Ladies and gentlemen, thank you for standing by. Welcome to Teck's fourth quarter 2021 earnings release conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. This conference call is being recorded on Thursday, February 24, 2022. I will now like to turn the conference call over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.
Thanks very much, Patrick, and good morning, everyone. Thank you for joining us for Teck's fourth quarter 2021 results conference call. Please note today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statements. Please refer to slides two and three for the assumptions underlying our forward-looking statements. In addition, we will reference various non-GAAP measures throughout this call.
Explanations and reconciliations regarding these measures can be found in our MD&A in the latest press release on our website. Don Lindsay, our President and CEO, will begin today's call with full year and fourth quarter highlights. He'll be followed by Jonathan Price, our CFO, who will provide additional color on our financial results. We will conclude today's session with a Q&A period to address any remaining questions.
With that, I'll turn the call over to Don.
Thank you, Fraser, and good morning, everyone. Well, 2021 was a great year for Teck. We are pleased to close out the year by setting a number of financial records despite what was a very challenging backdrop. Solid operational performance and strong commodity prices drove $66.6 billion in adjusted EBITDA in 2021 and the highest ever quarterly adjusted EBITDA of $2.5 billion in Q4, which was more than triple last year's level. I am incredibly proud of the tremendous resiliency demonstrated by our team all across the company, who continue to operate our assets safely and sustainably through heat waves, a heat dome, I'd never heard that term before, wildfires, incredibly heavy rains, deep freeze, freezing temperatures, record cold temperatures, and the continued impacts, of course, of the global pandemic.
Unprecedented floods brought on by three atmospheric rivers, a term I also hadn't heard, three of them in four days in the fourth quarter, tested the resiliency of our steelmaking coal supply chain in British Columbia. Despite major rail and infrastructure damage caused by what is now referred to as one of the worst natural disasters in Canadian history, there was no material impact on our production.
We reached multi-year collective agreements at Antamina, QB, Fording River, and Elkview in 2021 and also at Highland Valley subsequent to year-end. We now have long-term stable agreements at our three largest mines. We continued to advance our priority projects in the fourth quarter, and overall progress at our flagship QB2 copper project has reached 77%. We are focused on delivering on the project's key milestones, including the commissioning of systems as they are completed.
We continue to expect first production in the second half of this year. You know, Teck is already one of the world's lowest carbon intensity producers of each of copper, zinc, and steelmaking coal, but we are taking further action to support global efforts to combat climate change. We continue to reduce the carbon footprint of our operations as we progress towards our target of net zero by 2050. In November, we announced an agreement with Oldendorff Carriers to employ energy efficient bulk carriers, which is expected to reduce our Scope 3 emissions on a portion of our steelmaking coal shipments by up to 40%. The estimated savings can be up to 45,000 tons of CO2 annually, which is the equivalent to removing nearly 10,000 passenger vehicles from the road.
In January, we announced our partnership with Caterpillar to deploy 30 zero-emission large haul trucks at our mining operations. This is exciting progress because the decarbonization of our fleet represents the single largest opportunity to reduce our Scope 1 emissions. Overall, we're very pleased to see our continued efforts in ESG are being recognized by the industry.
For the third year in a row, we are ranked number one in the metals and mining industry on S&P's Corporate Sustainability Assessment. We also ranked number one among North America's metals and mining companies by Moody's ESG, and number two in diversified metals by Sustainalytics, and rated AA by MSCI for our ESG performance. Turning to slide five. Annual adjusted EBITDA of $6.6 billion in 2021 was a record reflecting strong contributions from each of our copper, zinc, and steelmaking coal business units.
Importantly, our record profitability enabled us to deliver meaningful cash returns to shareholders. Yesterday, the board approved an amended dividend policy and declared a dividend and authorized the repurchase of up to CAD 100 million of Class B subordinate voting shares in 2022. Under the new dividend policy, the annual base dividend has been increased from CAD 0.20 per share to CAD 0.50 per share. In accordance with the new dividend policy, our capital allocation framework, the board declared a dividend of CAD 0.625 per share, consisting of CAD 0.125 quarterly base dividend and a supplemental dividend of CAD 0.50 per share.
In addition, the board authorized annual share buybacks up to $100 million, and additional buybacks on top of that will be considered regularly. Taking into account the new annual base dividend in 2022 and the supplemental dividend, and assuming the $100 million in share repurchases, these initiatives represent a total of approximately $635 million in aggregate of dividends and share repurchases. Our ability to deliver a supplemental dividend in 2021 and the increased annual base dividend and the new annual share buyback demonstrate both our confidence in the outlook for our business and our commitment to balanced growth and returns to shareholders. Turning to our operations on slide seven. Fourth quarter EBITDA for our Copper business unit increased by 64% compared to last year, supported by copper prices, which reached an all-time quarterly record.
Production was in line with plan, although copper sales were impacted by heavy rains and extreme winter conditions, which affected rail service and shipment schedules. Net cash unit costs after cash margins for byproducts were $52 US per pound. That's $0.25 higher than last year. We continue to experience inflationary cost pressures, and we also are seeing increases in our profitability-based payments at Antamina, and that's included in that 25% increase. As I've already noted, we are pleased to have reached multi-year collective agreements in Antamina, Quebrada Blanca, and subsequent to quarter end at Highland Valley. Looking ahead, we expect strong performance from all of our copper operations in 2022. Moving on to zinc in slide eight. Our zinc business generated $290 million in EBITDA in the fourth quarter, and that's an 80% increase compared to last year.
