Teck Reports Unaudited Second Quarter Results for 2023 First copper concentrate sold and ramp-up advancing at QB2
Teck Resources Limited
TSX: TECK.A, TECK.B NYSE: TECK www.teck.com
News Release
For Immediate Release Date: July 26, 2023 23-55-TR
Teck Reports Unaudited Second Quarter Results for 2023
First copper concentrate sold and ramp-up advancing at QB2
Vancouver, B.C. – Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (Teck) today announced its unaudited second quarter results for 2023.
“We were deeply saddened to report an employee fatality in the second quarter at our Quebrada Blanca Operations. Our deepest sympathies go out to the employee's colleagues and loved ones. Learnings from the investigation are being shared across Teck and with industry peers to prevent future incidents," said Jonathan Price, CEO. “In the second quarter we achieved another major milestone at our QB2 project with the first sale of copper concentrate as we ramp up to full production later this year. We continue to explore a range of options to realize the full potential of our world-class base metals business and to progress our overall copper growth pipeline, including receiving regulatory approval for our Zafranal project in May. Strong performance from our steelmaking coal business contributed to solid financial results in the second quarter, further reinforcing the inherent value of our high-margin steelmaking coal business."
Highlights
- Adjusted profit attributable to shareholders1 of $643 million or $1.24 per share in Q2 2023.
- Profit from continuing operations attributable to shareholders of $510 million or $0.98 per share in Q2 2023.
- Adjusted EBITDA1 was $1.5 billion in Q2 2023 driven by continued robust commodity prices and strong steelmaking coal sales. Profit from continuing operations before taxes was $805 million in Q2 2023.
- We completed the first shipment and sale of copper concentrate at QB2 in the second quarter. Line 1 is operating well as per expectations, and Line 2 is in commissioning. We continue to expect to be operating at full production rates by the end of 2023.
- We generated cash flows from operations of $1.1 billion, ending the quarter with a cash balance of $1.8 billion. In June, we made our first scheduled semi-annual repayment of US$147 million on the QB2 project finance facility, further deleveraging our balance sheet.
- Our liquidity as at July 26, 2023 is $7.0 billion, including $1.7 billion of cash.
- We completed $85 million in Class B subordinate voting share buybacks pursuant to our normal course issuer bid. We also paid $65 million to shareholders in Q2 through our regular quarterly base dividend.
- In April, we closed the transaction to form the joint venture on the San Nicolás copper-zinc project in Mexico and in June finalized the Environmental Impact Assessment permit application, which is planned for submission in Q3 2023. In May, we announced that the Zafranal copper-gold project in Peru received regulatory approval from the Peruvian environmental authority.
- On May 12, 2023, we completed the plan of arrangement under the Canada Business Corporations Act to implement a six-year sunset of the multiple voting rights attached to the Class A common shares.
Note:
All dollar amounts expressed in this news release are in Canadian dollars unless otherwise noted.
Reference: Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis 604.699.4621
Chris Stannell, Public Relations Manager 604.699.4368
Additional corporate information is available at www.teck.com
Financial Summary Q2 2023
| Financial Metrics (CAD$ in millions, except per share data) | Q2 2023 | Q2 2022 |
| Revenue Gross profit Gross profit before depreciation and amortization1 Profit from continuing operations before taxes Adjusted EBITDA1 Profit from continuing operations attributable to shareholders Adjusted profit attributable to shareholders1 Basic earnings per share from continuing operations Diluted earnings per share from continuing operations Adjusted basic earnings per share1 Adjusted diluted earnings per share1 | $ 3,519 $ 1,410 $ 1,841 $ 805 $ 1,479 $ 510 $ 643 $ 0.98 $ 0.97 $ 1.24 $ 1.22 | $ 5,300 $ 3,142 $ 3,559 $ 2,522 $ 3,290 $ 1,582 $ 1,772 $ 2.95 $ 2.90 $ 3.30 $ 3.25 |
Note:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
Key Updates
Executing on our copper growth strategy – QB2 a long-life, low-cost operation with major expansion potential
- We completed the first shipment and sale of copper concentrate at QB2 in the quarter.
- Line 1 is operating well as per expectations, and Line 2 is in commissioning.
- The concentrate pipeline, concentrate filter plant and storage systems are in operation at the port.
