AGM 2020

Apr 21, 2020

All participants, thank you for standing by. Welcome to the Teck Resources twenty twenty Annual Meeting of Shareholders Conference Call, and a special thank you to everyone attending by phone as requested. At this time, all participants are in listen only mode. After the formal business of the meeting and a brief update from Don Lindsay, Teck President and Chief Executive Officer, we will conduct a question and answer session. This conference call is being recorded on Tuesday, 04/21/2020. I would now like to turn the call over to Amanda Robertson, Corporate Secretary of Tech Resources Limited. Please go ahead. Hi, everyone, and welcome today. As a reminder, this is not a virtual shareholders' meeting. We are broadcasting this as a courtesy given the circumstances right now. I will now turn the meeting over to Sheila Murray, Teck's Board Chair. Sheila? Good afternoon, everyone. I'm Sheila Murray, the Chair of the Board of Teck Resources, and I'd like to welcome all of you to the AGM of Teck Resources Limited. Before we begin, I would like to acknowledge the unique circumstances of this meeting during the current COVID-nineteen pandemic. My fellow directors and I would like to thank all shareholders who voted by proxy and participating remotely to the extent possible, assisting tech in safeguarding the health of our employees, shareholders and communities. Following the business of the meeting, there'll be an opportunity for Q and A with management via the conference call. The moderator will advise you how to join the queue once we move to that portion of the meeting. At Teck, we always begin each meeting with a safety message. Today, we would like to acknowledge the work being done every day by health care workers fighting the COVID nineteen pandemic, workers at essential businesses who are keeping our society running, and the general public for following the advice of local public health authorities in order to limit the spread of the virus. We at Teck are working hard across our site to protect the health of our employees and communities. In addition, we have created a $20,000,000 fund that will provide direct support to critical services in communities where we operate, including procuring essential medical supplies, donating to medical research, supporting local health care and social services affected by COVID nineteen, and contributing to international relief efforts. Teck and its people are proud to play our part during this unprecedented time. The meeting will now come to order, and I'll ask Teck's corporate secretary, Amanda Robinson, to act as secretary of the meeting and Tricia Murphy of AST Trust Company to act as scrutineer. The secretary has confirmed that the meeting materials were mailed to shareholders in accordance with all applicable laws on 03/20/2020. I direct that a copy of the declaration of mailing be attached as a schedule to the minutes of this meeting. Management will be pleased to answer any questions arising from Teck's annual report during the question period which follows. I'll now ask that the secretary read the Scrutineers' preliminary report on attendance. We are pleased to report that there are 50 shareholders holding 6,006,592 Class A common shares equal to 600,659,200 votes and three thirty three shareholders holding 400,880,029 Class B subordinate voting shares represented in person or by proxy at this meeting. This represents a total of three eighty three shareholders holding 1,000,139,229 total votes. This represents 76.14% of the 1,315,457,507 issued and outstanding votes as of the record date. Thank you, Amanda. Having determined that a quorum is present, I declare the meeting is properly constituted for transaction of business and are directed a copy of the final scrutineer's report we attached as a schedule to the minutes of this meeting. And now on to the business of the meeting. The scrutineers have advised that the proxies deposited for the meeting have been voted overwhelmingly in favor of each of the items of business to be voted on at this meeting. Nonetheless, because we are required to disclose detailed voting results, we will be conducting voting today by way of ballot. Rather than hold up the business of the meeting for final tabulation of votes, the final results of the poll on each matter before the meeting will be included with the minutes of the meeting. Detailed voting results will be filed on SEDAR for those who are interested. The first item of business is the election of directors. The meeting is now open for nomination of directors. Self directors will be elected at this meeting. I nominate each of the following persons to hold officer to hold office as a director until the next annual meeting or until his or her successor is duly elected or appointed, unless his or her office is earlier vacated in accordance with the bylaws of the corporation. Mayank M. Asher, Kwon Chong, Edward C. Dowling, Eichi Fukuda, Toru Higo, Norman B. Keebo the third, Donald