The increase was driven by higher zinc prices and partly offset by higher royalty costs related to profitability at Red Dog. Lower Red Dog zinc and concentrate production was primarily due to lower mill throughput and recoveries as a result of unplanned maintenance, which is now behind us. Refined zinc production at our Trail operations was 11,800 tons lower than a year ago due to issues we encountered in the commissioning of new equipment, as well as unplanned maintenance. Looking ahead, Trail's 2022 production will be impacted by major maintenance activities from September to November, when the KIVCET furnace hearth and the dome in one of the zinc roasters will be replaced after 25 years of operation.
Our Red Dog royalty will increase to 40% in October from 35% currently based on our operating agreement with NANA, which outlines a 5% increase every 5th year to a maximum of 50%. In 2022, we expect a significant increase in zinc production at Red Dog and a decline in total cash unit costs before byproduct credits, despite ongoing cost inflation pressures. Turning to slide nine. Our steelmaking coal business unit had a record fourth quarter, generating $1.7 billion in EBITDA in the quarter, and that compares with $118 million last year. Realized prices averaged $351 U.S. a ton, which was $244 higher compared to a year ago. To capitalize on this premium pricing, we maximized available processing capacity to meet additional sales opportunities to China in the fourth quarter.
Thanks to our Neptune facility, which had ramped up and was exceeding design capacity during the quarter, we entered the first half of November with historically low levels of clean coal inventory at the mine sites. This allowed us to continue operations with minimal production impacts, despite the logistics disruptions that occurred in the latter half of the fourth quarter. Sales in the quarter were 5.1 million tons, which was slightly below our revised guidance. We sold 1.8 million tons of steelmaking coal to customers in China in the quarter. That was pretty similar to the three previous quarters. Annual sales to customers in China totaled 7.6 million tons or approximately 30% of our annual sales volumes.
Sales to our customers in China are of course at CFR China prices, which reached a record high of more than $610 during October. Although the steelmaking coal price in China decreased quite a bit during the fourth quarter, the average CFR China price for the quarter exceeded FOB Australia price assessments. The remainder of our sales were sold based on the FOB Australia price, which also averaged at a record level through the fourth quarter. Fourth quarter adjusted site cash cost of sales of $72 per ton were higher due to inflationary pressures, including higher diesel prices, profit-based compensation, and our investment in RACE21 . Our annual adjusted site cash cost of $65 per ton was within our previously disclosed guidance range of $64-$66.
Fourth quarter transportation costs of $49 per ton reflect the extraordinary vessel demurrage in the quarter as a result of port service disruptions and higher rail fuel surcharges. The higher costs were partially offset by lower port costs as higher volume of sales went through Neptune. As a result of prolonged supply chain disruptions, we entered 2022 with very high mine site steelmaking coal inventories. With CN and CP Rail making progress toward fully restoring rail service to our coal terminals, we expect to be able to largely recover delayed fourth quarter sales within the first half of 2022. Assuming full recovery of the rail network, we expect sales to be between 6.1 million tons and 6.5 million tons for Q1.
We expect 2022 steelmaking coal production between 24.5 million-25.5 million tons. Our 2022 production estimate is reflective of potential production curtailments in the first quarter due to high inventory levels. We see that starting to decline now and have made some good progress recently. Further, while the recent surge in Omicron cases has not had a major impact on productivity to date, continued absenteeism has the potential to have a negative impact on our operations. Despite unprecedented logistics challenges and continued inflationary pressures, our steelmaking coal business unit delivered record financial results in 2021 and is well positioned to deliver very strong financial performance again in 2022.
I note that Australia FOB prices are up again today, and they are currently over $450 per ton, in fact, closer to $459 per ton, up about $18 in the last three days. Turning to our energy business unit on slide 10. Our results improved from the fourth quarter 2020, largely due to the 88% increase in the Western Canadian Select oil price, which resulted in a positive operating netback. In the fourth quarter, the focus was on ramp up to full rates. We were pleased to see Fort Hills safely and successfully resume to a two-train operation in December. The facility is expected to operate at an average utilization rate of 90% throughout 2022.
The midpoint of our guidance represents an increase of approximately 85% compared to 2021 for our share of the annual production. With higher production and productivity, adjusted operating costs are expected to come down by approximately 40% to between $26-$30 per barrel in 2022. Underpinned by strong global energy prices, we expect to see a meaningful improvement in Fort Hills EBITDA in the first half of 2022. I note that WTI is $97.33 as we speak, and with differentials, fairly stable, that means that we have a Western Canadian Select price in the mid-$80s U.S. or well over CAD 100 Canadian. Moving on to slide 11. As I mentioned earlier, we continue to advance construction at QB2, with overall progress now having reached 77%.
We are very proud of Q4, by the way, because we achieved 11% completion in that quarter and 35% for the whole year. We are proud of this achievement, especially in light of the challenges that we have faced around COVID-19. The number of cases in Chile rose very rapidly in January and early February, so we weren't able to continue the rate of progress that we were making in Q4 during that time. We are continuing to aggressively mitigate the impact of the pandemic on QB2, and we believe that we're past the peak there, and it has improved quite significantly from the worst of it. Construction continues to progress, and we remain focused on delivering key systems as we position for first copper later this year.