- We continue to expect to be operating at full production rates by the end of 2023, and our previously disclosed capital cost guidance for QB2 of US$8.0 to $8.2 billion is unchanged.
- Due to delays in construction and commissioning, our 2023 annual production guidance for QB2 has been updated to 80,000 tonnes to 100,000 tonnes. Our previously disclosed 2024 — 2026 annual production guidance for QB2 is unchanged.
Safety and Sustainability Leadership
- Trail Operations was the first stand-alone zinc processing site globally to receive the Zinc Mark, verifying its performance in responsible production criteria including GHG emissions, community health and respect for Indigenous Peoples' rights.
- Teck was named one of the Best 50 Corporate Citizens in Canada by Corporate Knights.
Guidance
- We have updated our previously issued 2023 annual production guidance to reduce our copper production as a result of lower QB2 production, and to reduce lead production at Red Dog. There are no other changes to our previously disclosed guidance.
2 Teck Resources Limited 2023 Second Quarter News Release
- Our guidance is outlined in summary below and our usual guidance tables, including three-year production guidance, can be found on pages 28 — 32.
2023 Guidance – Summary Current Production Guidance
Copper (000’s tonnes) 330 - 375 Zinc (000’s tonnes) 645 - 685 Refined zinc (000’s tonnes) 270 - 290 Steelmaking coal (million tonnes) 24.0 - 26.0
Sales Guidance – Q3 2023
Red Dog zinc in concentrate sales (000’s tonnes) 240 - 280 Steelmaking coal sales (million tonnes) 5.6 - 6.0
Unit Cost Guidance
Copper net cash unit costs (US$/lb.)1 2 1.60 - 1.80 Zinc net cash unit costs (US$/lb.)1 0.50 - 0.60 Steelmaking coal adjusted site cash cost of sales (CAD$/tonne)1 88 - 96 Steelmaking coal transportation costs (CAD$/tonne) 45 - 48
Notes:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
2. Excludes Quebrada Blanca.
3 Teck Resources Limited 2023 Second Quarter News Release
Management's Discussion and Analysis
This management’s discussion and analysis is dated as at July 26, 2023 and should be read in conjunction with the unaudited condensed interim consolidated financial statements of Teck Resources Limited (“Teck”) and the notes thereto for the three and six months ended June 30, 2023 and with the audited consolidated financial statements of Teck and the notes thereto for the year ended December 31, 2022. In this news release, unless the context otherwise dictates, a reference to “the company” or “us,” “we” or “our” refers to Teck and its subsidiaries. Additional information, including our Annual Information Form and Management’s Discussion and Analysis for the year ended December 31, 2022, is available on SEDAR at www.sedar.com.
This document contains forward-looking statements. Please refer to the cautionary language under the heading “CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION” below.
Overview
- Our financial performance was strong in the second quarter, but decreased from the same period last year when commodity prices were at historically-high levels across our commodities. In addition to the impact of lower commodity prices, our profitability also decreased due to lower copper sales volumes, and higher unit costs1 relating to ongoing inflationary pressures.
- Base metals prices continue to trade above historical averages, but declined from near record levels compared with a year ago. Copper prices in the second quarter averaged US$3.84 per pound, or 11% lower, and zinc prices averaged US$1.15 per pound, or 35% lower, than a year ago.
- Realized steelmaking coal prices in the second quarter remained above historical averages at US$264 per tonne, but declined from all-time record highs in the second quarter last year.
| Average Prices and Exchange Rates | Three months ended June 30, | Change | |
|---|---|---|---|
| 2023 | 2022 |
| Copper (LME cash – US$/pound) | $ | 3.84 $ | 4.32 | (11) % |
| Zinc (LME cash – US$/pound) | $ | 1.15 $ | 1.78 | (35) % |
| Steelmaking coal (realized US$/tonne) | $ | 264 $ | 453 | (42) % |
| Average exchange rate (CAD$ per US$1.00) | $ | 1.34 $ | 1.28 | 5 % |
- Copper production declined by 10% from a year ago due to lower production from Highland Valley Copper and Antamina. Highland Valley Copper was impacted by unplanned mill maintenance, as well as harder ore and lower grades, as expected in the mine plan. Antamina was required to reduce mill throughput at the beginning of the quarter in order to manage copper concentrate storage capacities due to logistics issues caused by Cyclone Yaku. Copper sales volumes in the second quarter decreased by 19% from the same period a year ago due to the lower production levels and partly due to the timing of sales. We are expecting improved production in the second half of the year at both Highland Valley Copper and Antamina, as reflected in our 2023 annual production guidance.