R. Lindsey, Tracy L. McVicar, Sheila A. Murray, Kenneth W. Pickering, Euna M. Power, and Timothy R. Snyder. Are there any further nominations? If not, I declare nominations to be closed. As the number of nominees does not exceed the number to be elected, I declare that the persons just nominated are elected as your board of directors. The next item on the agenda is the appointment of the auditors. I will now entertain a motion to appoint PricewaterhouseCoopers LLP as auditors of the corporation and to authorize the directors to fix the auditors' remuneration. So moved. Due to the number of proxy votes received in favor, I advise that the motion has passed, and as such, PricewaterhouseCoopers LLC is hereby appointed as auditor of the corporation, and the directors are authorized to set their remuneration. Now on to the third motion, the advisory vote on approach to executive compensation. Consistent with past practice, the Board has determined to put before shareholders an advisory stay on pay resolution. I'll now entertain a motion to approve the advisory resolution on the corporation's approach to executive compensation. So moved. Once again, due to the number of proxy votes received in favor, I advise that the motion has passed with approximately 95.3% support and that the advisory resolution to accept the corporation's approach to executive compensation has been approved. The last item of business is the approval of an amendment to the 2010 stock option plan on the ratification of 3,690,130 stock options granted under the amended stock option plan. I'll now entertain a motion to approve the resolution with respect to those items as set out in tax management information circular dated 02/28/2020. So moved. Due to the number of proxy votes received in favor, I can advise that the motion has passed with approximately 88% support and that the stock option plan amendment and the ratification of the 3,690,130 stock options granted under the amended stock option plan b and is hereby approved. We've now reached the end of the formal portion of this meeting. It's been an unusual meeting, and an unusual one is my first one as the chair of the board. I look forward to an opportunity next year to see you all in person. Now before we move to remarks of the CEO, I propose to declare the formal portion of this meeting terminated. Do I have a motion? So moved. I declare this meeting is terminated, and I turn the meeting over to Don Lindsay, your President and CEO, who will make a few remarks on the business of the meeting. Thank you very much, Sheila. And first, I'd like to start by officially congratulating Shea Murray on taking on the role of Chair of our Board. Thank you, Sheila, for your leadership and wisdom during what's turned out to be quite a challenging period, not just for Teck, but I guess for the whole world. We look forward to working with you in much calmer times. I'd also like to take this opportunity to formally thank Laura Dottori for her service on Teck's Board. Laura was not able to stand for reelection due to new assignment of CIBC with increased responsibility, and she's made a great contribution to our Board, and we very much appreciate all that she contributed, and we wish her all the best in her new role. Before we begin, I would like to draw your attention to the caution regarding forward looking statements on Slide two. This presentation contains forward looking statements regarding our business. This slide describes the assumptions underlying those statements, and various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward looking statement. So these are unusual times we find ourselves in, with the challenge of COVID-nineteen affecting every aspect of both our business and our personal lives. And that is reflected, as Sheila said, in a somewhat unusual format for our annual meeting. And in keeping with the focus in our communities and TxHoan sites on health and safety, we are conducting a shortened meeting with a very limited number of people in the room, and we are keeping with strict physical distancing guidelines and other preventative measures. Sticking with the theme of health and safety, I wanted to highlight our performance in this area over 2019. We made positive progress on our safety metrics. As you can see on the slide here, we have achieved a nearly onethree reduction in high potential incident frequency over the last four years. However, we were saddened by one fatality at our QB2 project in November. A full investigation was undertaken, and measures have been put in place to prevent a reoccurrence. Turning to our response to COVID-nineteen on Slide four. Nothing is more important than the health and the safety of our employees and our contractors and the communities where we operate. As the scale of the COVID-nineteen challenge became clear, one of our first steps was to establish a COVID-nineteen response team with senior representation from across our operating jurisdictions and all our business units. We also moved