We have completed more than 90% of the water supply pipeline welding, and the tailings starter dam is more than 85% constructed. We've also energized the port area substations, and we are continuing with our pre-operational testing of the desalination plant. Our operations and commissioning teams are working in close collaboration with the construction teams and are busy commissioning systems as they are completed and handed over. This includes commissioning the port substations, the mine electrical loop, and the first two electric shovels. We've also completed commissioning and testing of the autonomous haul truck system, and these trucks are now doing productive work in the mine area. I was able to visit and see them in action in December. A number of us will be going again next month.
Turning to slide 12, it shows the testing and commissioning of the electrical systems associated with the mine electrical loop. Energization of the mine loop was an important step in completing commissioning of our mining fleet. With the mine loop energized, you can see the two new electric shovels that we've commissioned on slide 13, and these shovels will be used for pre-stripping mining activities. Slide 14 is a view of the 15-story high ore stacker structure, which transfers ore from the crusher to the ore stockpile. You can also see the commencement of the erection of the ore stockpile dome in the center of the photo. Slide 15 is showing the grinding building where we have all the mills in place. We're working on the mechanical electrical systems, and we've commenced installation of the siding.
The next slide 16, shows one of the 85m diameter tailings thickeners, where we are completing the installation of the internal mechanical components now. From here, slide 17, we go to the starter dam at the tailings management facility, where we continue to make excellent progress and are now over 85% constructed. The Teck mining fleet has done a great job in providing materials for construction. On the right of the photo, you can see the pond liner, which is in place in preparation for receiving water. Work on the main jetty is progressing well. It will support both the ship loader and the seawater intake system. The subsea work, including the 440m long brine outfall pipe and the first of two water intake pipe systems, are now in place in preparation for seawater extraction.
As we head back onshore, you can see we've energized the port substations there on slide 19, and this energization is an important step towards commissioning of the infrastructure at the port area. Finally, slide 20 shows the roof structure in place for the 75,000-ton capacity concentrate storage building at the port. In summary, we continue to be very pleased with the progress that we are making, and we are excited about building on our construction successes to date with a focus on delivering to the project's key milestones. I'd encourage you to visit the investor section of our website to watch a video of the project and view our latest quarterly photo gallery. With that, I will now pass it over to Jonathan to discuss our financial results.
Thanks, Don. Profitability in the fourth quarter improved significantly from a year ago as a result of higher prices for all of our principal products, as shown on slide 22. Copper prices reached an all-time quarterly record of $4.40 per pound in the fourth quarter, up 35% from last year, while zinc prices increased by 29%. Western Canadian Select, the heavy oil benchmark price, was 88% higher compared to the fourth quarter last year and has continued to increase through the first quarter of 2022, as Don outlined. Similarly, we benefited from record high steel-making coal prices. Realized prices in the fourth quarter were $351 per ton, more than a three-fold increase from $107 a ton a year ago.
As Don noted, high realized prices reflected our strategy to increase our sales to customers in China in 2021, which was priced at a premium to FOB Australia price assessments. The large increase in steel price from Q3 to Q4 resulted in pricing adjustments of approximately CAD 69 million in the fourth quarter, or CAD 44 million on an after-tax basis. Now we've outlined the key drivers of our record profitability on slide 23. We generated CAD 2.5 billion of adjusted EBITDA in the quarter, an increase of more than CAD 1.6 billion compared to the same period last year. This was largely driven by higher prices across all of our principal commodities, partially offset by lower sales volumes, higher operating costs, and the strengthening of the Canadian dollar.
It was also impacted by asset impairment and impairment reversal related to Fort Hills and Carmen de Andacollo respectively in the quarter. We continue to experience inflationary cost pressures, notably in diesel prices, mill steel, and replacement parts, driven largely by price increases for underlying commodities such as steel, crude oil, and natural gas. The inflationary pressures reflected in fourth quarter operating results across our business are expected to continue in 2022. Cash flow from operations in the fourth quarter was $2.1 billion, compared with $594 million a year ago. Our capital investments in the quarter totaled $1.1 billion, including $715 million on QB2 and $300 million in sustaining capital. Capitalized stripping was $186 million, primarily related to the advancements of pits for future production at our steel making coal operations.
This was higher than a year ago, primarily due to decreased stripping activities in Q4 2020 as a result of COVID-19 restrictions. Debt proceeds were primarily driven by $303 million from our U.S. $2.5 billion project financing facility in the quarter. Net-net, we also repaid $268 million on our revolving credit facility, bringing our balance on this facility to nil. Including these and other minor items, we ended the quarter with cash and cash equivalents of $1.4 billion, an increase of approximately $1 billion as compared to the end of the last quarter and the same period last year. Now turning to slide 25. We're pleased to have enhanced our already strong financial position.
