2016 CIBC Whistler Institutional Investor Conference

2016 Whistler Institutional
Investor Conference
January 21, 2016
Forward Looking Information
Both these slides and the accompanying oral presentations contain certain forward-looking statements within the meaning of the United States Private
Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of the Securities Act (Ontario). Forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Teck to be
materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking
statements include statements relating to the long-life our assets, estimated profit and estimated EBITDA, our expectation regarding market supply and
demand in the commodities we produce, our statement that we are in a strong financial position, our expected year-end cash balance, 2016 total
spending reduction expectations, capital and operating cost savings, our level of liquidity, statements regarding our credit rating, the availability of or
credit facilities and other sources of liquidity, reserve and resource life estimates, 2015 production and cost guidance, 2015 capital expenditure guidance,
our statements that we have a strong growth pipeline, potential benefits of LNG use in haul trucks, all projections for Project Corridor, statements
regarding the production and economic expectations for the Fort Hills project, including but not limited to operating and sustaining cost projections,
sustaining capital projection, free cash flow projections, estimated netback, operating margin, Alberta oil royalty, net margin, Teck’s share of go-forward
capex, mine life, Fort Hills capital cost projections, transportation capacity and our ability to secure transport for our Fort Hills production, and
management’s expectations with respect to production, demand and outlook in the markets for coal, copper, zinc and energy.
These forward-looking statements involve numerous assumptions, risks and uncertainties and actual results may vary materially, which are described in
Teck’s public filings available on SEDAR (www.sedar.com) and EDGAR (www.sec.gov). In addition, the forward-looking statements in these slides and
accompanying oral presentation are also based on assumptions, including, but not limited to, regarding general business and economic conditions, the
supply and demand for, deliveries of, and the level and volatility of prices of, zinc, copper and coal and other primary metals and minerals as well as oil,
and related products, the timing of the receipt of regulatory and governmental approvals for our development projects and other operations, our costs of
production and production and productivity levels, as well as those of our competitors, power prices, continuing availability of water and power resources
for our operations, market competition, the accuracy of our reserve estimates (including with respect to size, grade and recoverability) and the geological,
operational and price assumptions on which these are based, conditions in financial markets, the future financial performance of the company, our ability
to attract and retain skilled staff, our ability to procure equipment and operating supplies, positive results from the studies on our expansion projects, our
coal and other product inventories, our ability to secure adequate transportation for our products, our ability to obtain permits for our operations and
expansions, our ongoing relations with our employees and business partners and joint venturers. Management’s expectations of mine life are based on
the current planned production rates and assume that all resources described in this presentation are developed. Certain forward-looking statements are
based on assumptions regarding the price for Fort Hills product and the expenses for the project, as disclosed in the slides. Assumptions regarding
liquidity are based on the assumption that Teck’s current credit facilities remain fully available. Assumptions regarding our liquidity are also based on
current foreign exchange rates and assume that Teck’s 2015 guidance for production, costs and capital expenditures are met. Assumptions regarding
Fort Hills also include the assumption that project development and funding proceed as planned. Assumptions regarding our potential reserve and
resource life assume that all resources are upgraded to reserves and that all reserves and resources could be mined. The foregoing list of assumptions
is not exhaustive. Assumptions regarding the Corridor project include that the transaction closes as planned and that the project is built and operated in
accordance with the conceptual preliminary design from a preliminary economic assessment.
2
Forward Looking Information
Factors that may cause actual results to vary materially include, but are not limited to, changes in commodity and power prices, changes in market
demand for our products, changes in interest and currency exchange rates, acts of foreign governments and the outcome of legal proceedings,
inaccurate geological and metallurgical assumptions (including with respect to the size, grade and recoverability of mineral reserves and resources),
unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost
escalation, unavailability of materials and equipment, government action or delays in the receipt of government approvals, industrial disturbances or
other job action, adverse weather conditions and unanticipated events related to health, safety and environmental matters), union labour disputes,
political risk, social unrest, failure of customers or counterparties to perform their contractual obligations, changes in our credit ratings, unanticipated
increases in costs to construct our development projects, difficulty in obtaining permits, inability to address concerns regarding permits of environmental
impact assessments, and changes or further deterioration in general economic conditions. We will not achieve the maximum mine lives of our projects,
or be able to mine all reserves at our projects, if we do not obtain relevant permits for our operations. Our Fort Hills project is not controlled by us and
construction and production schedules may be adjusted by our partners. The Corridor project will be jointly owned. The effect of the price of oil on
operating costs will be affected by the exchange rate between Canadian and U.S. dollars.
Statements concerning future production costs or volumes are based on numerous assumptions of management regarding operating matters and on
assumptions that demand for products develops as anticipated, that customers and other counterparties perform their contractual obligations, that
operating and capital plans will not be disrupted by issues such as mechanical failure, unavailability of parts and supplies, labour disturbances,
interruption in transportation or utilities, adverse weather conditions, and that there are no material unanticipated variations in the cost of energy or
supplies.
We assume no obligation to update forward-looking statements except as required under securities laws. Further information concerning assumptions,
risks and uncertainties associated with these forward-looking statements and our business can be found in our Annual Information Form for the year
ended December 31, 2014, filed under our profile on SEDAR (www.sedar.com) and on EDGAR (www.sec.gov) under cover of Form 40-F.
3
Agenda
Teck Overview & Strategy
Commodity Market Observations
Teck Update
4
Long-Term Strategy
Diversification to expand opportunity set
Long life assets
Low half of the cost curve
Appropriate scale
Low risk jurisdictions
5
Attractive Portfolio of Long-Life Assets
• Headquartered in Vancouver,
Canada, with operations in the
Americas
• Strategy focused on long life assets
in stable jurisdictions
• Sustainability: Key to managing
risks and developing opportunities
Strong Resource Position1
With Sustainable Long-Life Assets
Coal Resources
~100 years
Copper Resources
~30 years
Zinc Resources
~15 years
Energy Resources
~50 years
1.
6
Reserve and resource life estimates refer to the mine life of the longest lived resource in the relevant commodity assuming production
at planned rates and in some cases development of as yet undeveloped projects. See the reserve and resource disclosure in our most
recent Annual Information Form, available on SEDAR and EDGAR, for additional detail regarding underlying assumptions.
The Value of Our Diversified Business Model
2015 Leverage to Commodities & FX1
Cash Operating Profit YTD Q3 2015
Coal
35%
Base
Metals
65%
Copper
55%
Zinc
45%
Production
Guidance2
Unit of
Change
Coal
27 Mt
US$1/tonne
$21M /$1∆
$32M /$1∆
Copper
350 kt
US$0.01/lb
$5M /$.01∆
$8M /$.01∆
Zinc
935 kt
US$0.01/lb
$8M /$.01∆
$12M /$.01∆
C$0.01
$32M /$.01∆
$52M /$.01∆
$C/$US
Estimated
Profit 3
Estimated
EBITDA3
Teck has good leverage to stronger zinc and copper
markets, and benefits from the weaker Canadian dollar
7
1. As of December 31, 2014.
2. Shows mid-point of 2015 guidance ranges at the start of the year. Current mid-point of guidance ranges are 25.5 Mt coal and
347.5 kt copper. Zinc includes 650kt of zinc in concentrate and 285kt of refined zinc.
3. Based on $1.20 CAD/USD, and budgeted commodity prices. The effect on our profit and EBITDA will vary with commodity price
and exchange rate movements, and commodity sales volumes.