quickly to put in place comprehensive preventative measures at every one of our sites. These measures include reducing on-site crew sizes, enhanced cleaning and disinfecting protocols, eliminating group meetings and promoting physical distancing and requiring anyone with symptoms not to come to work and, of course, promoting preventative measures like frequent handwashing. We are also following the most up to date direction from governments and public health authorities in each jurisdiction where we operate. And all of the tech managed sites continue to operate, some of them at reduced production, and we are working closely in collaboration with employee unions such as the United Steelworkers. We have also created a $20,000,000 fund to provide direct support to critical services in areas where we operate, and this includes procuring and donating essential medical supplies, supporting local health and social services affected by COVID-nineteen and contributing to relief efforts. While in the near term, our focus is clearly on managing the risks around COVID-nineteen, we are also continuing to advance our four key priorities to generate long term value for shareholders, as shown on Slide five: the QB2 project RACE21, our innovation driven business transformation program the Neptune Terminal upgrade project and our company wide CRP, that is a cost reduction program. And I'll provide a brief update on each of these. First, QB2. QB2 is a world class copper project in Chile, and it is a key component of Teck's future growth. Prior to the escalation of the COVID-nineteen situation late in the first quarter this year, we completed an updated capital cost estimate. At sanction in December 2018, the estimated escalated capital cost of the project was USD 5,200,000,000.0, and the updated estimate remains at USD 5,200,000,000.0. To protect the health and safety of our employees and to support Chilean efforts to limit transmission of COVID-nineteen, we did temporarily suspend construction activities last month. Our focus now is on being ready to restart as quickly as possible once it is safe to do so. Next is Page 21, our innovation driven business transformation program. Our original target was to generate annualized EBITDA improvements totaling 1,000,000,000 by the 2021. The challenges of COVID-nineteen have required us to be adaptable, and our RACE21 team is now focused on locking in the improvements already implemented in 2019 and on preparing and planning for additional improvement projects planned for 2020 and 2021 to generate additional value in our business, and we remain optimistic that RACE21 will have a very significant positive impact in the transformation of the business. The upgrade of our Neptune Terminal facility is our third key priority. Neptune upgrade project will secure a long term, low cost and reliable supply chain solution for our steelmaking coal business unit, and it is strategically important to Teck. To date, COVID-nineteen related issues have not substantially affected works on the critical path, and the project and major equipment deliveries remain on track. Although the pandemic may still affect construction progress or deliveries of key equipment, completion of construction is still expected in the 2021, with the new double dumper expected to be commissioned 2021. And now cost reduction. Our fourth key priority is, as I mentioned, the company wide cost reduction program, CRP, as we describe it, that was first announced in October 2019 in response to declining prices and global economic uncertainties. In the context of COVID-nineteen, we have intensified the focus on our CIP across the organization, and we are increasing our total targeted reductions to $1,000,000,000 of previously planned spending through to the 2020. The strength of Teck's balance sheet is key as we navigate the challenges to the global economy posed by COVID-nineteen. Our liquidity remains strong at $5,800,000,000 including $525,000,000 in cash as of yesterday. We have no significant debt maturities prior to 2035, and we have investment grade credit ratings from all four credit rating agencies. And for our QB2 project, we have a prudent funding and financing plan in place, and no contributions to project capital are expected from Teck until 2021. Turning to Slide seven. As always, sustainability underpins everything we do. And I'm proud to say that our efforts on sustainability have been recognized by a number of organizations. In 2019, Teck was named to the Dow Jones Sustainability World Index for the tenth consecutive time. And for the first time, we were the top ranked mining company on the world and the North American indices. And in 2020, we were the only mining company named to the Global 100 Most Sustainable Corporations list. Our focus is on managing risks around COVID-nineteen in order to safeguard the health of our employees and our local communities while continuing to operate safely. We continue to progress our four key priorities, QB2, RACE21, Neptune