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Press Release: Teck Reports Unaudited Second -5-

26 Jul 2018 9:43 am

We now expect full year copper unit costs to be in the range of US$1.75 to US$1.80 per pound before margins from by-products, compared to US$1.80 to US$1.90 per pound previously and US$1.30 to US$1.40 per pound after by-products compared to US$1.35 to US$1.45 per pound previously based on current production plans, by-product prices and exchange rates.

Copper Development Projects

Quebrada Blanca Phase 2

Quebrada Blanca Phase 2 is expected to have an initial mine life of 25 years, based on reserves only, which make up approximately 25% of the combined reserve and resource. Annual production capacity is expected to be 300,000 tonnes of copper equivalent production per year for the first five years of mine life. Project activities during the quarter focused primarily on execution readiness activities, advancing detailed engineering and design, which is now approximately 70% complete, and continuing progress on the Social and Environmental Impact Assessment (SEIA) regulatory approval process. The Indigenous Consultation Process conducted by the regulatory authorities with eight Indigenous communities has been completed with all the communities involved. The environmental evaluation has also finished, and the lead agency is preparing to issue their report, which will contain a technical recommendation for the Environmental Evaluation Commission to vote on the approval of the project. We expect the vote to take place in the month of August, and after that to receive final permit approval documents.

A decision to proceed with development will be contingent upon regulatory approvals and market conditions, among other considerations, and we are currently exploring various potential financing alternatives for the project. We will shortly launch a process to seek an additional partner for Quebrada Blanca Phase 2. Our objective is to ultimately hold a 60 -- 70% interest in the project and a transaction would most likely be announced in the fourth quarter.

Project development expenditures for the first nine months of 2018 are expected to be approximately US$250 million. Total spending in 2018 will depend on the timing of regulatory approvals and potential sanction decision in the fourth quarter of 2018.

On April 4, 2018, we acquired an additional 13.5% interest in Compañía Minera Teck Quebrada Blanca S.A. (QBSA) through the purchase of Inversiones Mineras S.A. (IMSA), a private Chilean company. The acquisition brings our interest in QBSA to 90%. ENAMI, a Chilean State agency, holds a 10% preference share in QBSA, which does not require ENAMI to fund capital spending. The purchase price consisted of US$52.5 million paid in cash on closing, an additional payment of US$60 million payable on approval of the social and environmental impact assessment for the Quebrada Blanca Phase 2 project and the expiry of certain appeal rights, and a further US$50 million payable within 30 days of the commencement of commercial production at Quebrada Blanca Phase 2. Additional amounts may become payable to the extent that average copper prices exceed US$3.15 per pound in each of the first three years following commencement of commercial production, up to a cumulative maximum of US$100 million if commencement of commercial production occurs prior to January 21, 2024, or up to a lesser maximum in certain circumstances thereafter.

NuevaUnión

NuevaUnión is a joint venture owned 50% by Teck and 50% by Goldcorp Inc. In the first quarter of 2018, a Prefeasibility Study (PFS) on the NuevaUnión project was completed, which incorporates key design changes to improve project economics and respond to community and Indigenous peoples' input. In the second quarter of 2018, NuevaUnión advanced the evaluation and optimization of numerous opportunities to improve project economics identified in the PFS, such as the use of high-pressure grinding rolls, before starting a Feasibility Study (FS), which is expected to commence in the third quarter of 2018 and require approximately 12 months to complete. Detailed project economics will be released with the completion of the FS. NuevaUnión also advanced the current phase of the drilling campaign at the La Fortuna deposit in the second quarter of 2018.

Project Satellite

During the second quarter of 2018 we continued to advance our Project Satellite initiative to surface value from five substantial base metals assets: Zafranal, San Nicolás, Galore Creek, Schaft Creek, and Mesaba, all of which are located in stable jurisdictions in the Americas.

The current focus of the Satellite initiative is on environmental and social baseline studies, community engagement programs, engineering and design work to prepare social and environmental impact assessments and development permit applications on the Zafranal and San Nicolás assets in particular.