Our solid operating performance, combined with strong commodity prices, resulted in a 49% adjusted EBITDA margin and $6.6 billion in adjusted EBITDA for the year. Our net debt to adjusted EBITDA ratio was 1x. During the quarter, we converted our $4 billion committed credit facility into a sustainability-linked facility with zero amounts drawn at this time. Subsequent to the end of the quarter, on January 18, 2022, we redeemed $150 million of our maturing 4.75% term notes. As of February 23, we had $7 billion of total liquidity. Importantly, our strong financial performance enabled us to return meaningful cash to shareholders.
Applying our capital allocation framework on slide 26 to our cash flow from operations of CAD 4.1 billion in 2021, we deducted sustaining and committed growth capital of roughly CAD 3 billion, net of QB2 project financing and partner contributions, CAD 106 million of base dividends, and CAD 335 million for debt repayments to improve our capital structure. This left us with over CAD 730 million of available cash flow. As you know, the first 30% of any available cash flow is automatically returned to shareholders, and this totaled approximately CAD 220 million. According to our framework, the balance of 70% can also be returned to shareholders or otherwise used for investment in growth or debt reduction, or a combination of these.
As Don noted at the start of the call, the board made the decision to pay a supplemental dividend of CAD 0.50 per share, or CAD 267 million, representing 37% of available cash flow, above the minimum stipulated in our capital allocation framework. Going forward, the board approves a 150% increase in the annual base dividend to CAD 0.50 per share per year from CAD 0.20 per share, and authorized an annual share buyback that allows us to repurchase up to CAD 100 million. Additional buybacks will be considered regularly. The increased base dividend is indicative of our confidence in the outlook for Teck, reflecting both the near-term strong cash flow generation of our business units and our anticipation of the transition of QB2 from construction to operations.
The annual share buyback provides management with the discretion to repurchase our Class B shares such that we can offset the impact of dilution created by issuance of shares resulting from the exercise of employee stock options, as well as ensuring the flexibility to time repurchases in the context of market conditions. As shown, we have amended our capital allocation framework to reflect this additional regular return mechanism, with the cash used for share repurchases during the year to be deducted from our calculation of available cash flow. Slide 28 outlines our guidance for capital investments for 2022 and our outlook for a dramatic decrease in spending in 2023. We are approaching a major cash flow inflection point in 2023, driven by the completion of QB2.
Sustaining capital spending is expected to increase in 2022 relative to 2021 levels due to one-time projects, including the Harmer Project to relocate maintenance and office facilities at the Elkview Steelmaking Coal Mine to allow access to the next phase of mining, a major smelter turnaround at Trail, our haulage truck rebuild program, and the inclusion of sustaining capital for QB2 for the first time. In total, we expect these factors to increase 2022 sustaining capital by approximately CAD 500 million over 2021 levels. We expect to spend, in Canadian dollar terms, CAD 2.2 billion-CAD 2.5 billion of QB2 development capital on a consolidated basis in 2022. With the completion of QB2 and a normalization of other categories of spend, such as capitalized stripping, we expect our total capital expenditures to decline by roughly CAD 2 billion into 2023.
With that, I will pass it back to Don for closing remarks.
Thank you, Jonathan. As you can see, this is an exciting year for Teck. This is the year of transformation, where we rebalance our portfolio and really start ramping up our copper production. We are months away from the start-up of QB2 in the second half, and we are particularly excited by this position because we find ourselves, as QB2 ramps up to full capacity, we expect to shift from a period of significant capital investment to what will be a period of significant cash generation.
At between $3.50 a pound and $4.50 a pound copper prices, and with QB2 at full production, we believe that we could generate somewhere between $6-$7 per share of what we call available cash flow for shareholders, which we can use to grow our copper business while returning significant cash to shareholders at the same time, and also maintaining a strong investment-grade balance sheet. As a result of Teck's long-term and consistent commitment to seek out high-quality, long-life base metal resources, we have a portfolio of high-quality growth options that is the envy of our peers. After carefully assessing multiple configurations for the further expansion of QB beyond QB2, we have determined that the next phase of development will be the QB mill expansion, or as it will be known, QBME.
The mill expansion is expected to increase concentrate throughput by 50% with the addition of one identical semi-autogenous grinding line. That's one SAG mill and two ball mills. We believe this configuration optimizes the timeline to obtain approval, the permitting process, and to progress the development of this world-class ore body while leveraging the existing infrastructure that we're building right now for maximum capital efficiency.
The QBME pre-feasibility study has already started, including all the environmental baseline activities, and with completion targeted for the fourth quarter of this year. QBME will be a significant contributor to our medium-term copper growth portfolio. At the same time, we are also continuing to progress the project satellite assets. At Zafranal, a feasibility study has been completed, and we have now received confirmation of our SEIA admissibility in Q1 2022. So that's a very, very important milestone.
At San Nicolás , we've commenced work on a pre-feasibility study, and that was in Q1, and with completion targeted for Q3 of 2023, and we are deeply in partnering negotiations right now. At Galore Creek, Fluor has been appointed to undertake a pre-feasibility study starting in Q1, with completion targeted in the first half of 2023. That's another notable step with our partner, Newmont. Finally, strategic, technical, and commercial assessments for the advancement of NuevaUnión, Mesaba, and Schaft Creek are ongoing. In closing, we're pleased with how Teck is positioned to drive long-term shareholder value. There are meaningful opportunities ahead as global growth and the transition to a lower carbon economy drive new copper and metal demand.