and our company wide cost reduction program. And we have a strong financial position and are well positioned to weather the challenges around COVID-nineteen. We have faced adversity before, and each time, we are focused on controlling the controllable, advancing our key projects, staying resilient, and we have emerged stronger. And I am confident the same will be true with COVID-nineteen. With that, I will turn it back to the operator, and I would be happy to answer your questions. Thank you. We will now be taking questions from the telephone lines. We thank you for your patience. Once again, please press star one on your telephone keypad at this time if you have a question. Our first question is from Chad Peterson. Mr. Peterson, please unmute your line. Thanks very much for the presentation. I had a question about Teck's coal operations. Can you provide more detail on the reason for the plant expansion project that Elkview operations and what it means for the company's coal business? I'll give an overview, and then I may call upon Robin Sheremeta First of all, we have an excellent resource and reserve at Elkview and high quality coal that our customers certainly have a strong demand for, and it achieves a higher revenue per tonne. We saw the opportunity to for moderate capital to be able to expand the wash plant there and take capacity from 7,000,000 tonnes to 9,000,000 tonnes. And this would help to replace the upcoming closure of Cardinal River, which was a good mine. It ran for quite a number of years, but it was a little bit lower quality coal and serving a higher cost operation, and it was producing about 1,400,000 tonnes last year. So it would increase our production overall with higher quality coal. And I'll turn it over to Robin just to talk about a little bit more of the details. Well, it looks like we've confirmed that Robin is not on the line. Well, just a couple other points on that. We did invest $135,000,000 to do the plant expansion. And with the lower cost coal from Elkview, which is around CAD 60 costs at the mine site, and replacing coal at Cardinal River that was between $110 and $120 cash cost. And with the increased revenue, we estimate that if you assumed USD 150 coal price and current exchange rates, that the net benefit would be about $160,000,000 a year of EBITDA to Teck from that $135,000,000 investment. So a very good return from the capital. Question? Thank you. Our next question is from Bob Bishop. I guess I had a question. In terms of the dual share structure, over the last ten years, the company has invested about $6,000,000,000 in the oil sands, and they've had to take about $3,000,000,000 of write offs in the last several months. And this year, unfortunately, it looks like it could lose about $500,000,000 of cash just on an operating basis. Many of the people on this Board and we're here for those decisions. And certainly, Don, you were there, too. And I guess I'm just trying to understand and maybe my question is this dual share structure kind of has enabled this to happen without accountability or consequences for the oil sands project. And what I guess, what benefit do you see to having this dual share structure today? Thank you, Bob, for your question. I think there's a couple of parts to it. One is the Fort Hills and Oil Sands investment itself and the other is the dual share structure and the Right. More of the dual share structure depends. And what we're going forward. Well, I'll address the second part first, but I do want to come back to the oil sands. So on dual share structure, it has been in place for several decades. I guess the benefits are that it allows companies to take a longer term view, which I think is directly related to your question. And then of course, the cons to new shares are that it prevents takeovers during the down cycles and those kind of things. Board neither the Board or management has the ability to change the dual share structure. It would really be up to both of each of the classes of the shares for that to happen. And so if something's going on, my understanding is it in terms of Kibo Holdings or Tomoggany that it's likely to stay in place. But if I could just comment on the oil sands because certainly, it's going to be a very tough year ahead, as you described. And the world has changed quite significantly from when we went into the business. If I go back in time to when Teck first went into the oil sands business at that time, we had quite a number of reasons why we thought it was appealing. First, four of the 10 largest market value companies in Canada were oil sands companies. Oil was trading consistently above $100 and the theory of the day was peak oil. It was a mining business that we were going into. We weren't going into the oil business to explore for and drill for oil. It was all about large open pit mining, shovel truck operations, which we had a lot of expertise in. In fact, we had over 5,000 people probably within an hour's drive of the Alberta border