At the Zafranal copper-gold project in southern Peru, the project team is advancing technical and engineering work in support of a feasibility study along with expanded community engagement activities and permitting work that is necessary to prepare a social and environmental impact assessment (SEIA). We expect to complete the feasibility study and submit the SEIA during the fourth quarter of 2018.

At the San Nicolás copper-zinc-silver-gold project in Zacatecas, Mexico, a significant drill program of approximately 32,500 meters continued successfully in the second quarter of 2018, which includes infill, geotechnical, hydrogeological and exploration drill holes. The drill program is approximately 70% complete, with greater than 21,000 meters drilled. In addition, the project team continues to advance social and environmental baseline studies, community engagement activities, preliminary hydrogeological studies and project engineering programs in support of a prefeasibility study and an SEIA. We expect to complete the prefeasibility study in the second half of 2019. Planned spending in 2018 is $28 million, which is included in capital expenditures for new mine development for our copper business unit.

Work programs including mapping, sampling, drilling, environmental and social baseline studies, focused engineering studies, and required regulatory compliance and permitting work continued on each of the Galore Creek (copper-gold-silver), Schaft Creek (copper-molybdenum-gold-silver) and Mesaba (copper-nickel-platinum group elements) projects in the second quarter of 2018. Planned spending in 2018 for the three projects is $16 million, which will be included in exploration expenses.

ZINC BUSINESS UNIT
 
                                     Three months      Six months 
                                     ended June 30,     ended June 30, 
(CAD$ in millions)                     2018     2017        2018     2017 
Zinc price (realized -- US$/lb)    $    1.42  $  1.18   $    1.49  $  1.23 
Production (000's tonnes) 
 Refined zinc                             75       74         154      152 
 Zinc in concentrate(1)                  160      135         288      265 
Sales (000's tonnes) 
 Refined zinc                             77       74         154      150 
 Zinc in concentrate(1)                   89       90         208      205 
Gross profit before depreciation 
 and amortization(2)               $     234  $   196   $     526  $   401 
Gross profit                       $     194  $   153   $     445  $   317 
Property, plant and equipment 
 expenditures                      $      86  $    47   $     137  $    89 
 

Note:

1) Represents production and sales from Red Dog and Pend Oreille. Excludes co-product zinc production from our copper business unit.

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

Performance

Gross profit from our zinc business unit was $194 million in the second quarter compared with $153 million a year ago. Gross profit before depreciation and amortization increased by $38 million (see table below) due primarily to higher zinc prices, partially offset by higher unit operating cost and the stronger Canadian dollar.

Refined zinc production from our Trail Operations in the second quarter was similar to the same period a year ago. At Red Dog, zinc production was 20% higher than a year ago due to higher grade ore and improved recoveries.

The table below summarizes the gross profit change, before depreciation and amortization, in our zinc business unit for the quarter.
 
                                                 Three months 
(CAD$ in millions)                               ended June 30, 
As reported in the second quarter of 2017      $            196 
Increase (decrease): 
 Zinc price realized                                         67 
 Sales volumes                                                1 
 Unit operating costs                                       (14) 
 Co-product and by-product contribution                      (1) 
 Royalties                                                   (3) 
 Foreign exchange                                           (12) 
Net increase                                                 38 
As reported in current quarter                 $            234 
 

Property, plant and equipment expenditures include $44 million for sustaining capital, which included $28 million at our Trail Operations and $12 million at Red Dog.

Markets

London Metal Exchange (LME) zinc prices averaged US$1.41 per pound in the second quarter of 2018, a decrease of 9% over the previous quarter, but 20% higher than the second quarter of 2017. Zinc reached a 10-year high in February at just over US$1.64 per pound, and has been on a downward trend since. LME zinc prices have come under the same pressures as other commodities following the announcement of trade tariffs by the U.S. government against Chinese exports.

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