Agenda
Teck Overview & Strategy
Commodity Market Observations
Teck Update
8
Steelmaking Coal Price Cycles Current Cycle Long and Deep
250%
15
146%
150%
68%
50%
19%
13%
1%
17%
-72%
9
0%
-2%
-0.1%
-12%
-26%
-50%
-13%
-25%
6
-31%
4
-100%
3
-150%
2
1
1
-250%
9
12
100%
-200%
•
•
•
144%
Years
Peak to Trough Cycle % Change
200%
2
3
5
3
2
2
1
1
1
3
1
0
Up cycles in green and down cycles in orange; plotted against duration in years on the right scale
Peak-to-trough price moves during the cycle in blue; plotted against the left axis
Up cycles tend to be similar in duration but with higher percentage gains
Source: CRU, Teck
Steelmaking Coal Will Slowly Rebalance
US Steelmaking Coal Exports (ex. Canada)
2010-2014
average at 55Mt
60
50
39 Mt
30
2000-2009
average at 23Mt
20
10
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015A*
Mt
40
Looking further ahead, seaborne met. coal demand
from China will be supportive of a market rebalancing
Seaborne met. coal imports change, Mt
70
Tighter Market ex-China
10
5
0
-5
-10
-15
-20
-25
China
EU
Latin
America
India
• Excess supply continues to pressure prices & margins
• US exports ~2.5 times above historical average
• Reduced imports into China, although some evidence of destocking
• Stronger fundamentals ex-China
10
*2015 Jan-Oct annualized data
Source: GTIS, CRU
JKT
Copper Price Cycles –
Current Cycle Deepest since 1920’s
400%
40
332.9%
284.4%
300%
35
30
132.5%
100%
115.3%
97.9%
91.6%
72.3%
53.8%
50.4%
45.2%
68.2%
51.0%
25
0%
-12.6%
-37.2%
-56.7%
-100%
-68.4%
-11.7%
-27.9%
-14.7%
-30.1%
-34.5%
-26.4%
-45.2%
-46.4%
20
16
15
-200%
5
-400%
9
8
-300%
6
4
4
1
11
4
2
2
2
3
4
5
4
2
5
2
2
0
-500%
•
•
•
6
5
3
10
8
7
Up cycles in green and down cycles in orange; plotted against duration in years on the right scale
Peak-to-trough price moves during the cycle in blue; plotted against the left axis
Up cycles tend to be longer, with higher percentage gains
Source: Wood Mackenzie, USGS, WBMS, Teck
Years
Peak to Trough Cycle % Change
200%
Copper Costs Higher than Understood
Bernstein Estimated Margin After Sustaining Capex
6,000
5,000
4,000
At US$2.00
At US$2.40
3,000
4,270kt
49th Percentile
6,239kt
72nd Percentile
Margin (US$/tonne)
2,000
1,000
(1,000)
(2,000)
(3,000)
(4,000)
(5,000)
-
1,000
2,000
3,000
4,000
5,000
6,000
Cumulative Copper Production (kt)
At US$2.00 Copper
12
Source: Bernstein Research
At US$2.40 Copper
7,000
8,000
9,000
Zinc Price Cycles –
Current Cycle Longest Since 1920’s
400%
25
311%
300%
188%
125%
50% 50%
12%
42%
-25% -26%
-100%
48%
44%
26% 26% 25%
-55%
-200%
-400%
26%
11% 21% 26%
36%
9%
15
-7% -20% -14% -22%
-8% -20%
-10%
-24% -11%
-29%
-31%
-32%
-36% -21%
-41%
-51%
10
-10%
-49% -40%
116%
8%
0%
-300%
20
10
7
5
5
4
2
2 2
3
1 1
2
5
5
3
1
1
1
2
3
2 2 2
1
2
3 3
1
2 2
3
4
2
1 1
2
1 1 1
2 2
3
4
5
-500%
5
1901-1906
1906-1908
1908-1912
1912-1914
1914-1916
1916-1919
1919-1920
1920-1921
1921-1923
1923-1928
1928-1929
1929-1932
1932-1937
1937-1938
1938-1948
1948-1949
1949-1951
1951-1954
1954-1956
1956-1958
1958-1960
1960-1961
1961-1966
1966-1968
1968-1975
1975-1978
1978-1981
1981-1982
1982-1984
2000-2002
1986-1989
1989-1991
1991-1992
1992-1993
1993-1995
1995-1996
1996-1997
1997-1998
1998-2000
2000-2002
2002-2006
2006-2009
2009-2011
2011-2016
0
•
•
•
13
Up cycles in green and down cycles in orange; plotted against duration in years on the right scale
Peak-to-trough price moves during the cycle in blue; plotted against the left axis
Up cycles tend to be longer, with higher percentage gains
Source: Wood Mackenzie, USGS, WBMS, Teck
Years
Peak to Trough Cycle % Change
100%
193%
168%
200%
Zinc Market Poised for Change
120¢
1,200
1,100
1,000
900
800
700
600
500
400
110¢
100¢
US¢/lb
• Supply situation fundamentally
unchanged
90¢
80¢
70¢
60¢
• Growth in zinc demand expected
to outpace supply
50¢
Stocks
• Recent decline in demand growth
caused inventory drawdown to
slow
Price
thousand tonnes
LME Zinc Stocks – Since Dec 2012
plotted to
Jan. 12, 2015
Spot TCs vs. Realized Annual TCs
$600
$500
• Terminal markets absorbing
unreported stock flows
US$/dmt
$400
$300
$200
$100
$0
Spot
14
Source: Teck, CRU
Annual
plotted to
December 2015
Agenda
Teck Overview & Strategy
Commodity Market Observations
Teck Update
15
Responding to Difficult Market Conditions
• Further cost reductions achieved & focus on resetting
our cost base
− Gross profit1 up 5% in steelmaking coal
• ~C$1B in cash generated via two precious metal
streaming agreements
• Strong financial position, with a cash balance2 of ~$1.8B
− Exceeds the ~$1.5B of remaining Fort Hills capex
− Expect to achieve year-end cash balance of ~$1.8B3
• Further capital and operating cost reductions announced
16
1. Before depreciation and amortization.
2. As at October 21, 2015.
3. As at October 21, 2015, and assuming commodity prices as of that date, C$/US$ exchange rate of 1.33 ,Teck’s 2015
guidance for production, costs and capital expenditures, existing US$ debt levels and no unusual transactions.
Delivering Results in Cost Management
Coal unit costs1
US$64/t
Reduction of
costs1,3
US$1.44/lb
Reduction of US$0.20/lb2
17
Copper Total Cash Unit Costs1,3
(US$/tonne)
(US$/lb)
US$20/t2
Copper cash unit
1.
2.
3.
4.
Steelmaking Coal Unit Costs1
84
24%
Inventory
3
64
Transport
35
2
xx%
12%
1.64
1.44
28
Site
46
Q3 2014
Does not include deferred stripping or capital expenditures.
As compared with Q3 2014.
After by-product credits.
Includes co-product zinc production in our copper business unit.
34
Q3 2015
Q3 2014
Q3 2015
Ongoing Focus on Conserving Capital
And Lowering Operating Costs
• Achieved >$650M in sustainable cost reductions from 2012-2014, and
targeting an additional ~$100M in 2015
• Implementing additional measures:
− Cut the dividend to $0.10/share on an annualized basis
− $300M of operating cost savings
− $350M of capital spending reductions and deferrals
− Elimination of 1,000 additional positions, including senior management
− Suspension of the Coal Mountain Phase 2 project
Expect to achieve a total spending reduction of $650M in 2016
18
Strong Financial Position1
$3,000
• ~$1B in cash generated via two precious metal
streaming agreements
$2,750
$2,500
• Current cash balance1 of ~$1.8B
− Exceeds the ~$1.5B of remaining Fort Hills capex
$2,250
US$M
$2,000
$1,750
• No debt due until 2017
• Opportunities to further strengthen liquidity
$1,500
$1,250
2017
Q1: US$300M
Q3: US$300M
$1,000
$750
$500
$250
Expect to achieve year-end cash balance of ~$1.8B2
19
1. As at October 21, 2015.
2. Assumes current commodity prices, C$/US$ exchange rate of 1.31 ,Teck’s 2015 guidance for production, costs and capital
expenditures., existing US$ debt levels and no unusual transactions
2043
2042
2041
2040
2039
2038
2037
2036
2035
2034
2033
2032
2031
2030
2029
2028
2027
2026
2025
2024
2023
2022
2021
2020
2019
2018
2017
2016
$0
Credit Facilities1
Note
Amount
($M)
Commitment
Maturity
Letters of Credit
Drawn / Limit ($M)
Available
($M)
1
US 3,000
Committed
July 2020
None / US 1,000
US 3,000
2
US 1,200
Committed
June 2017
None / None
US 1,200
3
C 1,500
Uncommitted
n/a
C 1,150
C 350
C 1,150
C 5,810
Total2
• Unsecured; any borrowings rank pari passu with outstanding public notes
• Only financial covenant is debt to debt-plus-equity of <50%
• Availability not affected by commodity price changes
• No requirement to maintain a particular credit rating
Available for general corporate purposes
20
1. As at October 21, 2015.
2. Assumes C$/US$ exchange rate of 1.30.
Positioned to Weather The Market Downturn
& Emerge Stronger and More Diversified
Attractive portfolio of long-life assets & resources
Good leverage to base metals markets
Attractive positions on commodity cost curves &
focus on resetting our cost base
<20 months from start of commissioning at Fort Hills
Strong cash balance, ample credit facilities &
opportunities to further strengthen liquidity
21
Additional Information
Our Sustainability Strategy
• In 2011, we launched our formal
sustainability strategy
• Organized around 6 focus areas
representing our most material
sustainability challenges
and opportunities
• Set short-term (2015) and long-term
(2030) goals and vision for each
area
• On track to achieve all of our 2015
goals
24
External Recognition
Best 50 Corporate
Citizens in Canada
2015
One of top 100 most
sustainable companies
in the world and one of
Canada’s most
sustainable companies
On the Dow Jones
Sustainability World Index
six years in a row
Top 50 Socially
Responsible
Corporations in
Canada
Received the PDAC
2014 Environmental
and Social
Responsibility Award
Received the Globe
Foundation Environment
Award in 2014
25
Diversified Global Customer Base
North
America
20%
China
26%
Europe
18%
Asia excl. China
33%
Latin
America
3%
Diversified Portfolio of Key Commodities
Coking coal
26
Zinc
Moly
Source: Teck; 2014 revenue
Germanium
Copper
Lead
Silver
Indium
Production & Site Cost Guidance
Actual 2014
Current 2015 Guidance
Steelmaking Coal
Coal production
26.7 Mt
Coal site costs
C$54 /t1
Coal transportation costs
C$38 /t
Combined coal costs
C$92 /t
C$83-86 /t
Combined coal costs
US$84
~US$64-66 /t2
333 kt
345-350 kt
US$1.65 /lb
US$1.45-1.55 /lb
Zinc in concentrate production4
660 kt
635-665 kt
Refined zinc production
277 kt
280–290 kt
25-26 Mt
Copper
Copper production
Copper cash unit costs3
Zinc
27
1.
2.
3.
4.
Including inventory adjustments.
At $1.30 CAD/USD.
Net of by-product credits.
Including co-product zinc production from our copper business unit.
Current 2015 Capital Expenditures Guidance
($M)
Major
Enhancement
Sustaining
New Mine
Development
Coal
$75
$30
Copper
200
Zinc
Sub-total
Total
-
$105
$395
$500
15
105
320
225
545
180
-
-
180
60
240
-
-
910
910
-
910
10
-
-
10
-
10
TOTAL
$465
$45
$1,015
$1,525
$680
$2,205
2014A
$511
$165
$822
$1,498
$715
$2,213
Energy
Corporate
$
Capitalized
Stripping
Total capex of ~$1.5B, plus capitalized stripping
28
Credit Ratings
Supported by:
Non-Investment
Grade
Investment
Grade
S&P
BBB
BBB-
BB+
Moody’s
Baa2
Baa3
Ba1
negative
BB
negative
Ba2
BB-
Ba3
Fitch
BBB
BBB-
BB+
negative
BB
BB-
DBRS
BBB
BBB (low)
BB (high)
negative
BB
BB (low)
•
Diversified business model
•
Low risk jurisdictions
•
Low cost assets
•
Conservative financial policies
•
Significant cost reductions
•
Capital discipline
•
Achieving production guidance
•
Production curtailments in coal
•
Dividend cut
•
Streaming transactions
Constrained by:
•
Debt-to-EBITDA metric, due to weak prices
Ratings reflect the current economic environment
29
As at January 15, 2016.
Collective Agreements
Operation
Coal Mountain
Antamina
Elkview
Fording River
Highland Valley Copper
Trail
Cardinal River
Quebrada Blanca
Quintette
Line Creek
Carmen de Andacollo
30
Expiry Dates
In Negotiations - December 31, 2014
In Negotiations - July 23, 2015
In Negotiations - October 31, 2015
April 30, 2016
September 30, 2016
May 31, 2017
June 30, 2017
October 30, 2017
November 30, 2017
January 31, 2018
April 30, 2018
May 31, 2019
September 30, 2019
December 31, 2019
Commodity Prices Impact Stock Price
Teck Stock Price vs. Bloomberg Commodity Price Index (2000-present)
$70
260
240
$60
220
$50
200
180
$40
160
$30
140
$20
120
$10
100
80
$0
Bloomberg Commodity Price Index (Left Axis)
31
Teck (Right Axis)
Plotted to
January 12, 2016
Steelmaking Coal
Business Unit & Markets
Met Coal Market Slowly Rebalancing;
FX Assisting Producers Outside USA
Coal Prices By Currency
Argus FOB Australia
150
• >50 Mt cutbacks announced with
over 60% expected to be
implemented by the end of 2015
• US coal production high end of cost
curve and no currency benefit
130
$ / tonne
• Require additional cutbacks to
achieve market balance
140
120
110
AUS$
100
90
80
CDN$
US$
70
plotted to
January 11, 2016
Stronger US dollar favours producers outside of the US
33
Source: Argus, Bank of Canada
Global Hot Metal Production
Monthly Hot Metal Production
Traditional Steel Markets
• China slowing
• JKT stable
75
65
55
45
China
15
• EU stable
JKT
Mt
12
Rest of the World
9
• India good growth
6
• Brazil stable
3
Europe
India
Brazil
• US declining
USA
Oct-15
Jul-15
Apr-15
Jan-15
Jul-14
Oct-14
Apr-14
Jan-14
Jul-13
Oct-13
Apr-13
Jan-13
Jul-12
Oct-12
Apr-12
Oct-11
Jan-12
Jul-11
Apr-11
Oct-10
Jan-11
Jul-10
Apr-10
Jan-10
0
Update to November 2015
34
Source: WSA, based on data reported by countries monthly; NBS
Crude Steel Production Continues to Grow
Crude Steel
Production (Mt)
2014
2015 Nov YTD
annualized
Global*
1,647 (+1.2% YoY)
1,606 (-2.5% YoY)
China
823 (+0.9% YoY)
805 (-2.2% YoY)
Global, ex-China*
825 (+1.5% YoY)
801 (-2.8% YoY)
JKT
205 (+3% YoY)
197 (-3.9% YoY)
Europe
208 (+1.3% YoY)
203 (-2.3% YoY)
India
83 (+2.3% YoY)
90 (+7.8% YoY)