that were known to be very strong operators for open pit mining. It was in Alberta. And as geopolitical jurisdictions go, that was a pretty good jurisdiction. If you sit in my seat, you have a choice between some of the much higher risk jurisdictions around the world. Alberta looks like a pretty good place. It had a very long reserve life, fifty years, which meant that you'd be able to catch several economic cycles, probably five or six cycles. And as we all know, in the commodities business, whether it be copper, zinc, oil or whatever, you tend to do very well for two or three years, get all your capital back. And if you can do that five or 6x during the course of the mine life, then your IRR will have turned out very well. It didn't have particular technology risk. It had a technology upside, and that was proven technology that was already in operation. And we did benefit from the upside when we moved to paraffinic froth treatment, and that allowed us to produce a barrel of oil that's much lower carbon emissions than the industry. In fact, less than half of the industry average and about at the midpoint for all the oil in North America. So that was a plus. Also, oil as a commodity, you could hedge as long as fifteen years out. You certainly can't do that with coal or even copper and zinc. So that was a benefit. And by getting into oil, it would hedge our diesel costs, as you know, in large open pit mines, we're a big consumer of diesel. And then it turns out at that time and for most of the last ten years, the oil sands industry tended to trade at a higher multiple of EBITDA between eight and nine, possibly 10, whereas the base metals companies tended to trade between five and six. So by adding it to our portfolio, it would strengthen the portfolio overall, and we hope for maybe a zero five point increase on the multiple. So those were all the reasons why we went into the business. Clearly, over the last ten years, the world has changed. It changed quite dramatically. And ESG factors and just general perception of oil and carbon, in particular, are a very, very big issue in society today, an issue with investors. And I can tell you that, from my point anyway, if I had known back in 2006 that the world would be like this in 2020, I don't think I would have done it. But we can't all go back in time when we do it, so we have to then make decisions in today's situation to do the best of it. What we have said is that Fort Hills has been a tremendous operating and engineering success. Suncor did a very good job bringing it online. And in fact, 80% of projects of this scope never hit design capacity. Fort Hills, when it brought the third train on in May 2018, it actually hit design capacity for a few days within three weeks. And by the end of the year, in fact, the last month that Fort Hills was able to operate at full capacity was December 2018, and it ran at 104% of capacity with cash costs of CAD 23. We know that there are debottlenecking opportunities, Suncor has highlighted, that could take production up another 20% with a target of cash costs of CAD 20 or below. And so we look forward to that occurring. But of course, Alberta ended up shutting in oil, given the lack of pipeline capacity. And so that has had a big effect on the operation. It hasn't been able to run at full capacity since then. But we do know that the operation itself runs very well. Our position was that we would wait out for a couple of years to see the pipelines get built and the differentials stabilize at low levels and to see debottlenecking occur. It may be that that's not the right approach. And so the Board is reviewing the situation, and we are in discussions with Suncor and Total, our partners, as to what the operating profile will be going forward. As the presentation in our investor call this morning talked about, it has been reduced to one train at this stage, and we are looking at other options. So we look forward to better days in terms of the energy sector, in particular, everybody who can hit in the energy sector. No one's seen volatility like yesterday ever before in the history of those markets, and we will continue to focus intensely on this asset to try to make the best decision for shareholders. Thank you. We have no further questions registered at this time. I would now like to turn the meeting back over to Don Lindsay. Okay. Well, thank you very much for attending today. It is an unusual circumstance for an annual meeting. And as Sheila said earlier, we do hope that next year, we'll be able to see you in person and that the world will fix itself. It always does, and we do see encouraging signs in different countries around the world where the countries are getting their arms around the COVID-nineteen challenge, and we're looking forward to better days. As I say at the end of every meeting, have the tech, stay healthy, keep the faith, this too shall pass, and all will be well. Thank you very much. Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your