Note:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
4 Teck Resources Limited 2023 Second Quarter News Release
- Zinc in concentrate production was similar to a year ago, as lower production from Red Dog was offset by higher production from Antamina, as expected in the mine plan. Red Dog's production was impacted by power system availability as well as lower ore grade, which was expected in the mine plan. Red Dog's zinc production is expected to be higher in the second half of the year, as reflected in our 2023 annual production guidance. At Trail Operations, refined zinc production and sales volumes in the second quarter were similar to a year ago.
- Steelmaking coal production was 9% higher than a year ago at 5.8 million tonnes, primarily as a result of improved mining productivity. Our logistics chain performed well during the second quarter, drawing down steelmaking coal inventories as anticipated. As a result, steelmaking coal sales volumes were 6.2 million tonnes, similar to a year ago, and within our previously disclosed guidance range.
- We remain highly focused on managing our controllable operating expenditures. While diesel and other fuel costs have materially declined compared to last year, we continue to experience inflationary pressures in the cost of certain key supplies, including mining equipment, tires, labour and contractors. Our underlying key mining drivers remain relatively stable, and the continued pressures on certain key input costs are reflected in our sustaining capital expenditures and annual unit cost1 guidance for 2023, which are unchanged.
Note:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
5 Teck Resources Limited 2023 Second Quarter News Release
Profit Attributable to Shareholders and Adjusted Profit Attributable to Shareholders
In the second quarter, profit from continuing operations attributable to shareholders was $510 million, or $0.98 per share, compared to $1.6 billion, or $2.95 per share, in the same period last year. The decrease compared with a year ago is primarily due to lower prices for our principal products, particularly steelmaking coal. The lower prices were partially offset by a weaker Canadian dollar in the second quarter as compared with a year ago.
Adjusted profit attributable to shareholders1 in the second quarter, taking into account the items identified in the table below, was $643 million, or $1.24 per share, compared with $1.8 billion, or $3.30 per share, in the second quarter of 2022. The most significant second quarter adjustments to profit, reflected in the table below, were after-tax expenses of $67 million resulting from the impact of the valuation of the preferential dividend on the shares in the QB2 project company held by ENAMI and $42 million of sharebased compensation, partly offset by an after-tax gain of $81 million relating to the Elkview business interruption insurance claim.
| (CAD$ in millions) | Three months ended June 30, | Six months ended June 30, | |
|---|---|---|---|
| 2023 2022 | 2023 | 2022 |
Profit from continuing operations attributable
to shareholders $ 510 $ 1,582 $ 1,676 $ 3,101 Add (deduct) on an after-tax basis2:
| Loss on debt purchase | — | 46 | — | 46 |
| QB2 variable consideration to IMSA and ENAMI | 69 | 37 | 71 | 96 |
| Environmental costs | 3 | (51) | 16 | (111) |
| Inventory write-downs | — | 23 | — | 23 |
| Share-based compensation | 42 | 6 | 60 | 88 |
| Commodity derivatives | 23 | 34 | 19 | (3) |
| Gain on sale or contribution of assets | — | (1) | (186) | — |
| Elkview business interruption claim | (81) | — | (149) | — |
| Profit from discontinued operations3 | — | 93 | — | 145 |
| Other | 77 | 3 | 66 | 7 |
| Adjusted profit attributable to shareholders1 | $ 643 $ | 1,772 $ | 1,573 $ | 3,392 |
Basic earnings per share from continuing
operations $ 0.98 $ 2.95 $ 3.25 $ 5.78
Diluted earnings per share from
| continuing operations | $ | 0.97 $ | 2.90 $ | 3.20 $ | 5.67 |
| Adjusted basic earnings per share1 | $ | 1.24 $ | 3.30 $ | 3.05 $ | 6.33 |
| Adjusted diluted earnings per share1 | $ | 1.22 $ | 3.25 $ | 3.00 $ | 6.21 |
In addition to the items identified in the table above, our results include gains and losses due to changes in market prices in respect of pricing adjustments. Pricing adjustments resulted in $108 million of after-tax losses ($172 million, before tax) in the second quarter, or $0.21 per share.