* Global production includes production only for the countries which report
on monthly basis
Crude steel production to grow at
~1% CAGR between 2014 and 2020
Ex-China seaborne demand for
steelmaking coal is forecasted to increase
by >2% CAGR in the same period
35
Source: WSA, NBS, Wood Mackenzie, CRU
1. Europe includes 12 countries.
Crude Steel Production 2014-2020
Production Cuts Offset by China’s Imports
US Steelmaking Coal Exports
45
40
35
Mt
• Minimal export growth from Australia
while others pull back
- Australian and Canadian imports to
Europe pushing out US supplies
- Exports to China reduced from all 3
supply areas
30
25
20
Nov-14
YTD
• China seaborne imports offset production
curtailments
EU & CIS
China
S.America
India
JKT
Others
Nov-15
YTD
Canada Steelmaking Coal Exports
30
2
25
Mt
Nov YTD 2015 Growth: Seaborne Steelmaking
Coal Exports vs. China Seaborne Imports
20
0.6
15
0
Nov-14
YTD
China
S.America
JKT
India
EU & CIS
Others
Nov-15
YTD
-2
Mt
-4
Australian Steelmaking Coal Exports
-3.3
180
-6
170
-10
-8.8
-9.5
Mt
-8
160
150
140
-12
USA
Canada
Australia
China
130
120
36
Source: GTIS; T.Parker
Nov-14
YTD
India
EU & CIS S.America
JKT
Others
China
Nov-15
YTD
Steelmaking Coal Market Curtailments
Cumulative Production Curtailments
Curtailments Production Curtailments
By Region
Mt
60
50
0
10
20
30
Australia
40
Mt
USA
30
Canada
20
New
Zealand
10
Period Cuts/Guidance Adj
0
2014
2015
2016
2017
2018+
Others
Sustaining Cuts
• >50 Mt cutbacks announced with over 60% expected to be implemented
by the end of 2015
• Require additional cutbacks to achieve market balance
• Low prices also impacting major players
• US coal production high end of cost curve and no currency benefit
37
Source: Teck estimates based on public announcements
* Production cuts are total market curtailments including sustaining cuts (mine idlings) and period cuts (guidance reductions).
900
800
700
600
500
400
300
200
100
0
70%
65%
60%
Heilongjiang
Ansteel Baiyunquan Project
• Phase 1 (~ 5.4 Mt pig iron, 5.2 Mt crude
steel and 5 Mt steel products) in 2013.
Jilin
• Phase 2 (5.4 Mt BF) planned but no
progress yet.
Laioning
55%
Xinjiang
50%
45%
Inner Mongolia
40%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Million tonnes
Chinese Steel Industry Moving to the Coast
Total
Coastal
Coastal %
Beijing
Qinghai
Gansu
Baosteel Zhanjiang Project
• Coke ovens for BF #1 commissioned in July 2015.
• BF #1 commissioning scheduled for September 2015
Shanxi
Shaanxi
Tibet
WISCO Fangchenggang Project
• Major infrastructure in place. WISCO Fangchenggang Steel
Company established in Sep to wholly manage the project.
• Cold roll line scheduled to be commissioned in H1 2015. Other
lines are scheduled to start successively within the year.
• Blast furnaces (BFs) in the originally approved plan. Billet
rolling line only at this time. No timeline for BFs currently.
• Targeting 5 Mt steel products in 2016 and 10 Mt in 2017.
Hebei
Ningxia
Qinghai
Sichuan
Sichuan
Shandong
Henan
Anhui
Hubei
Zhejiang
Hunan
Jiangxi
Fujian
Guizhou
Yunnan
Guangxi
Jiangsu
Guandong
Capital Steel Caofeidian Project
• Planned 20 Mtpa steel capacity.
• Phase 1 (10 Mt) completed in 2010.
• Phase 2, planned with the investment of ~
US$7 billion, is kicked off soon in late Aug
and scheduled to be completed by 2018.
Capacity: hot metal 8.9Mt, crude steel
9.4Mt, steel products 9.0Mt.
Shandong Steel Rizhao Project
• Planned 21.35 Mt crude steel.
• Phase 1 (8.5 Mt) approved in Feb 2013
• Construction started in Sep 2014 and
scheduled to commission by the end of
2016.
Ningde Steel Base
• Proposed but no progress yet.
Relocation to China’s coastline facilitates access to seaborne raw materials
38
Sources: NBS, CISA
We Are a Leading Steelmaking Coal Supplier
To Steel Producers Worldwide
High quality, consistency, reliability, long-term supply
Asia excl. China
~50%
China
~25%
North
America
~5%
Europe
~15%
Latin
America
~5%
Proactively realigning sales with changing market
39
Source: Teck; 2014
Average Realized Price in Steelmaking Coal
Historical Average Realized Prices
88%
350
Discount to the benchmark price
is a function of:
300
96%
93%
250
1. Product mix: >90% hard coking coal
- Q4 2015 benchmark for
premium products is US$89/t
92%
200
US$ / tonne
2. Direction of quarterly benchmark
prices and spot prices
94%
YTD
91%
150
100
50
Q1 2010
Q2 2010
Q3 2010
Q4 2010
Q1 2011
Q2 2011
Q3 2011
Q4 2011
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
0
Teck Realized Price (US$)
Benchmark Price
Average realized price discount: ~8-9%
Average realized % of benchmark: 91-92% (range: 88%-96%)
40
Teck Response to Coal Market Conditions
Quarterly Benchmark vs. Argus Spot Price
• Temporary closures in Q3 2015 of ~3
weeks at all 6 mines to align production
and inventories with market conditions
350
325
300
275
• Annual cost guidance lowered
• Capitalized stripping guidance reduced
$ / tonne
• Quarterly production reduced ~1.5 Mt
250
225
200
175
150
• Continuing to meet all contracted and
committed coal sales for our entire suite
of products
125
100
Disciplined approach to managing production to market conditions and
cost focus to ensure our mines are well-positioned when markets improve
41
Steelmaking Coal Costs
Total Cash Cost Reductions YTD 2015
120
105
100
US$/t
75
US$/t
80
60
40
(C$1.26
/ US$)
(C$1.36
/ US$)
$39
$35
a
Transportation
$29
$26
IFRS
Costs
IFRS Total
$67
$62
Capitalized Stripping
$12
$11
Full Cash Cost
$79
$73
Sustaining Capex
$2
$2
Total Cash Cost
$81
$75
0
2014 (C$1.10/US$)
Site Costs
Inventory Write-Down
Sustaining Capital
YTD Q3 2015 (C$1.36/US$)
Transportation
Capitalized Stripping
Total cash cost of ~US$75 at C$1.36/US$
1.
YTD
Q3 2015
Site1
20
42
YTD
Q3 2015
Includes inventory write-downs.
Significant Long-Term Coal Growth Potential
Potential Production Increase Scenarios
Teck’s large resource base
supports several options for
growth:
• Brownfields expansions
- Elkview expansion
- Fording River expansion
- Greenhills expansion
• Capital efficiency and operating
cost improvements will be key
drivers
40
Production (Mt)
• Quintette restart (up to 4 Mtpa)
fully permitted
50
30
20
10
-
Time Conceptual
FRO
GHO
CMO
EVO
CRO
QCO
28 Mt
40 Mt
Potential to grow production when market conditions are favourable
43
LCO
>75 Mt of West Coast Port Capacity Planned
Teck Portion at 40 Mt
Westshore Terminals
West Coast Port Capacity
• Teck is largest customer at 19 Mt
• Large stockpile area
40
• Recently expanded to 33 Mt
35
• Planned growth to 36 Mt
3
Neptune Coal Terminal
• Exclusive to Teck
• Recently expanded to 12.5 Mt
• Planned growth to 18.5 Mt
Million Tonnes (Nominal)
30
25
7
20
15
33
6
10
Ridley Terminals
5
18
12.5
• Current capacity: 18 Mt
• Expandable to 25 Mt
• Teck contracted at 3 Mt
0
Neptune Coal
Terminal
Ridley
Terminals
Current Capacity
Teck’s share of capacity exceeds current
production plans, including Quintette
44
Westshore
Terminals
Planned Growth
LNG for Haul Trucks Project
• Pilot project underway to evaluate running Teck haul trucks on a blend of diesel and LNG
- Six haul trucks at Fording River
- First use of LNG as a haul truck fuel at a Canadian mine site
• Has the potential to eliminate ~35,000 tonnes of CO2 emissions annually at our steelmaking
coal operations, and to reduce our fuel costs by >$20M per year across our operations
Comparison of Emissions
$1.20
100%
$1.00
80%
% of Diesel Emissions
Price per Liter
Comparison of Fuel Cost
$0.80
$0.60
$0.40
$0.20
LNG / Diesel Liter
45
40%
20%
0%
$Gas Cost
60%
Liquifaction
Carbon Tax
Diesel / Liter
Delivery
Diesel
CO2
NOx
Diesel
Particulate
Natural Gas
SOx
Coking Coal Strength
High Quality Hard Coking Coal
U.S.A.
