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Teck Reports Unaudited Third Quarter Results for 2021

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Teck Reports Unaudited Third Quarter Results for 2021

 

 

 

 

 

Teck Resources Limited (TSX: TECK.A and TECK.B) (NYSE: TECK) announced its unaudited third quarter results for 2021.

 

“The extremely favourable commodity price environment – particularly for steelmaking coal – combined with solid operational performance resulted in record quarterly adjusted EBITDA and record adjusted profit in the third quarter,” said Don Lindsay, President and CEO. “Heading into the fourth quarter, we are focused on continuing to optimize sales and production to capitalize on high commodity prices and advancing our priority QB2 copper project.”

 

Highlights

 

  • Adjusted EBITDA1 was a record $2.1 billion in Q3 2021, more than triple the same period last year.
  • Profit attributable to shareholders was $816 million or $1.53 per share and adjusted profit attributable to shareholders1 was $1.0 billion or $1.91 per share in Q3 2021, more than 7 times higher than the same period last year.
  • Realized copper, zinc and steelmaking coal prices were US$4.25 per pound, US$1.38 per pound and US$277 per tonne, respectively, in the month of September and as a result, our Adjusted EBITDA1 for the month of September contributed approximately half of our Q3 2021 Adjusted EBITDA1.
  • Overall progress on our QB2 project is now past the two-thirds mark and we continue to expect first production in the second half of 2022.
  • Our copper business unit gross profit increased 117%, supported by an average realized copper price of US$4.28 per pound and copper production of 70,700 tonnes, in line with plan.
  • Red Dog zinc sales volumes were 162,000 tonnes in Q3 despite a delayed start to the shipping season due to ice conditions and significant weather-related delays.
  • Sales of steelmaking coal were 5.9 million tonnes in Q3 2021, with approximately 1.9 million tonnes or 32% sold to China significantly above FOB Australia prices. The FOB Australia prices increased sharply in the latter half of Q2 and continued to increase to unprecedented levels through Q3.
  • In October, we converted our US$4 billion committed facility into a Sustainability-Linked facility and extended its maturity to October 2026. The facility was undrawn as of October 26, 2021.
  • We were named to the Forbes World’s Best Employers List for the second year in a row.
  • MSCI upgraded Teck’s Environmental, Social and Governance rating to ‘AA’ from ‘A’, placing Teck in the top 10% of companies in the Metals and Mining – Non-Precious Metals sector.

 

Note:

  1. Non-GAAP Financial Measure. See “Use of Non-GAAP Financial Measures” section of the attached Management’s Discussion and Analysis for further information and reconciliation.

 

Financial Summary Q3 2021

 

Financial Metrics
(CAD$ in millions, except per share data)
Q3 2021 Q3 2020
Revenues $ 3,970    $ 2,291  
Gross profit $ 1,662    $ 291  
Gross profit before depreciation and amortization1 $ 2,093    $ 703  
Adjusted EBITDA1 $ 2,096    $ 638  
Profit attributable to shareholders $ 816    $ 61  
Adjusted profit attributable to shareholders1 $ 1,015    $ 130  
Basic earnings per share $ 1.53    $ 0.11  
Diluted earnings per share $ 1.51    $ 0.11  
Adjusted basic earnings per share1 $ 1.91    $ 0.24  
Adjusted diluted earnings per share1 $ 1.88    $ 0.24  

 

Note:
1. Non-GAAP Financial Measure. See “Use of Non-GAAP Financial Measures” section of the MD&A for further information and reconciliation.

 

Key Updates

 

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

 

  • Overall project progress has passed the two-thirds mark;
  • We continue to aggressively manage conditions resulting from COVID-19;
  • The truck shop and mine loop are nearing completion in preparation for commissioning later this year;
  • Electrical substations are nearing completion to support overall commissioning activities;
  • We continue to expect first production in the second half of 2022;
  • We expect to issue updated capital cost guidance in February 2022 with our Q4 results. Challenges with port offshore and tailings facility construction have placed pressure on our estimated capital cost (disregarding COVID-19-related costs) of US$5.26 billion and we expect our capital cost estimate to increase by up to 5% as we add more contingency to our budget; and
  • There is also pressure on our estimate of COVID-19 related capital of US$600 million. The amount of any increase in our guidance will depend in part on progress in managing COVID-19 impacts through Q4.