Notes:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
2. Adjustments for the three and six months ended June 30, 2022 are as previously reported.
3. Adjustment required to remove the effect of discontinued operations for the three and six months ended June 30, 2022.
6 Teck Resources Limited 2023 Second Quarter News Release
| FINANCIAL OVERVIEW (CAD$ in millions, except per share data) | Three months ended June 30, | Six months ended June 30, | |
|---|---|---|---|
| 2023 | 2022 2023 2022 |
Revenue and profit
| Revenue | $ | 3,519 $ | 5,300 $ | 7,304 $ | 9,916 |
| Gross profit | $ | 1,410 $ | 3,142 $ | 3,076 $ | 5,620 |
| Gross profit before depreciation and amortization1 | $ | 1,841 $ | 3,559 $ | 3,930 $ | 6,452 |
| Profit from continuing operations before taxes | $ | 805 $ | 2,522 $ | 2,661 $ | 4,890 |
| Adjusted EBITDA1 | $ | 1,479 $ | 3,290 $ | 3,451 $ | 6,334 |
| Profit attributable to shareholders | $ | 510 $ | 1,675 $ | 1,650 $ | 3,246 |
Profit from continuing operations attributable to shareholders $ 510 $ 1,582 $ 1,676 $ 3,101
Cash flow
| Cash flow from operations | $ | 1,130 $ | 2,921 $ | 2,222 $ | 5,244 |
| Property, plant and equipment expenditures | $ | 1,264 $ | 1,066 $ | 2,535 $ | 1,902 |
| Capitalized stripping costs | $ | 235 $ | 255 $ | 545 $ | 488 |
| Investments | $ | 37 $ | 87 $ | 81 $ | 126 |
Balance Sheet
Cash balances $ 1,773 $ 2,702 Total assets $ 53,090 $ 49,635 Debt and lease liabilities, including current portion $ 7,258 $ 7,534
Per share amounts
| Basic earnings per share | $ | 0.98 $ | 3.12 $ | 3.20 $ | 6.05 |
| Diluted earnings per share | $ | 0.97 $ | 3.07 $ | 3.15 $ | 5.94 |
| Basic earnings per share from continuing operations | $ | 0.98 $ | 2.95 $ | 3.25 $ | 5.78 |
| Diluted earnings per share from continuing operations | $ | 0.97 $ | 2.90 $ | 3.20 $ | 5.67 |
| Dividends declared per share | $ | 0.125 $ | 0.125 $ | 0.75 $ | 0.75 |
PRODUCTION, SALES AND PRICES Production (000’s tonnes, except steelmaking coal)
| Copper2 | 64 | 72 | 121 | 139 |
| Zinc in concentrate | 164 | 165 | 309 | 323 |
| Zinc – refined | 68 | 70 | 130 | 139 |
| Steelmaking coal (million tonnes) | 5.8 | 5.3 | 11.8 | 10.9 |
Sales (000’s tonnes, except steelmaking coal)
| Copper2 | 62 | 76 | 121 | 145 |
| Zinc in concentrate | 90 | 80 | 199 | 249 |
| Zinc – refined | 67 | 67 | 122 | 136 |
| Steelmaking coal (million tonnes) | 6.2 | 6.3 | 12.4 | 12.3 |
Average prices and exchange rates
| Copper (LME cash – US$/pound) | $ | 3.84 $ | 4.32 $ | 3.95 $ | 4.43 |
| Zinc (LME cash – US$/pound) | $ | 1.15 $ | 1.78 $ | 1.29 $ | 1.74 |
| Steelmaking coal (realized US$/tonne) | $ | 264 $ | 453 $ | 273 $ | 406 |
| Average exchange rate (CAD$ per US$1.00) | $ | 1.34 $ | 1.28 $ | 1.35 $ | 1.27 |
Notes:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
2. We include 100% of production and sales from our Quebrada Blanca and Carmen de Andacollo mines in our production and sales volumes, even though we do not own 100% of these operations, because we fully consolidate their results in our financial statements. We include 22.5% of production and sales from Antamina representing our proportionate ownership interest in this operation.
7 Teck Resources Limited 2023 Second Quarter News Release
BUSINESS UNIT RESULTS
Our revenue, gross profit, and gross profit before depreciation and amortization1 by business unit are summarized in the table below.