Canada Other
Teck HCC
Australia
Japan
South Africa
80
70
• Around the world, and
especially in China, blast
furnaces are getting larger
and increasing PCI rates
Australia
(hard coking)
and Canada
Teck HCC
60
Japan
(Yubarl)
U.S.A.
CSR
50
Australia
(soft coking)
40
• Teck coals with high hot and
cold strength are ideally suited
to ensure stable blast furnace
operation
30
Japan (Sorachl)
20
South Africa
10
50
46
60
70
Drum Strength Dl
30
80
(%)
• Coke requirements for stable
blast furnace operation are
becoming increasingly higher
90
100
• Produce some of the highest
hot strengths in the world
Copper
Business Unit & Markets
Base Metal Stocks Low on Days Consumption
48
Source: LME, ICSG, ILZSG
* Charts as of January 12, 2016
Historic Copper Metal Prices & Stocks
Daily Copper Prices & Stocks
500¢
1400
450¢
1200
1000
US¢/lb
350¢
300¢
800
250¢
600
200¢
150¢
400
100¢
200
50¢
0¢
2003
2004
2005
2006
2007
2008
LME Stocks
49
Source: LME, ICSG, ILZSG
2009
Comex
2010
2011
SHFE
2012
Price
2013
2014
2015
0
2016
plotted to
Jan. 12, 2016
thousand tonnes
400¢
Copper Mine Production
Forecasts Continue to Decline
2015
2016
17,500
2017
18,500
18,500
2015 Adjusted
Market Adjustment
5% Disruption
•
•
Down 590,000 tonnes from February
2013 estimates
Down 1.8 Million tonnes from guidance.
•
•
•
•
50
Source: Wood Mackenzie
17,000
16,500
5% Disruption & Projects
5% Disruption net of Projects
Market Adjustment
Market Adjustment
2016 Adjusted
2017 Adjusted
Down 1,385 kt from April 2014 estimates
New projects production down by 67%
Net New Mine Production in 2016 over
2015 now only 0.9%, less than 290kmt
of growth.
SXEW (not shown) will drop 120kmt
•
•
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
16,000
Jun-15
Dec-15
Oct-15
Aug-15
Jun-15
Apr-15
Feb-15
Dec-14
Oct-14
15,000
17,500
May-15
15,500
18,000
Apr-15
16,000
thousand tonnes contained copper
16,500
Jun-14
Oct-15
Jun-15
Feb-15
Oct-14
Jun-14
Feb-14
Oct-13
Jun-13
15,000
17,000
Aug-14
15,500
17,500
Apr-14
16,000
thousand tonnes contained copper
16,500
Feb-13
thousand tonnes contained copper
18,000
17,000
Down 883 kt from April 2015 estimates
New projects production down by 43%
or 375 kmt
Disruptions Continue in Copper
Significant Copper Concentrate Disruptions
Breakdown of Disruptions including SXEW
2015
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 YTD
-200
0
-400
(50)
-600
-584
-800
-1,000
Thous. Mt
Thousand tonnes
0
-776
-851
-859
-950
-839
-945
(150)
-831
-973
(100)
-968
(200)
-1,015
-1,200
(250)
plotted to
December 2015
51
Source: Teck, CRU
(300)
plotted to
December 2015
Copper Concentrate TC/RCs
Copper Concentrate TC/RC
60¢
50¢
40¢
30¢
20¢
10¢
0¢
2005
2006
2007
2008
Standard Spot
52
Source: Teck, CRU
2009
2010
2011
High Grade Spot
2012
2013
Realised TC/RC
2014
2015
plotted to
December 2015
Ore Grade Trends
Ongoing decline will put upward pressure on unit costs
53
Source: Wood Mackenzie
Margin Compression at Its Lowest Point
Worse than During the Global Financial Crisis
54
Source: Wood Mackenzie
Wood Mac Still Forecasting Demand Growth
55
Chinese Copper Imports
Switch from Cathode to Concentrates
Net Copper Imports Down 9% in Q1 2015; YTD Nov Up 2.1%
1,000
000’s tonnes (content)
900
800
700
600
500
400
300
200
100
0
2004
56
2005
Source: NBS
2006
2007
2008
2009
Cathode
Concs
2010
Scrap
2011
Blister/Semis
2012
2013
2014
2015
Updated to
November 2015
Significant Chinese Copper Demand Remains
Annual Growth Rate of Chinese Copper
Consumption to Slow Dramatically…
30%
25%
…But Will Add Significantly
in Additional Tonnage Terms
1,400
Annual Avg.
11.9%
1,200
Annual Avg. Growth
325 Mt/yr
1,000
Thousand tonnes
20%
15%
10%
Annual Avg.
2.8%
800
Annual Avg. Growth
356 Mt/yr
600
400
5%
200
0%
1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030
1990 1994 1998 2002 2006 2010 2014 2018 2022 2026 2030
China expected to add almost as much to global demand
in the next 15 years as the past 25 years
57
Source: Wood Mackenzie, Teck
Chinese Copper Demand Indicators
China Power Grid Spending Down on
Anti Corruption Campaign – Starting to Improve
China Floor Space Under Construction Down &
Sales Up, as Lower Interest Rates Take Effect
60,000
80
50,000
60
40,000
40
%, YoY
RMB mn
Mostly Negative – But Some Bright Spots
30,000
20,000
20
0
-20
10,000
0
2010
-40
2011
2012
2013
2014
2010
2015
China Air Conditioner Inventory
Drawing Down & Sales Improving
2011
2012
2013
Area under construction
2014
Sales
2015
China Auto Manufacturing Slows
Due to Slower Economy and High Sales in 2014
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
2010
Thousand Units
Thousand Units
2,500
2011
Production
58
2012
2013
Sales
2014
2015
2,000
1,500
1,000
500
0
2010
2011
2012
Inventory
Source: China Electricity Council, NBS, China IOL, China Association of Automobile Manufacturers
* Data to November 2015
2013
2014
2015
Copper Scrap Supply
Copper Scrap Supply vs. LME Price
26%
$4.50
25%
$4.00
24%
23%
$3.50
22%
21%
$3.00
20%
19%
$2.50
18%
$2.00
17%
16%
$1.50
15%
14%
$1.00
13%
12%
$0.50
11%
$-
10%
2000
2001
2002
2003
2004
2005
2006
Copper Price (USD/lb)
2007
2008
2009
2010
2011
2012
2013
Scrap as a % Consumption
Copper scrap supply is strongly correlated with price
59
Source: Wood Mackenzie
2014
Global Copper Cathode Balances
Wood Mackenzie’s Outlook is Trending Down
2016
2017
800
800
700
700
700
•
Since April 2014
Despite a 725,000 tonne drop in demand
•
The surplus is down 750,000 tonnes
60
Source: Wood Mackenzie
600
500
400
300
200
100
0
Since December 2014
Despite a drop of 660,000 tonnes to Wood
Mackenzie’s demand estimates
•
Their surplus is down 700,000 tonnes
•
Since April 2015
Down from a 510,000 tonnes surplus
•
Despite a 510,000 tonne drop in demand
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
Apr-15
Dec-15
Oct-15
Aug-15
Jun-15
Apr-14
•
May-15
-100
0
Oct-15
Jun-15
Feb-15
Oct-14
Jun-14
Feb-14
Oct-13
Jun-13
Feb-13
0
100
Apr-15
100
200
Feb-15
200
300
Dec-14
300
400
Oct-14
400
500
Jun-14
500
600
Aug-14
600
thousand tonnes contained copper
800
thousand tonnes contained copper
thousand tonnes contained copper
2015
Global Refined Copper Balances
Wood Mackenzie’s Outlook is Trending Down
Wood Mackenzie 2015F Refined Surplus
900
900
Surplus only 2% of
Global Demand
800
800
700
600
600
‘000s tonnes copper
700
500
400
300
200
500
400
300
200
100
100
0
0
Jan-13
Mar-13
May-13
Jul-13
Sep-13
Nov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
‘000s tonnes copper
Wood Mackenzie 2016F Refined Surplus
61
Source: Wood Mackenzie
Surplus only 0.9% of
Global Demand
Long-Term Copper Mine Production Still Needed
Forecast Copper Refined Balance
1,000
• At 2% global demand growth, 400 kt
of new supply needed annually
• Structural deficit starts in 2018
• Project developments slowed due to
lower prices, higher capex, corporate
austerity, permitting & availability of
financing
Thousand tonnes
500
0
(500)
(1,000)
(1,500)
(2,000)
(2,500)
2012 2013 2014 2015 2016 2017 2018 2019 2020
62
Source: WM, CRU, ICSG, Teck
Building Partnerships: Corridor Project
Teck and Goldcorp have combined Relincho
and El Morro projects and formed a 50/50
joint venture company
• Committed to building strong, mutually
beneficial relationships with
stakeholders and communities
Capital smart partnership
• Shared capital, common infrastructure
• Shared risk, shared rewards
Benefits of combining projects include:
• Longer mine life
• Lower cost, improved capital efficiency
• Reduced environmental footprint
• Enhanced community benefits
• Greater returns over either standalone
project
63
Corridor Project Summary
Initial Capital
Copper Production1
Gold Production1
$3.0 - $3.5
190,000
315,000
billion
tonnes per year
ounces per year
Mine Life
Copper in Reserves2
Gold in Reserves2
32+
16.6
8.9
years
billion pounds
million ounces
64
Note: Conceptual based on preliminary design from the PEA
1. Average production rates are based on the first full ten years of operations
2. Total copper and gold contained in mineral reserves as reported separately by Teck and Goldcorp; refer to Appendix A in Additional Information.