As a result of Teck's long-term and consistent commitment to seek out high quality, long life base metal resources through mineral exploration, discovery, acquisition, partnership, and development, we have a portfolio of high quality growth options that is the envy of our peers. As we move forward, we'll rebalance our portfolio to copper while reducing the proportion of carbon in our overall business. The strong performance in the commodity prices over the last few months has accelerated our ability to return capital to shareholders. Looking ahead, we have the ability to generate even greater cash flow and returns. As we've always done, we'll continue to strengthen how we operate, both through cutting-edge innovation to improve productivity and through our leading ESG performance. With that, I'll turn the call over to our operator to open up for questions.
I should say that, we're all doing this call remotely, and so we have people in different time zones on lines all over the place. After your questions being asked, it may take a moment or two till we sort out who's gonna answer it. Operator, over to you.
Thank you. You may press star one at this time if you have a question. First question is from Greg Barnes from TD Securities. Please go ahead.
Thank you. Don, in the press release for MD&A, I didn't see any commentary about coal sales into China in 2023 as you had last year.
Okay. Congratulations, Greg. First question, usually somewhere else. You know well.
Yes, it is.
You surprised us all. Good for you. I'll turn that question over to Réal. We've done a lot of thinking about it, so as you know, the CFR price and the FOB price do not necessarily move in sync. Sometimes one's higher, sometimes the other is higher. Réal, over to you.
All right. Thanks, Greg. You know, overall, looking at 2022, we're expecting our sales distribution to be similar to 2021. You know, as we've discussed previously, we're continuing to maintain our supply to our ex-China customers because those are long-term relationships. We're confident as well in China as the steel production recovers. Actually, we've seen steel production already come back very strongly right after the Olympics. We see that as continuing to support CFR China pricing as China continues to be short hard coking coal. The last point is we keep a portion of our book for spot sales, and of course, these spot sales will be placed in markets where we achieve the highest returns for Teck.
Great. Thanks, Réal. Follow-up question again for you, Don, on coal. Your thinking around the near-term future of coal in your portfolio seems to be evolving. Can you talk about how you're positioning the business in your mind from this point forward?
When you say the business, do you mean the overall portfolio?
Yeah, coal in the overall portfolio and how you see that evolving?
Nothing has changed from what we've said before that we're on the journey to rebalance our portfolio so that carbon in both coal and oil sands will be a lower percentage of the portfolio, whether you measure it in terms of revenue or EBITDA. This is a big year of transformation for that because we double the consolidated copper production with QB2. As we're going to start featuring throughout the year, the other projects in our portfolio are probably coming a little sooner than people might have expected. You know, we hope to announce the partner on San Nicolás, you know, in due course. It's taking a little longer than we thought, but we're certainly deep into it.
We're giving more information today and in the next few weeks on QBME and moving at a pace. The coal part of it will reduce in proportion naturally as copper grows, but we still have the same position on oil sands on the Fort Hills project that I've talked about before. Nothing's changed on that. We're in the midst of our first quarter of it operating with two trains running. While that was a long time in coming, but it's up and running now. It was tough in the first couple of weeks of January when temperatures were so cold and so on, but seems to be going smoothly now.
That'll give us some financial results and allow us to move forward on whatever strategic action we take on that. We believe that the carbon part of portfolio will be reduced in that step. Then we'll take a look and say, can we get down to a level that shareholders find acceptable by keeping the whole coal business, or do we need to reduce our exposure there somewhat? We love the business. As you can see, it's a tremendous cash generation business. And I just wanna give a shout-out to our whole team that works in the coal division because, you know, there's a lot of ESG pressures and so on, but man, they are so dedicated, so determined and innovative in addressing issues.
We've now got tremendous water treatment capacity up and running in the highest selenium concentrated areas. It's really going well. Fish population has been increasing and so on. So I just, I'm just so proud of everything we do there. So I call it one of the best mining businesses in the world. I say that frequently to other people. I should say it publicly, too. You know, that said, we know that with all the existing ESG pressures and movements, there's a lot of people that shy away from anything called coal, even though it's the good coal, steelmaking coal that the world absolutely needs for a low carbon future. We have to take that in consideration. The board's been studying this intensely for a couple of years and even more intensely recently.
Whether any specific action is taken in the next few months, I don't know. Nothing is imminent, that's for sure, but we sure look at it a lot. I do want to say that our coal, our steelmaking coal is among the highest quality in the world. If you produce a ton of steel with our coal, there's between 5% and 30% lower carbon emissions than the coals from the U.S., Australia, Mongolia and so on. It's a very valuable business, and it's certainly doing extremely well, especially with coal prices having jumped $18 a ton in the last three days. Sorry, that's a lot, Greg, but that's how I'm thinking about it.
That's great. Thanks, Don. Just wanted to clear that up, and I'll pass it on.
Thank you. The next question is from Orest Wowkodaw from Scotiabank. Please go ahead.
Good morning. Questions for me, if I could, Don. First one, I've noticed that the languaging around the share buyback seems to suggest that the board may consider buybacks a lot more often than just annually. Is that the right way to interpret it, that we could actually see something reviewed quarterly?