Three months ended Six months ended June 30, June 30, (CAD$ in millions) 2023 2022 2023 2022
Revenue
| Copper | $ | 733 $ | 973 $ | 1,496 $ | 1,903 |
| Zinc | 532 | 633 | 1,148 | 1,553 | |
| Steelmaking coal | 2,254 | 3,694 | 4,660 | 6,460 | |
| Total | $ | 3,519 $ | 5,300 $ | 7,304 $ | 9,916 |
Gross profit
| Copper | $ | 205 $ | 450 $ | 466 $ | 901 |
| Zinc | 105 | 156 | 233 | 403 | |
| Steelmaking coal | 1,100 | 2,536 | 2,377 | 4,316 | |
| Total | $ | 1,410 $ | 3,142 $ | 3,076 $ | 5,620 |
Gross profit before depreciation and amortization1
| Copper | $ | 318 $ | 559 $ | 691 $ | 1,115 |
| Zinc | 144 | 194 | 317 | 499 | |
| Steelmaking coal | 1,379 | 2,806 | 2,922 | 4,838 | |
| Total | $ | 1,841 $ | 3,559 $ | 3,930 $ | 6,452 |
Gross profit margins before depreciation
and amortization1
| Copper | 43 % | 57 % | 46 % | 59 % |
| Zinc | 27 % | 31 % | 28 % | 32 % |
| Steelmaking coal | 61 % | 76 % | 63 % | 75 % |
Note:
1. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
8 Teck Resources Limited 2023 Second Quarter News Release
COPPER BUSINESS UNIT
Three months ended Six months ended June 30, June 30,
| (CAD$ in millions) | 2023 | 2022 | 2023 | 2022 | |
| Copper price (realized – US$/pound) | $ | 3.80 $ | 4.28 $ | 3.94 $ | 4.39 |
| Production (000’s tonnes)1 | 64 | 72 | 121 | 139 | |
| Sales (000’s tonnes)1 | 62 | 76 | 121 | 145 | |
| Gross profit | $ | 205 $ | 450 $ | 466 $ | 901 |
| Gross profit before depreciation and amortization2 | $ | 318 $ | 559 $ | 691 $ | 1,115 |
| Property, plant and equipment expenditures | $ | 1,013 $ | 912 $ | 2,116 $ | 1,632 |
Performance
Gross profit from our copper business unit was $205 million in the second quarter compared with $450 million a year ago. Gross profit decreased from a year ago (see table below) primarily due to a decline in realized copper prices, lower production and sales volumes, and higher unit operating costs2 as expected in our annual unit cost2 guidance.
Copper production of 64,300 tonnes in the second quarter was 10% lower than a year ago as a result of lower production from Highland Valley Copper and Antamina. Production from Highland Valley Copper was primarily impacted by harder ore and lower grades, as well as unplanned maintenance. Antamina's production was impacted by lower grades and a reduction of mill throughput at the beginning of the second quarter in order to manage storage capacities as a result of logistics issues caused by Cyclone Yaku.
The table below summarizes the change in gross profit in our copper business unit for the quarter:
Three months ended Gross Profit (CAD$ in millions) June 30,
As reported in the second quarter of 2022 $ 450 Increase (decrease):
Copper price realized (88) Sales volumes (91) Unit operating costs (52) Labour settlement (2022) 8 Co-product and by-product contribution (31) Foreign exchange (CAD$/US$) 13 Depreciation (4)
Net decrease $ (245) As reported in current quarter $ 205
Notes:
1. We include 22.5% of production and sales from Antamina, representing our proportionate ownership interest in this operation. We include 100% of production and sales from our Quebrada Blanca and Carmen de Andacollo mines in our production and sales volumes, even though we do not own 100% of these operations, because we fully consolidate their results in our financial statements.
2. This is a non-GAAP financial measure or ratio. See “Use of Non-GAAP Financial Measures and Ratios” for further information.
9 Teck Resources Limited 2023 Second Quarter News Release Property, plant and equipment expenditures in the second quarter totaled $1.0 billion, including $84 million for sustaining capital and $709 million for project development expenditures for QB2. Capitalized stripping costs were $95 million in the second quarter, $20 million higher than a year ago, as expected in QB2 start up.