3. Capital estimate for Phase 1a based on preliminary design shown in 2015 dollars on an unescalated basis
Copper Development Projects in the
Americas
Corridor is one of the largest open pit copper development projects in the Americas on
the basis of copper contained in Proven and Probable Reserves
Copper Equivalent in Reserves (Mlbs)
25,000
Copper-equivalent contained in Reserves (Mlbs)
(North & South American Copper Projects)
20,000
15,000
10,000
5,000
65
Rio Blanco
Galore Creek
Schaft Creek
Casino
El Morro
Relincho
Agua Rica
Quellaveco
Quebrada
Blanca II
El Arco
Corridor
Radomiro
Tomic
-
Note: Copper equivalent reserves calculated using $3.25/lb Cu and $1,200/oz Au. Does not include copper resource projects that are
currently in construction
Source: SNL Metals & Mining, Thomson One Analytics, and company disclosures.
Zinc
Business Unit & Markets
Historic Zinc Metal Prices & Stocks
Daily Zinc Prices & Stocks
250¢
1,800
1,600
200¢
US¢/lb
1,200
150¢
1,000
800
100¢
600
400
50¢
200
0¢
2003
2004
2005
2006
2007
2008
LME
67
Source: LME, SHFE
2009
2010
SHFE
2011
Price
2012
2013
2014
2015
0
2016
plotted to
January 12, 2015
thousand tonnes
1,400
Zinc Mine Production
Undersupplied, Even With Lower Growth
120¢
• Metal market in deficit
1,200
1,100
1,000
900
800
700
600
500
400
110¢
• LME stocks down >775 kt over 27
months; sub-500 kt recently for the
first time since 2010
US¢/lb
100¢
90¢
80¢
70¢
60¢
50¢
• ‘Off-market’ inventory position to work
down also
• Large periodic increases indicate
significant off-market inventories
flowing through the LME to
consumers
• Chinese zinc mine production is down
in the last 27 months
Stocks
Price
plotted to
Jan. 12, 2015
Monthly Chinese Zinc Mine Production
600
6,000
500
5,000
400
4,000
300
3,000
200
2,000
100
1,000
0
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2013
68
Source: LME, NBS, CNIA
thousand tonnes
LME Zinc Stocks
2014
2015
plotted to
November, 2015
Zinc Mine Production
Wood Mackenzie’s Outlook is Trending Down
2016
15,000
14,500
14,500
14,500
12,000
69
Source: Wood Mackenzie
12,500
•
Down 1,150 kt from January 2015
estimates
•
•
Dec-15
Nov-15
Oct-15
Sep-15
12,000
Apr-15
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
Down 770 kt from January 2015
estimates
12,500
13,000
Aug-15
12,500
13,000
13,500
Jul-15
13,000
13,500
14,000
Jun-15
13,500
14,000
May-15
14,000
thousand tonnes contained zinc
15,000
12,000
•
2017
15,000
thousand tonnes contained zinc
thousand tonnes contained zinc
2015
Down 600 kt from April 2015 estimates
New project production down by 22%
-200
400
-300
300
-400
200
-500
100
70
2014-2020
-100
Source: ICSG, Wood Mackenzie Teck, Company Reports
Gamsberg
Antamina
Dugald River
McArthur River
Bisha
Gansu Jinhui
Kyzyl-Tashtygskoe
Shalkiya Restart
Sindesar Khurd
Aguas Tenidas
Changba
Zawar Mines
El Brocal
Sanguikou
Caribou Reactivation
San Cristobal
Penasquito
Endeavor
Mae Sod
Mid-Tennessee
Jaguar
Pomorzany-Olkusz (incl Bulk)
Rapura Agucha
Bracemac-McLeod
Rosebery
Red Dog
Skorpion
Lisheen
Century
Significant Zinc Mine Reductions
Large Short-Term Losses, More Long Term
2014-2020
0
500
0
Zinc Inventories Declining
LME Zinc Stocks – Since Dec 2012
120¢
250¢
110¢
1,200
200¢
100¢
600
400
50¢
Stocks
Price
900
800
80¢
700
70¢
600
200
60¢
500
0
50¢
400
2016
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
0¢
1,000
90¢
US¢/lb
800
thousand tonnes
150¢
1,100
100¢
1,000
US¢/lb
1,200
1,400
plotted to
Jan. 12, 2016
Stocks
Price
plotted to
Jan . 12, 2016
• LME stocks down ~730 kt over 24 months
• Large inventory position still to work down but we were recently under 500kt for the
first time since early 2010
• Large, sudden increases indicate there are also significant off-market inventories
flowing through the LME to consumers
71
Source: LME
thousand tonnes
LME Zinc Stocks - 11 Years
Zinc Concentrate Balances
Wood Mackenzie’s 2015 and 2015 Outlooks Trending Down
2015
2016
2017
400
400
400
300
200
100
0
(100)
thousand tonnes contained zinc
thousand tonnes contained zinc
thousand tonnes contained zinc
300
200
0
(200)
(400)
(600)
(200)
200
100
0
(100)
(200)
(300)
(400)
•
Down 259 kt from December 2014
estimates, taking the market from
surplus into a deficit of 96 kt
72
Source: Wood Mackenzie
•
Nov-15
Down 442 kt from December 2014
estimates, taking the market further into
deficit of 681 kt
•
•
Dec-15
Nov-15
Oct-15
Sep-15
Aug-15
Jul-15
Jun-15
May-15
(500)
Apr-15
Sep-15
Jul-15
May-15
Mar-15
Jan-15
Nov-14
Sep-14
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
(300)
Jul-14
May-14
(800)
Up 259 kt from April 2015 estimates
Wood Mackenzie expects 300 kt of
projects will come online in 2017 due to
higher prices
Zinc Metal Market Mostly in Deficit Since 2013
Market View – Wood Mackenzie & CRU
Zinc Metal Balance
• Zinc metal deficit forecasted for 2016
and 2017
400
200
• Mine production increases of -2.5% and
8.0% respectively expected for 2016 and
2017. The closure of Century and
Lisheen, as well as production cuts due
to low zinc prices will cause mine
production to decrease in 2016. In 2017,
higher prices are expected to bring a
large amount of Chinese mine
production online and it is expected that
Glencore will bring production back in
2017
0
-200
-400
-600
-800
2013
2014
WoodMac
73
2015
CRU
Source: Wood Mackenzie, CRU
2016
2017
• Deficits of around 500kt/year in 2016 and
2017 will still result in large draw down of
stocks
Chinese Zinc Demand to Outpace Supply
China Zinc Demand
Galvanized Steel as % Crude Production
20%
Other
5%
USA
19%
18%
16%
Construction
15%
Infrastructure
30%
14%
12%
10%
Transportation
20%
8%
6%
Consumer Goods
30%
4%
China
6%
2%
0%
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
If China were to galvanize crude steel at half the rate of the US using the same rate of
zinc/tonne, a further 2.1 Mt would be added to global zinc consumption
74
Source: Teck
Imports Affecting US Refined Zinc Demand
Galvanized Sheet US Imports
• Cheaper imports of HDG have subdued
demand growth for zinc in the US
450
400
• US Sheet Mills filed a petition with the
Department of Commerce in June 2015.