We didn't say quarterly, but we said regularly. The direction of your question is correct that where we're at now, you know, we're 77% complete of QB2, but there's still a lot of capital this year, and so we're taking a prudent, measured approach. We wanted to increase the base dividend. We wanted to, you know, implement the capital allocation framework and, you know, we put in a pretty decent supplemental dividend on top of that, which in total gives you CAD 1 for the year, and then start the buyback.
We wanted to, you know, have the approvals in place so that if events in the world happen, as they seem to be happening in the last 24 hours, and there's moments of weakness or you know, we can be ready and we can start any time. We didn't want to go too far right now until we get further out in QB 2. If you roll the clock forward a quarter or 2 and we're over 90% or something, and that there's no particular disruption, and we're generating the cash that these commodity prices can generate, then why would we wait all the way till next February or something? We wanted to signal that the board is very attuned to this issue, and it'll be a subject of discussion frequently as cash is generated.
You know, month by month, these prices make a huge difference to this company. Like, every month, there's a lot of cash that comes in, so, you know, we would look at how best to deploy it. I think when you see QBME and how that would be financed and San Nicolás and how that would be financed, you'll see the ability to still grow copper while generating a lot of cash that's available for return to shareholders will start to unfold more, and then the board can make those decisions in that context.
Thank you.
Good to hear from you, Orest. Sorry you missed the first question, but, I'm sure you'll keep up with the next thing.
Thanks, Don. Just as a follow-up on QB 2, you gave us a fair amount of status updates on the key pieces, but what about the concentrator? Where is that at with respect to completion? And is that now in the critical path to start up?
Very good question, and I look at pictures of it every day. I'm gonna ask Red Conger to take that question, and he may work with Alex Christopher as well. Red, over to you.
Good morning, Orest. Appreciate the question. Yeah, it's been a busy time for us on the project and we're pleased with progress as Don had mentioned. Just specifically on the concentrator, when we talk about critical path through grinding line one, that still remains the critical path. That work is key to getting first copper production. We did a lot of work with our contractors late last year to, as you have seen, reassess what the COVID capital cost impacts are going to be. We renegotiated the contract with them taking all of the current circumstances into account, hiring additional people, et cetera, getting everybody aligned on the construction plans as they are today and the completion date.
I'll tell you know, Alex has been down there. I've been down there December, January and February, working closely with the team on these issues. You know, when I walk that concentrator and that grinding line and compare it to other things that you know, we've done elsewhere in the world, the schedule and cost to go on this is all very practical, very doable, and you know, we're excited. Key milestones coming up, the first one being first water to commission the desalination plant.
At the time all of that's going on, we're completing the first grinding line at the concentrator, so that's ready to run when the water's there, and then all of those employees just naturally go to grinding line two and, you know, in other aspects of the project to complete it. We're excited about where we're at. The grinding line number one remains the critical path, the first.
Red, just to be clear, can you give us a percentage of completion on that?
Yeah. Well, we're at 77% now. You know, all of the effort is around
The sequence that it takes to complete all of those things so they're complete at a time when you can actually make something, and it's not about bulk construction completion at this point. The thing that's most critical for us right now are the key milestones that we need to achieve and the order that we need to achieve them in. For instance, it doesn't do us any good to complete grinding line one before we have water to, you know, to put in it. All, you know, all of the work plans, work efforts, intensity is around that proper sequence to get us to first copper as, you know, safely and rapidly as we can.
Thank you, Red.
Thank you. The next question is from Matthew Murphy from Barclays. Please go ahead.
Hi. It's probably too early, but I can't resist asking about capital on the QB expansion. Any kind of, like, ballpark, you know, bracketing of possibility you could give us?
Well, it's like half of QB2, but without a lot of the infrastructure, you know, the pipeline, transmission lines, ports, stuff, so less than that. You gotta roll the clock forward the number of years for whatever cost inflations happened over that time. I think it'd be too early to give you an actual number, but to your question, ballpark order of magnitude, that's how I would think about it.
If I said something like CAD 2 billion, that's, like, not ridiculous or.
It's in that range, but you gotta think when this gets started, you know, we've had, like, the $5.26 billion of QB2, that was in 2019 dollars, I think. You gotta roll the clock forward 5-6 years and whatever cost increases have happened in steel and all the different things. I'd take that into consideration.
Yeah. No. Fair enough. That's helpful. Then I had another question just on tax pools. There was a note in the earnings of an expectation to be accruing for current Canadian corporate income taxes starting this quarter. Could you just remind us where the tax pools are and how much further you have to go on those?
Jonathan, over to you.
Those tax pools ahead are held in Canada, of course. As per the guidance we've given, we expect to consume those pools early in this year, and therefore we start to incur Canadian income taxes, and that will convert, of course, into cash taxes in due course.
Okay. That's, like the full amount.
Yeah. We've you know held these pools for a long time of course, but you know we have you know significant profits being generated right now in the business, in particular of course from the coal business here in British Columbia. That will see you know the end of those tax pools essentially and us paying corporate income tax on those profits.
Yeah. Okay. Thank you.
Welcome.
Thank you. The next question is from Carlos De Alba from Morgan Stanley. Please go ahead.
Thank you. Good morning, everyone. Coming back to QB2, given where we are and sort of the run rate that you mentioned, Don, of 11% progression in the fourth quarter, which was really good, but some has slowed down in the first quarter. Is it fair to say that your first production will really come most likely during the fourth quarter, perhaps until the end of the year? And then the second question on QB2 is on CapEx. Could you know, give us a reminder of that 5% of additional contingency on the original CapEx of $5.62 billion?