Markets
LME copper prices remained above long-term historic trends. Prices in the second quarter declined by 11% compared with the same period a year ago. Global demand for copper was well supported in the second quarter, with Chinese imports of copper concentrates and cathodes each increasing approximately 1.7% over the same period in 2022.
The tightness in the copper concentrate market continued to ease through the second quarter with spot treatment charges rising above the 2023 annual contract terms. Favourable terms for smelters have led to a rise in concentrate imports into China, up 8.5% year to date. Peruvian mine production continues to recover, while Chilean mine production continues to struggle, to return to pre-COVID-19 levels. Global stocks of copper cathode on exchange at the end of the second quarter were 2.3 days of global consumption compared to the long-term average of 11 days, and are the lowest exchange stock levels in days of consumption since 2005. Stocks on exchanges and in bonded warehouses in China decreased by 201,000 tonnes in the second quarter following the first quarter seasonal stock build. Total visible stocks, including bonded stocks, continue to remain at low levels at 3.1 days of consumption, compared to a longterm average of 14.5 days.
Operations
Highland Valley Copper
Copper production of 24,000 tonnes in the second quarter was 7,000 tonnes lower than a year ago due to harder ore and lower copper grade, as expected in the mine plan, as well as unplanned mill maintenance. Copper sales volumes of 25,000 tonnes in the second quarter were 8,700 tonnes lower than a year ago reflecting the lower production levels. Second quarter molybdenum production of 232,000 pounds was 169,000 pounds higher than a year ago. The lower production in the second quarter of 2022 was a result of downtime in the molybdenum leach circuit.
Operating costs were $197 million in the second quarter, or $17 million higher than a year ago before changes in inventory. The increase in operating costs was due to increased consumable costs and maintenance costs on the haul truck fleet to improve availability, and on unplanned mill maintenance.
Copper production in the second half of 2023 is expected to be strong as a result of work being completed to improve haul truck availability and improved mill operations and there has been no change in our previously disclosed 2023 annual production guidance for Highland Valley Copper.
Antamina
Copper production (100% basis) of 112,200 tonnes in the second quarter was 9,600 tonnes lower than a year ago. The decrease in production was primarily due to lower copper grades, as well as reduced milling rates in order to manage concentrate storage facilities as a result of logistics issues caused by Cyclone Yaku in early April. The mix of mill feed in the quarter was 51% copper-only ore and 49% copper-zinc ore, compared with 57% copper-only ore and 43% copper-zinc ore, a year ago. Zinc production (100% basis) of 136,700 tonnes in the second quarter was 39,600 tonnes higher than a year ago, as expected in the mine plan.
Operating costs, before changes in inventory, were US$87 million (22.5% share) in the second quarter, US$4 million lower than a year ago due to lower workers' participation payments.
10 Teck Resources Limited 2023 Second Quarter News Release In 2022, Antamina submitted a Modification of Environmental Impact Assessment (MEIA) to Peruvian regulators to extend its mine life from 2028 to 2036. The regulatory review process is progressing as scheduled, with approval anticipated in the second half of 2023.
Carmen de Andacollo
Copper production of 10,200 tonnes in the second quarter was 500 tonnes lower than a year ago. Production was impacted by blasting restrictions, which resulted in treating a higher proportion of low recovery transition ore.
Operating costs, before changes in inventory, in the second quarter of US$75 million were US$13 million higher than a year ago due to treating lower recovery transition ore and higher power prices.
Quebrada Blanca (including QB2)
At QB2, we completed the first shipment and sale of copper concentrate in the second quarter and continued to progress production ramp-up. Line 1 is operating well as per expectations, and Line 2 is in commissioning. The concentrate pipeline, concentrate filter plant and storage systems are in operation at the port. We continue to expect to achieve full production rates by the end of 2023, and our previously disclosed capital cost guidance for QB2 of US$8.0 to $8.2 billion is unchanged.
Due to delays in construction and commissioning, our 2023 annual production guidance for QB2 has been updated to 80,000 tonnes to 100,000 tonnes. Our previously disclosed 2024 — 2026 annual production guidance for QB2 is unchanged.
Copper cathode production was 2,000 tonnes in the second quarter compared with 2,400 tonnes a year ago.