 

Steelmaking coal supply chain transformation – providing optionality and reliability in a high-price environment

  • Our Neptune port upgrade was ramping up during the quarter and demonstrated capability to perform at design capacity during the second half of September.
  • We expect the terminal to achieve a run rate at design capacity of 18.5 million tonnes or higher in the fourth quarter.
  • The ramp up of Neptune, in combination with the steelmaking coal supply chain transformation, is now contributing to significantly improved optionality and reliability that ensures market access for our steelmaking coal at a time of record high prices.

 

Liquidity

  • Liquidity of $5.4 billion as at October 26, 2021.
  • We ended Q3 with US$218 million drawn on our US$4 billion committed credit facility and with strong commodity prices we have since reduced the balance to zero.
  • In October, we converted our US$4 billion committed credit facility into a Sustainability-Linked facility in support of Teck’s sustainability strategy goals and extended its maturity to October 2026.
  • We also cancelled our US$1 billion credit facility that was scheduled to mature in June 2022. This side car facility was established in June 2020 in the initial months of COVID-19 and market conditions and commodity prices have improved significantly since that time.

 

Guidance

  • Our previously issued 2021 annual guidance is unchanged and is outlined in summary below.
  • Our guidance tables, including three-year production guidance, can be found on pages 28-32 of Teck’s full third quarter results for 2021 at the link below.
 

2021 Guidance – Summary

 
Production Guidance  
Copper (000’s tonnes) 275 – 290
Zinc (000’s tonnes) 605 – 630
Refined zinc (000’s tonnes) 285 – 290
Steelmaking coal (million tonnes) 25 – 26
Bitumen (million barrels) 6.6 – 8.1
Sales Guidance – Q4 2021  
Red Dog zinc in concentrate sales (000’s tonnes) 140 – 155
Steelmaking coal sales (million tonnes) 6.4 – 6.8
Unit Cost Guidance  
Copper net cash unit costs (US$/lb.) $ 1.30 – 1.40
Zinc net cash unit costs (US$/lb.) $ 0.35 – 0.40
Steelmaking coal adjusted site cash cost of sales (CAD$/tonne) $ 59 – 64
Steelmaking coal transportation costs (CAD$/tonne) $ 39 – 42
Bitumen adjusted operating costs (CAD$/barrel) $ 40 – 44

 

 

Click here to view Teck’s full third quarter results for 2021.

 

 

USE OF NON-GAAP FINANCIAL MEASURES

 

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 which are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS or Generally Accepted Accounting Principles (GAAP) in the United States.

 

The Non-GAAP Measures described below do not have standardized meanings under IFRS, may differ from those used by other issuers, and may not be comparable to such measures as reported by others. These measures have been derived from our financial statements and applied on a consistent basis as appropriate. We disclose these measures because we believe they assist readers in understanding the results of our operations and financial position and are meant to 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, 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. We believe adjusted profit helps us and readers better understand the results of our normal operating activities and the ongoing cash generating potential of our business.

 

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

 

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

 

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.

 

The adjustments described above to profit attributable to shareholders and 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 the 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.

 

Profit (Loss) and Adjusted Profit

 

  Three months ended
September 30,
Nine months ended
September 30,
(CAD$ in millions) 2021 2020 2021 2020
         
Profit (loss) attributable to shareholders $ 816   $ 61     $ 1,381      $ (400 )  
Add (deduct) on an after-tax basis:        
Asset impairment       —      474    
COVID-19 costs   64     —      233    
QB2 variable consideration to IMSA and ENAMI 97       140     (34 )  
Environmental costs 49   27     60     9    
Inventory write-downs (reversals)   11     (6 )   76    
Share-based compensation 28   18     62     13    
Commodity derivatives 10   (26 )   5     (31 )  
Other 15   (25 )     38     (27 )  
         
Adjusted profit attributable to shareholders $ 1,015   $ 130     $ 1,680      $ 313    
         
Basic earnings per share $ 1.53   $ 0.11     $ 2.60     $ (0.75 )  
Diluted earnings per share $ 1.51   $ 0.11     $ 2.56     $ (0.75 )  
Adjusted basic earnings per share $ 1.91   $ 0.24     $ 3.16     $ 0.58    
Adjusted diluted earnings per share $ 1.88   $ 0.24     $ 3.11     $ 0.58    
         