What is the FX that is embedded in that 5%, you know, additional contingency expanding? Is it still the 735 original Chilean peso per dollar, or has it moved closer to spot?
Okay. I'll take the first one and then turn it over to either Red or Jonathan or Alex for the second. You know, the percent completion of Q4 was our best quarter. I can tell you January and February with Omicron is nowhere near that. It was pretty rough going. At one stage, we had over 800 people isolated. The absenteeism has been really high. You can't sort of project that. We keep saying just second half 'cause we don't know if we'll go back to that Q4 rate, which would be great. Obviously, you know, two quarters like that, you'd be in great shape. Or it'll carry on, you know, where it's been in the last six or seven weeks.
We've been through a few phases like this, you know. Just as there's been phases of the coronavirus, you know, the Alpha, Delta, Omicron, and so on. We're trying to stay away from predicting too specifically, and we're just gonna say, "Look, we're gonna get this thing done in the second half. First copper is gonna be produced, and then we're gonna drive forward with a tremendous new asset that's gonna be around for generations." We're looking forward to it. Now, on the exchange rate, Red or Jonathan?
Yeah, Don, Red here, Carlos. The capital to go, the spend to go on this, we've used more current rates that we were seeing at the time, 8.25 to 8.50 exchange rate on capital to go, spend to go.
It's mostly labor based in Chilean peso expense to go.
All right. Thank you very much.
I would just add to that, Red, if I can. If you look through our, you know, our previous expenditure for QB2 and the guidance we've given both for the underlying estimate, the contingency and now the COVID spend of $900 million-$1.1 billion, and you look at all of that in U.S. dollars terms, it'll give you a you know, you can pretty accurately figure out what we're gonna spend this year based on the guidance we've given and what would be carried over into 2023. You know, as Red says, use sort of spot FX rates for what we're spending right now, given that's predominantly labor cost that we're incurring.
All right. Thank you very much, everyone.
Thank you. The next question from Lawson Winder from Bank of America Securities. Please go ahead.
Yes, thank you, operator. Good morning, everyone, and thank you for the update. I'd like to ask about the Chilean constitutional convention and how that might factor into your decision to proceed with QBME. Do you expect to have the ability to attain a stability agreement, or might it be even potentially grandfathered in with QB2?
I'll make some preliminary comments and then I'll turn over to Amparo Cornejo. I believe she's on the call from Chile. In terms of making a final sanction decision for QBME, we've got, you know, a fair bit of work to go there. We've got to finish the pre-feasibility this year. There is some work on the final feasibility going on in parallel with that. You know, by the time you get to sanction, we should have much better clarity on what's going on in Chile with the constitution, with the different tax and royalty proposals and that sort of thing. The board can make a decision whether they're comfortable with the risk.
We believe that, you know, the proposal we're making falls under the current tax stability agreement and within current permitting for some of the infrastructure that's already there. That's one of the reasons or two of the reasons why going with a 50% expansion, like the one line, one SAG mill, two ball mills, just an expansion of the current mill, the QBME, QB mill expansion, makes sense because it's sort of the least regulatory challenging and or tax or whatever. Just a lot less risk or uncertainty and a lot faster. Like a faster. When I say faster, it's faster by somewhere between two and four years compared to doing a larger expansion.
If for some reason that Chile decides to, you know, impose taxes that are just too high and make us come to the conclusion that we don't wanna, you know, commit what is clearly gonna be $2 billion or north of, as our previous questioner was showing, then we wouldn't do it, right? It's in Chile's hands to put together a good investment environment. If it has done that for decades, frankly, Chile's been one of the best countries in the world to be mining copper in. I'm a big believer that it will continue to be so. We'll be able to wait and see what the final rules are before we make any sanction decision.
Amparo, if you're there, please feel free to comment on the latest developments in constitutional discussions.
Okay. Thank you, Don. Good morning, everybody. Yes, I'm here. Sorry, I have had some issues with the connection, so hopefully I can continue. What Don explained is correct. There is no indication that the mining royalty bill that is currently under discussion will have any impact on our stability agreement that has been accepted by all the parties. International agreements and commitments will be respected. In relation to the constitutional convention process, which is of course very important for the future of Chile in order to establish a new social pact and ensure future stability, we believe that the process has not finished. It's too early to really comment. Up to this moment, there have only been approved by the convention two blocks of parts of the Constitution.
All the discussion about environmental issues or others that could have an impact on the mining activity have not yet been voted. We expect that vote of the convention will take place around mid-March. It's important to remind everybody that those standards require two-thirds of approval. At this moment, we don't really have enough information. There is not a draft of the Constitution where we can say that the outcomes are going to generate additional risk. Of course, we are following the process very closely, and there is a lot of national debate and a lot of information around the Constitution. It's important to mention that those standards related to the industry have not yet been voted.
Thank you both. That's extremely helpful perspective. A follow-up, if I might, on HVC 2040. What's your latest view on the timeline to approval? You know, just thinking to the evolution of the overall portfolio towards more copper, I mean, is it possible that HVC 2040 could become an expansion in throughput? Thanks.