Cost of Sales
Cost of sales was $528 million in the second quarter compared with $523 million in the same period last year. Total cash unit costs1 of product sold in the second quarter, before cash margins for by-products1, of US$2.33 per pound were US$0.35 per pound higher than the same period a year ago. This was due to the effect of lower production levels and higher consumables costs, specifically for power, as well as higher maintenance and repair costs. Cash margins for by-products1 were US$0.41 per pound compared with US$0.51 per pound in the same period a year ago with the decrease primarily due to lower zinc prices. Total net cash units costs1 for copper, after cash margins for by-products1, of US$1.92 per pound were US$0.45 per pound higher than the same period a year ago. Although copper unit costs1 in the second quarter were above our annual guidance range, the variance is timing related, and our annual guidance range is unchanged.
| Three months ended Six months ended June 30, June 30, | |
| (amounts reported in US$ per pound) 2023 2022 2023 2022 |
| Adjusted cash cost of sales1 2 | $ | 2.11 $ | 1.80 $ | 2.09 $ | 1.77 |
| Smelter processing charges | 0.22 | 0.18 | 0.23 | 0.18 | |
| Total cash unit costs1 2 | $ | 2.33 $ | 1.98 $ | 2.32 $ | 1.95 |
| Cash margin for by-products1 2 | (0.41) | (0.51) | (0.45) | (0.52) | |
| Net cash unit costs1 2 | $ | 1.92 $ | 1.47 $ | 1.87 $ | 1.43 |
Notes:
2. Excludes Quebrada Blanca.
11 Teck Resources Limited 2023 Second Quarter News Release
Outlook
Our 2023 annual guidance for our copper business unit is outlined in our guidance tables on pages 28 — 32 and is unchanged from our previously issued guidance, with the exception of annual copper production guidance as a result of the change in QB2 production, as described above. QB2 molybdenum production guidance for 2023 is consistent with our previously disclosed guidance and is expected to commence in the fourth quarter of 2023.
We continue to expect QB2 to reach full production rates by end of the 2023. As a result of recent changes to IFRS, we are required to recognize sales proceeds and related costs associated with products sold during the ramp-up and commissioning phase of QB2 through earnings rather than capitalizing these amounts, as has been previous practice. As previously disclosed, we expect this to increase our unit operating costs for QB2 during ramp-up. We will recognize any losses through earnings prior to achieving commercial production. As a result, we do not expect to generate significant gross profit from QB2 in the third quarter of 2023, despite the ramp-up in production rates.
Copper Growth
In the second quarter, we continued to advance our copper growth strategy with prudent investments in our industry-leading copper growth portfolio. Important milestones included the receipt of the Social Environmental Impact Assessment (SEIA) permit and authorization for the Zafranal copper-gold development project in Peru, the start of significant equipment salvage and recycling program at NewRange Copper Nickel’s NorthMet historic brownfield plant site, startup of significant seasonal drilling, metallurgical and geotechnical programs, and social and environmental baseline programs at Galore Creek and Schaft Creek. In addition, we made meaningful advances in study work, community engagement and permitting across all of the assets. Our copper growth strategy balances growth and return of capital with maintaining a strong balance sheet, and is informed by setting milestone objectives with prudent investment plans to de-risk development of each of the assets, including permitting.
The following are the targeted upcoming key milestones related to each asset in our copper growth portfolio, with more details included below:
- Quebrada Mill Expansion (QBME): Feasibility study completion H2 2023.
- NorthMet: Feasibility study completion H1 2024.
- San Nicolás: Feasibility study completion H1 2024 and Environmental Impact Assessment permit application finalized with plans to submit in Q3 2023.
- HVC2040: Feasibility study completion and EIA submission in H2 2023.
- Zafranal: Capital and operating cost estimate updates and commence detailed engineering in H2 2023.
- Galore Creek: Prefeasibility study work completed in H2 2023.
The feasibility study for the QBME project, which entails an increase in concentrator throughput of approximately 50% with the addition of one identical semi-autogenous grinding line, continues to advance as planned. This configuration will optimize the timeline to progress the development of the orebody, while leveraging existing infrastructure to maximize capital efficiency. The feasibility study, initiated in mid-2022, is expected to be completed in the second half of 2023. In the second quarter, we continued to progress the permitting process and submitted responses to the initial inquiries from the regulator. QBME is expected to be a significant contributor to our near-term copper growth portfolio.
12 Teck Resources Limited 2023 Second Quarter News Release