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Press Release: Teck Reports Unaudited Second -4-

26 Jul 2018 9:43 am

Copper production in the second quarter increased by 7% from a year ago primarily due to higher ore grades and recoveries at Highland Valley Copper. Production in the first half of 2017 was affected by significantly lower grades, as expected in the mine plan, which have since recovered. Our cash unit costs before by-product credits in the second quarter increased by 5% to US$1.77 per pound compared to US$1.69 per pound during the same period a year ago. Significantly higher production of zinc and molybdenum combined with substantially higher zinc and molybdenum prices resulted in cash unit cost after by-product credits declining by US$0.05 per pound to US$1.21 per pound compared to US$1.26 per pound during the same period last year.

The table below summarizes the changes in gross profit, before depreciation and amortization, in our copper business unit for the quarter:
 
                                                       Three months 
(CAD$ in millions)                                      ended June 30, 
As reported in the second quarter of 2017               $         253 
Increase (decrease): 
 Copper price realized                                            118 
 Sales volumes                                                     15 
 Co-product and by-product contribution                            30 
 Unit operating costs                                              (6) 
 Foreign exchange                                                 (20) 
Net increase                                                      137 
As reported in current quarter                          $         390 
 

Property, plant and equipment expenditures totaled $133 million, including $31 million for sustaining capital and $75 million for new mine development related to the Quebrada Blanca Phase 2 project. Capitalized stripping costs were $41 million in the second quarter, $6 million higher than a year ago.

Markets

London Metal Exchange (LME) copper prices in the second quarter of 2018 averaged US$3.12 per pound, up 21% from the same quarter a year ago. Copper prices reached a four-year high in June, at US$3.29 per pound, as the market perceived an improving outlook on Chinese demand. Prices rose through most of the second quarter before being negatively affected by uncertainty over the impacts on Chinese and global demand for commodities following the imposition of trade tariffs by the U.S. government on Chinese exports.

Copper demand indicators in China in the first half of 2018 were supportive, however, some demand growth could be negatively affected as approvals for new solar projects and new subsidized housing construction have been suspended for the rest of 2018. In North America, GDP growth in the U.S. remains robust on the back of the construction sector. In Europe, the recovery in the economy that started in 2017 has continued into 2018 with construction, transportation and engineering sectors showing strength. Industrial activity still looks broadly supportive, however, recent concerns over trade talks and tariffs have increased downward pressure in commodities markets.

Operations

Highland Valley Copper

Copper production was 27,700 tonnes in the second quarter, 6,600 tonnes higher than a year ago, primarily due to substantially higher grades and improved recoveries. Molybdenum production of 2.2 million pounds was similar to the same period a year ago.

Copper and molybdenum ore grades and recoveries were higher than expected and similar to those experienced in the first quarter of 2018, as we adjusted plans to mine in higher-grade areas of the Valley pit due to short-term geotechnical considerations in the Lornex pit. Consistent with the original mine plan and currently available ore sources, copper and molybdenum grades are expected to decline in the second half of 2018 as we mine ore from lower-grade sections of the Lornex and Valley pits. Overall we have brought forward some higher grade ore from 2019, and as a result we have increased our 2018 copper production guidance to 100,000 to 105,000 tonnes compared to our prior guidance of 95,000 to 100,000 tonnes.

Cost of sales were 21% higher than the same period last year primarily due to increased sales volumes, increased tailings dam lift construction and higher diesel prices. Unit operating costs were substantially lower than a year ago as a result of the significant increase in copper and molybdenum production.

The $73 million project to install an additional ball mill to increase grinding circuit capacity is progressing on budget and on schedule with start-up anticipated in the third quarter of 2019. An autonomous haulage pilot is on track to have six trucks operational by the end of the year and after a successful trial of shovel-based ore sorting technology over the last six months, we are now planning to fully operationalize the technology with installations on the rest of the main shovel fleet.