We have seen imports decrease since the
primary ruling. Especially China, where
imports have decrease 98% since Jan
2015.
350
Thousand tonnes
300
250
200
150
• Demand for refined zinc seems to be
picking up going in 2H 2015
100
50
• Premiums have decreased due to the large
amount of metal stocks available and lower
US demand
0
Europe
75
Asia
Source: GTIS
China
North America
Others
Refined Zinc Balances
Wood Mackenzie’s Outlook is Trending Down
2016
•
(50)
(50)
(300)
(350)
Deficit decreased by 206 kt from
December 2014 estimates, to 184 kt
•
76
Source: Wood Mackenzie
Deficit increased by 112 kt from
December 2014 estimates, to 331 kt
Increase due to production cuts,
resulting in insufficient concentrate
available to smelters and less refined
production in 2016.
(400)
Apr-15
Nov-15
Sep-15
May-14
•
Jul-15
(500)
May-15
(450)
Mar-15
(500)
Jan-15
(450)
Nov-14
(400)
Sep-14
(450)
Jul-14
(400)
(350)
•
Deficit increased by 98 kt from April
2015 estimates, to 322 kt
Dec-15
(300)
(250)
Nov-15
(350)
(250)
(200)
Oct-15
(300)
(200)
(150)
Sep-15
(250)
(150)
Aug-15
thousand tonnes
(200)
(100)
Jul-15
(100)
(150)
Feb-13
May-13
Aug-13
Nov-13
Feb-14
May-14
Aug-14
Nov-14
Feb-15
May-15
Aug-15
Nov-15
thousand tonnes
(100)
0
Jun-15
(50)
0
thousand tonnes contained zinc
0
2017
May-15
2015
Committed Supply Insufficient for Demand
Forecast Zinc Refined Balance
•
We expect insufficient mine supply to
constrain refined production, allowing
a refined metal supply increases of
only 792 kt between 2014 and 2020
•
Over this same period we expect
refined demand to increase 2.8 Mt
tonnes
•
Market in deficit in 2014 and starting
in 2016 will be ongoing, large
inventory has funded the deficit but
this will only continue in 2016.
•
Metal market moving into significant
deficit with further mine closures and
inventories are depleting
500
0
Thousand tonnes
(500)
(1,000)
(1,500)
(2,000)
(2,500)
(3,000)
2013 2014 2015 2016 2017 2018 2019 2020
77
Source: Teck
Energy
Business Unit & Markets
Building An Energy Business
 Strategic diversification
 Large truck & shovel mining
projects
 World-class resources
 Long-life assets
 Mining-friendly jurisdiction
 Competitive margins
 Minimizing execution risk
 Tax effective
Mined bitumen is in Teck’s ‘sweet spot’
79
Global Oil Market to Rebalance
West Texas Intermediate (WTI) Price
2014-2015: Price drop due market imbalance
$120
$100
• Supply growing
− OPEC: highest ever production at 31.7 MMbpd;
more supply from Iran & Iraq
− Non-OPEC: production growing faster than global
demand; abnormally high US inventories
US$/bbl
$80
$60
$40
$20
Jan-16
Sep-15
May-15
Jan-15
Sep-14
May-14
Jan-14
Sep-13
May-13
Jan-13
Sep-12
Jan-12
May-12
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
$0
Plotted to
January 12, 2016
• Demand growth eased in 2014
− Slowing growth (especially non-OECD)
− Economic uncertainty in China
2016-Q1
2015-Q1
2014-Q1
2013-Q1
2012-Q1
Implied stock change and balance (right axis)
World production (left axis)
World consumption (left axis)
Source: EIA Short-Term Energy Outlook, January 2016
80
2017-Q1
6
4
2
0
-2
MM b/d
Forecast
100
95
90
85
80
2011-Q1
MM b/d
World Production & Consumption Balance
2016+: Bearish pricing in short term; Expect
a more constructive end-2016
• Global supply/demand to near balancing late 2016
• Decline rates of existing fields require >5 Mbpd new
production annually
The Real Value of Long-Life Assets
Fort Hills Project Indicative Rolling NPV1
• Significant value created
over long term
• 60% of PV of cash flows
beyond year 5
• IRR of 50-year project is
only ~1% higher than a 20year project
• Options for debottlenecking
and expansion
50-year assets provide for superior returns
operating through many price cycles
81
1. Indicative NPV assumes US$95 WTI, $1.05 Canadian/US dollar exchange rate, and costs as disclosed with the Fort Hills sanction
decision (October 30, 2013).
Fort Hills Is One of the Best
Undeveloped Oil Sands Mining Leases
Strip Ratio vs. Ore Grade
• >3 billion bbls of proven plus probable
reserves of bitumen
12
11.5
Fort Hills
11
Frontier
10.5
10
9.5
13
12
11
10
9
8
TV:BIP
Ore grade is a function of the bitumen quantity in the deposit
TV:BIP is a ratio of the total volume of bitumen in place to the total
volume of material required to be moved (like a strip ratio)
82
Source: Teck
Ore Grade (wt% bitumen)
-
Production 180,000 barrels per day
(bpd) of bitumen
Teck’s share is significant at 36,000
bpd; equivalent to 13 million barrels
per year (Mbpy)
• World-class resource
-
Average ore grade of 11.4%
Strip ratio of 1.5:1 and TV:BIP of 10.5
• Consistent production year-over-year
through multiple decades
-
Targeting first oil in Q4 2017
Expect 90% of planned production
capacity within 12 months
Minimizing Execution Risk
In The Fort Hills Project
• Cost-driven schedule
- “Cheaper rather than sooner”
Suncor has completed 4
projects of ~$20 billion over last
5 years, all at or under budget
• Disciplined engineering
approach
• “Shovel Ready”
• Global sourcing of engineering
and module fabrication
• Balanced manpower profile
Benefiting from Suncor’s operational
and project development experience
83
Lower Oil Price Environment Provides
Opportunities for the Fort Hills Project
“Major projects in construction such as Fort Hills…will move forward as
planned and take full advantage of the current economic environment.
These are long-term growth projects that are expected to provide
strong returns when they come online in late 2017.”
- Suncor, January 13, 2015
• Focusing on productivity improvements
- Reduced pressure on skilled labour and contractors
• Benefiting from availability of fabricators for major
equipment
• Seeking project cost reductions
- Exploring performance improvements with
contractors and suppliers
- Building cost savings and improved productivity
expectations into current contract negotiations
- Reviewing all indirect costs
Enhanced ability to deliver on time and on budget
84
Fort Hills By The Numbers1
Teck’s Sanction Capital2
Teck’s Estimated 2015 Spend
Teck’s Remaining Capital3
~$2.94
$850
~$1.5
billion
million
billion
Operating & Sustaining Costs3
Sustaining Capital3
Teck’s Share of Production
$25-28
$3-5
13,000,000
per barrel of bitumen
per barrel of bitumen
bitumen barrels per year
Mine life: 50 years
85
1. All costs and capital are based on Suncor’s estimates.
2. Sanction capital is the go-forward amount from the date of the Fort Hills sanction decision (October 30, 2013), denominated in
Canadian dollars and on a fully-escalated basis. Includes earn-in of $240M.
