders as described above.

Adjusted profit attributable to shareholders, EBITDA, and Adjusted EBITDA highlight items and allow us and readers to analyze the rest of our results more clearly. We believe that disclosing these measures assists readers in understanding the ongoing cash generating potential of our business in order to provide liquidity to fund working capital needs, service outstanding debt, fund future capital expenditures and investment opportunities, and pay dividends.

Gross profit before depreciation and amortization – Gross profit before depreciation and amortization is gross profit with depreciation and amortization expense added back. We believe this measure assists us and readers to assess our ability to generate cash flow from our business units or operations.

Adjusted site cash cost of sales – Adjusted site cash cost of sales for our steelmaking coal operations is defined as the cost of the product as it leaves the mine excluding depreciation and amortization charges, out-bound transportation costs and any one-time collective agreement charges and inventory write-down provisions.

Total cash unit costs – Total cash unit costs for our copper and zinc operations includes adjusted cash costs of sales, as described below, plus the smelter and refining charges added back in determining adjusted revenue. This presentation allows a comparison of total cash unit costs, including smelter charges, to the underlying price of copper or zinc in order to assess the margin for the mine on a per unit basis.

Net cash unit costs – Net cash unit costs of principal product, after deducting co-product and by-product margins, are also a common industry measure. By deducting the co- and by-product margin per unit of the principal product, the margin for the mine on a per unit basis may be presented in a single metric for comparison to other operations.

Adjusted cash cost of sales – Adjusted cash cost of sales for our copper and zinc operations is defined as the cost of the product delivered to the port of shipment, excluding depreciation and amortization charges, any one-time collective agreement charges or inventory write-down provisions and by-product cost of sales. It is common practice in the industry to exclude depreciation and amortization as these costs are non-cash and discounted cash flow valuation models used in the industry substitute expectations of future capital spending for these amounts.

Adjusted operating costs – Adjusted operating costs for our energy business unit is defined as the costs of product as it leaves the mine, excluding depreciation and amortization charges, cost of diluent for blending to transport our bitumen by pipeline, cost of non-proprietary product purchased and transportation costs of our product and non-proprietary product and any one-time collective agreement charges or inventory write-down provisions.

Adjusted basic earnings per share – Adjusted basic earnings per share is adjusted profit attributable to shareholders divided by average number of shares outstanding in the period.

Adjusted diluted earnings per share – Adjusted diluted earnings per share is adjusted profit attributable to shareholders divided by average number of fully diluted shares in a period.

Profit Attributable to Shareholders and Adjusted Profit Attributable to Shareholders

Reconciliation of Basic Earnings per share to Adjusted Basic Earnings per share

Reconciliation of Diluted Earnings per share to Adjusted Diluted Earnings per share

Reconciliation of EBITDA and Adjusted EBITDA

Reconciliation of Gross Profit Before Depreciation and Amortization