Antamina

Copper production in the second quarter was 10% lower than a year ago at 106,300 tonnes, primarily as a result of lower copper grades. Antamina processed less copper-only ore and more copper-zinc ore than during the same period last year. The mix of mill feed in the quarter was 53% copper-only ore and 47% copper-zinc ore, compared with 58% and 42%, respectively, a year ago. Zinc production increased 24% from last year to 126,500 tonnes, which is a new quarterly record, primarily due to increased processing of copper-zinc ores and higher grades.

Operating costs in the second quarter were slightly higher than a year ago as higher prices for diesel and grinding supplies were partially offset by lower weather-related expenses compared to those required in 2017.

Carmen de Andacollo

Copper production in the second quarter of 16,000 tonnes was 6% lower than a year ago as the lower grades anticipated in the mine plan were partially offset by higher mill throughput.

Operating costs were similar to a year ago as lower sales volumes and lower power rates offset higher maintenance costs due to the timing of major mill maintenance.

Quebrada Blanca

Since the first quarter of 2017, all supergene ore mined has been sent directly to the dump leach circuit. This has resulted in lower recovery and a longer leaching cycle at reduced operating costs compared to the previous operation of the heap leach circuit. Production in the second quarter increased by 29% from last year to 6,900 tonnes compared with 5,300 tonnes a year ago, primarily due to higher grades and increased production from secondary leaching.

Mining of supergene ore was previously planned to be completed in the second quarter, but the mine plan has now been extended to October 2018. Cathode production will carry on into early 2020, as leaching of the dump material and secondary extraction continue.

Operating costs were $3 million higher than a year ago, due to higher power and sulphuric acid consumption related to higher production levels.

Depreciation and amortization charges decreased by $15 million compared with a year ago partly due to the asset impairment charge taken in the fourth quarter of 2017 and the extension of the mine life until the fourth quarter of 2018.

We now expect 2018 copper cathode production at Quebrada Blanca to be 24,000 to 26,000 tonnes compared to our previous guidance of 20,000 to 24,000 tonnes.

Cost of Sales

Unit cash costs of product sold in the second quarter of 2018 as reported in U.S. dollars, before cash margins for by-products, were US$1.77 per pound compared to US$1.69 per pound in the same period a year ago. Operating costs were higher than a year ago primarily due to the timing of maintenance activities and increased activities with the tailings dam lift construction at Highland Valley Copper, as well as higher prices for supplies, electricity and fuel. The increase in prices for diesel, electricity and supplies represented about one-third of the higher operating costs. Lower aggregate treatment and refining charges and higher copper sales volumes substantially reduced the effect of higher operating costs on unit cash costs of product sold.

Cash margin for by-products increased significantly to US$0.56 per pound compared with US$0.43 per pound in the same period a year ago. This was primarily due to higher prices as well as higher zinc and molybdenum sales volumes. The higher by-product credits resulted in unit cash costs for copper, after by-products, of US$1.21 per pound compared to US$1.26 in the same period a year ago.
 
                             Three months      Six months 
                             ended June 30,     ended June 30, 
(amounts reported in US$ 
per pound)                    2018     2017        2018     2017 
Adjusted cash cost of 
 sales(1)                  $   1.57   $ 1.46    $   1.54   $ 1.54 
Smelter processing 
 charges                       0.20     0.23        0.19     0.23 
Total cash unit costs 
 before by-product 
 margins(1)                $   1.77   $ 1.69    $   1.73   $ 1.77 
Cash margin for 
 by-products(1 2)             (0.56)   (0.43)      (0.55)   (0.37) 
Total cash unit costs 
 after by-product 
 margins(1)                $   1.21   $ 1.26    $   1.18   $ 1.40 
 

Notes:

1) Non-GAAP financial measure. See "Use of Non-GAAP Financial Measures" section for further information.

2) By-products includes both by-products and co-products.

Outlook

Based largely on the better than expected performance at Highland Valley Copper and extended supergene mining at Quebrada Blanca, we now expect 2018 copper production to be between 280,000 to 290,000 tonnes compared to our previous guidance of 270,000 to 285,000 tonnes. We also expect contained molybdenum production from our Highland Valley Copper mine and our share of Antamina to be 9 million pounds in 2018, compared to previous guidance of 6.8 million pounds.

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July 26, 2018 05:43 ET (09:43 GMT)
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