3. As of October 21, 2015.
4. Sustaining capital is included in operating & sustaining costs.
Fort Hills Bitumen Netback Calculation Model
Cash Margin1 Calculation Example: Prior to Capital Recovery
$70
$15.50
$60
$60
$11
$1.25
$55.50
$7-9
$10
$50
$22
$37
$40
$30
$3
$20
$1-2
$2-3
$10-$11
$10
$13
$-
Teck seeks to secure dedicated transportation capacity for
Fort Hills volumes to key markets to minimize WCS discount
86
Royalties based on pre-capital payout.
* WTI/WCS Differential based on forecast from Lee & Doma Energy Consulting: 2017/2018 Fort Hills Startup, Constrained Pipe/Excess Rail
**Tidewater Premium based on average premium pricing for USGC market via Keystone and Flanagan South Pipelines
Source: Alberta Energy bitumen valuation methodology (http://www.energy.alberta.ca/OilSands/1542.asp)
1. Estimates are based on C$/US$ exchange rates as shown, expected bitumen netbacks, operating costs of C$25 per barrel (including
sustaining capital of C$3-5 per barrel) and Phase 1 (pre-capital payout) royalties.
Western Canadian Select (WCS)
Average Monthly WTI-WCS Differential
Western Canadian Select (WCS) Is The Benchmark
Price For Canadian Heavy Oil At Hardisty, Alberta
$45
$23.12
$40
$35
$15.69
$30
WCS differential to West Texas Intermediate (WTI)
$16.46
$25
$20
$15
$10
$5
$Plotted to
Jan 2016
WCS Differential (US$/bbl)
• Contract settled monthly as differential to Nymex WTI
• Long term differential of Nymex WTI minus $10-20 US/bbl
• Based on heavy/light differential, supply/demand, alternate
feedstock accessibility, refinery outages and export capability
− Narrowed in 2014/2015 due to export capacity growth, rail
capacity increases, and short term production outages
• Recently improved export capability to mitigate volatility
− Further export capacity subject to rigorous regulatory review;
potential impact to WCS differentials.
Long-term WCS Differential
FORECAST*
WTI (US/bbl)
$40
$50
$60
$70
$80
$90
$100
WCS Differential to
Nymex WTI (US/bbl)
-$13.00
-$14.50
-$15.50
-$17.00
-$18.00
-$19.50
-$20.50
*Forecast Assumptions: Fort Hills Startup 2017/2018 with supply/demand model exiting Western Canada in a
constrained pipe/excess rail transportation model, per Lee & Doma Energy Consulting.
87
Source: Shorecan, Net Energy, Lee & Doma
Diluent (C5+) Pricing
Average Monthly WTI/Diluent (C5+) Differential
Diluent (C5+) at Edmonton, Alberta Is the benchmark
contract for diluent supply for oil sands
$20
$15
US/bbl
$10
Diluent differential to West Texas Intermediate (WTI)
• Contract settled monthly as differential to Nymex WTI
• Based on supply/demand, seasonal demand (high in winter, low
in summer), import outages
• Long-term diluent (C5+) differential of Nymex WTI +/- $5 US/bbl
$5
$0
($5)
WTI/C5+ Diff
Jan-16
Sep-15
May-15
Jan-15
Sep-14
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
May-12
Jan-12
Sep-11
May-11
Jan-11
Sep-10
May-10
Jan-10
($10)
Diluent (“Pool” in Edmonton is a common stream of a
variety of qualities
• Diluent pool comprised of local and imported natural gas liquids
Plotted to
Jan 2016
Long -term C5+ Diff
FORECAST*
WTI (US/bbl)
$40
$50
$60
$70
$80
$90
$100
Diluent (C5+) Differential
to Nymex WTI (US/bbl)
+$2.50
+$1.50
+$0.50
-$0.50
-$1.50
-$2.50
-$3.50
*Forecast Assumptions: Fort Hills Startup 2017/2018, using 2015 CAPP Western Canadian oil production forecast, Diluent
(C5+) differentials per Lee & Doma Energy Consulting
88
Source: Shorecan, Net Energy, Lee & Doma
Diversified Market Access Strategy
Teck Marketing Plan for
50 kbpd Diluted Bitumen Blend
Sufficient Export Capacity In Place
• Includes Pipeline And Rail Capability
• No shut in risk, but price risk likely
Kitimat
Edmonton
Hardisty
Targeting Long Term Market Access
• US Gulf Coast And Deep Water Ports
• Entered into commercial agreements:
• 425 kbbls Hardisty storage capacity
• Pipeline capacity opportunities:
• Keystone/Keystone XL/Flanagan South to
US Gulf
• TransMountain expansion to Vancouver
• Energy East to East Coast
Non-committed barrels sold spot at
Hardisty or nominated on common
carriage pipeline
Teck can enter long-term commitments
89
Asia
Saint John
Vancouver
Superior
Europe
Flanagan
Steele City
N.E.
US
Asia
Cushing
Houston
US
Gulf Coast
Europe
Asia
TransCanada Energy East (Europe, Asia, US Gulf Coast, N.E. US)
Keystone, Keystone XL (US Gulf Coast)
Enbridge Flanagan South (US Gulf Coast)
TransMountain Pipeline (Asia)
Enbridge Northern Gateway (Asia)
Sufficient Transportation Capacity
In Western Canada
Western Canadian Transport Supply & Demand
8,000
2 New Pipelines
7,000
Assumptions
Fort Hills’ First Oil
• Fort Hills first oil late 2017
6,000
Enbridge Expansions
• Enbridge mainline capacity expansions
move forward
4,000
3,000
• Two of the proposed new export pipelines
are put in place between 2019-2022
2,000
1,000
Balanced
Pipe
2015 CAPP Supply Forecast
2014 CAPP Supply Forecast
Total Pipeline & Local Refining
Total Pipeline, Local Refin ing & Rail
2030
2029
2028
2027
2026
2025
2024
2023
2022
Excess
Pipe
Constrained
Pipe &
Balanced Rail
Constrained Pipe &
Excess Rail
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
0
Constrained
Pipe &
Balanced Rail
kbbls/day
5,000
− Providing incremental capacity of 1.0-1.6
MM bbls/day
− Based on three potential new pipelines:
• TransMountain TMX
• Keystone XL
• Energy East
− Northern Gateway delayed
Sufficient pipeline & rail capacity to accommodate all production
90
Source: CAPP (Canadian Association of Petroleum Producers), Lee& Doma, Teck
Committed Logistics Solutions in Alberta
Bitumen & Blend Logistics
Operator
Nominal
Capacity
(kbpd)
Status
Northern Courier Hot Bitumen
TransCanada
202
Construction: ~30% complete
Suncor
292
Construction: ~25% complete
Wood Buffalo Blend Pipeline
Enbridge
550
Operating
Wood Buffalo Extension
Enbridge
550
Construction - field crew mobilized
Hardisty Blend Tankage
Gibsons
450
Construction - Tank pad civil work
East Tank Farm - Blending
Fort Hills
Mine Terminal
Northern Courier
Hot Bitumen Pipeline
East Tank Farm
Blending w/Condensate
Cheecham
Terminal
Diluent Logistics
Operator
Nominal Capacity
(k barrels)
Status
Norlite Diluent Pipeline
Enbridge
130
Construction - first pipe spread
complete
Wood Buffalo
Pipeline
Kirby
Terminal
Norlite
Diluent Pipeline
Waupisoo
Pipeline
Edmonton
Terminal
91
Pipeline Legend
Bitumen
Blend
Diluent
Existing
New
Wood Buffalo
Extension
Athabasca
Twin Pipeline
Options
Teck
Hardisty
Terminal
Export Pipeline
Rail
Local Market