 

 

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

 

  Three months ended
September 30,
Nine months ended
September 30,
(Per share amounts) 2021 2020 2021 2020
         
Basic earnings (loss) per share $ 1.53   $ 0.11     $ 2.60     $ (0.75 )  
Add (deduct):        
Asset impairment           0.88    
COVID-19 costs   0.12         0.43    
QB2 variable consideration to IMSA and ENAMI 0.18       0.26     (0.06 )  
Environmental costs 0.09   0.05     0.11     0.02    
Inventory write-downs (reversals)   0.02     (0.01 )   0.14    
Share-based compensation 0.05   0.04     0.12     0.03    
Commodity derivatives 0.02   (0.05 )   0.01     (0.06 )  
Other 0.04   (0.05 )   0.07     (0.05 )  
         
Adjusted basic earnings per share $ 1.91   $ 0.24     $ 3.16     $ 0.58    
         

 

 

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

 

  Three months ended
September 30,
Nine months ended
September 30,
(Per share amounts) 2021 2020 2021 2020
         
Diluted earnings (loss) per share $ 1.51   $ 0.11     $ 2.56      $ (0.75 )  
Add (deduct):        
Asset impairment —        —      0.88    
COVID-19 costs —    0.12     —      0.43    
QB2 variable consideration to IMSA and ENAMI 0.18       0.26     (0.06 )  
Environmental costs 0.09   0.05     0.11     0.02    
Inventory write-downs (reversals) —    0.02     (0.01 )   0.14    
Share-based compensation 0.05   0.04     0.11     0.03    
Commodity derivatives 0.02   (0.05 )   0.01     (0.06 )  
Other 0.03   (0.05 )   0.07     (0.05 )  
         
Adjusted diluted earnings per share $ 1.88   $ 0.24     $ 3.11     $ 0.58    
         

 

 

Reconciliation of EBITDA and Adjusted EBITDA

 

  Three months ended
September 30,
Nine months ended
September 30,
(CAD$ in millions) 2021 2020 2021 2020
         
Profit (loss) $ 840   $ 25     $ 1,392     $ (471 )  
Finance expense net of finance income 55   63     157     224    
Provision for (recovery of) income taxes 514   19     932     (116 )  
Depreciation and amortization 431   412     1,179     1,104    
         
EBITDA 1,840   519     3,660     741    
         
Add (deduct):        
Asset impairment       —      647    
COVID-19 costs   107     —      336    
QB2 variable consideration to IMSA and ENAMI 97       168     (56 )  
Environmental costs 67   37     82     12    
Inventory write-downs (reversals)   18     (10 )   111    
Share-based compensation 35   25     82     18    
Commodity derivatives 14   (35 )   7     (42 )  
Other 43   (33 )   63     (36 )  
         
Adjusted EBITDA $ 2,096   $ 638     $ 4,052     $ 1,731    
         

 

 

Reconciliation of Gross Profit Before Depreciation and Amortization

 

  Three months ended
September 30,
Nine months ended
September 30,
(CAD$ in millions) 2021 2020 2021 2020
         
Gross profit $ 1,662     $ 291     $ 3,005     $ 828    
Depreciation and amortization 431     412     1,179     1,104    
         
Gross profit before depreciation and amortization $ 2,093     $ 703     $ 4,184     $ 1,932    
         
Reported as:        
Copper        
Highland Valley Copper $ 292     $ 121     $ 688     $ 291    
Antamina 252     173     708     356    
Carmen de Andacollo 59     31     165     107    
Quebrada Blanca 7     11     29     18    
Other                
         
  610     336     1,590     772    
         
Zinc        
Trail Operations 34     14     74     38    
Red Dog 333     255     549     529    
Other (1 )   14     10     31    
         
  366     283     633     598    
         
Steelmaking coal 1,120     120     1,989     761    
         
Energy (3 )   (36 )   (28 )   (199 )  
         
Gross profit before depreciation and amortization $ 2,093     $ 703     $ 4,184     $ 1,932    
   

 

Posted October 27, 2021

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