I'll turn that one over to Shehzad Bharmal.
Thank you. HVC 2040, our plan is to submit our permitting documentation in the fall after consultation with indigenous groups and other communities in the first quarter of next year. Then with the 12-month permitting timeline. You know, remember that it is, and mostly an extension with a little bit of expansion as well. There is more grinding capacity being installed, and our throughput should be higher by about 10% or so, 10%-15%. It's an extension as well as a minor expansion.
That's all very helpful. Thank you so much.
Patrick, Operator Fraser, I think we have time for one more question, please.
Certainly. The last question will be from Lucas Pipes from B. Riley Securities. Please go ahead.
Thank you very much, good morning, everyone. I wanted to follow up on the portfolio management. Obviously, Fort Hills here in this energy price environment is a nice hedge, and I wondered if you can update us on where you see that asset fitting in longer term. Thank you very much.
Yeah. We've been very public about our position on that. It's been a long road to get to full production. We said once we got to full production and it was up and operating well, then the board would look to see whether we felt we were getting paid for Fort Hills in Teck Resources' share price. As you know, with all the ESG focus in many institutions that aren't interested in buying a company involved in oil sands, and yet the asset itself looks like it can generate tremendous EBITDA and cash flow, particularly at these prices. If it's not valued within Teck Resources, then we may conclude that it should be held differently and allow shareholders to continue to participate if they so choose.
That could be any one of three general directions. One would be sale to another partner. You know, we are in partnership with Suncor and Total. One would be contributed into a mid-sized company and taking back shares and distributing those shares to shareholders as part of a consolidation play. It could be just spun out directly as a yieldco, and it would be a pretty healthy yield in these circumstances. We do need to get at least a quarter's financial results while it's running at full production. We're in that quarter now, although it was pretty tough the first couple weeks. The board will be considering this in the not too distant future, but that's how we think about it.
You're quite right, it is a good hedge on oil prices. That was one of the reasons why we went into it years ago. There were a bunch of other good reasons as well. First of all, we are in the mining part of the business, large open pit shovel truck operations, and we have thousands of people within an hour's drive of the Alberta border who do just that and do it very, very well. Second, you know, the province of Alberta is pretty good geopolitical jurisdiction to invest in. If you sit in my chair and you look at the choices you have around the world, Alberta looks pretty good. Third, it was very tax efficient.
The capital that we invested provided a shelter against the cash flows from Highland Valley and the coal operations in Trail and so on. The technology risk was minimal. We do have the advantage of some new technology. The paraffinic froth treatment process has improved. It means it's a much lower carbon footprint, and the original oil sands is about one-third of the original operation. That was good. Oil itself is something you could hedge a long way out. You could hedge as far out as 15 years if you wanted to, whereas copper and zinc are certainly not coal. You can't do any of that. There's not particularly a lot of geological risk. The resource had been built, it was there.
A whole bunch of really good reasons to have it in the portfolio back then. You know, the world's changed. To the extent that our investability is affected by having that within Teck Resources, then the board's gotta look at how to deal with that. First, let's get through this quarter and get some financial results.
That's very helpful. Thank you for that. A quick second question on slide 28. You're looking at a reduction of CapEx of CAD 2 billion in 2023. Looks like an increase of CAD 200 million-CAD 500 million. Any particular driver on that? Is that sustaining capital of QB 2 that gets rolled in, inflationary pressures? Any perspectives you can share on that? Thank you very much.
Jonathan, over to you.
Yeah. Thanks for the question. As I mentioned previously, there will be some carryover of QB2 capital into 2023. And as I mentioned, you can sort of figure that out by looking at our guidance in aggregate for total spend there versus what we've spent and our guidance for 2022. So you'll see there's sort of a year in 2020. Things like sustaining capital will start to come down. Capitalized stripping will come down to be more consistent with prior years. And therefore when we wrap up QB2, you know, all else being equal, then we would see a further reduction again into 2024. But there are some of the key drivers in that capital number.
Terrific. Very helpful. Thank you very much and best of luck.
Thank you.
With that, I turn everything back over to Mr. Lindsay.
Okay. Well, thank you very much, everybody for attending today. In closing, I wanna say how excited we are about 2022 and this transformational year and bringing QB2 on and starting down that copper growth trail and rebalancing the portfolio. I just wanna bring people's attention to page 33 in our quarterly release, 'cause there you'll find a chart on the sensitivity to the various commodities and in particular to the exchange rate. I know we've got some tough news happening in Ukraine, and we hope that things can be resolved for the benefit of all the people peacefully and so on. In the meantime, the world is quite concerned on risk off, and the Canadian dollar has moved a full penny today.
The sensitivity shows that for every penny the Canadian dollar declines, that increases our EBITDA by CAD 143 million. Then just a little further down the chart on steelmaking coal, as I noted, steelmaking coal is around $459, up $18. For every dollar it increases, that's another CAD 28 million in EBITDA tax. I think these are important and even just below that, you see WTI and WCS sensitivities as well. While it's a tough day in the markets for sure in terms of the things that drive our financial results, it's actually very, very positive. With that, thank you very much. We'll look forward to speaking to you in April. Bye now.
Thank you. The conference has now ended. Please disconnect your line at this time, and thank you for your participation.