EX-99.2 15 eh2000373_ex9902.htm EXHIBIT 99.2
EXHIBIT 99.2



Teck Resources Limited
 
Consolidated Financial Statements
For the Years Ended December 31, 2019 and 2018




Management’s Responsibility for Financial Reporting

Management is responsible for the integrity and fair presentation of the financial information contained in this annual report. Where appropriate, the financial information, including financial statements, reflects amounts based on the best estimates and judgments of management. The financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board. Financial information presented elsewhere in the annual report is consistent with that disclosed in the financial statements.

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Any system of internal control over financial reporting, no matter how well-designed, has inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The system of controls is also supported by a professional staff of internal auditors who conduct periodic audits of many aspects of our operations and report their findings to management and the Audit Committee.

Management has a process in place to evaluate internal control over financial reporting based on the criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013 framework.

The Board of Directors oversees management’s responsibility for financial reporting and internal control systems through an Audit Committee, which is composed entirely of independent directors. The Audit Committee meets periodically with management, our internal auditors and independent auditors to review the scope and results of the annual audit, and to review the financial statements and related financial reporting and internal control matters before the financial statements are approved by the Board of Directors and submitted to the shareholders.

PricewaterhouseCoopers LLP, an independent registered public accounting firm, appointed by the shareholders, have audited our financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States) and have expressed their opinion in the Report of Independent Registered Public Accounting Firm.

Donald R. Lindsay
President and Chief Executive Officer


Ronald A. Millos
Senior Vice President, Finance and Chief Financial Officer

February 26, 2020


Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Teck Resources Limited

Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Teck Resources Limited and its subsidiaries (together, the Company) as of December 31, 2019 and 2018, and the related consolidated statements of income (loss), comprehensive income (loss), cash flows and changes in equity for the years then ended, including the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS). Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the COSO.

Change in Accounting Principle
As discussed in Note 33 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control Over Financial Reporting, appearing in Management's Discussion and Analysis. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of

internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Steelmaking coal goodwill impairment assessment

As described in Notes 3, 4, 8, and 17 to the consolidated financial statements, management performs its annual impairment assessment of its steelmaking coal goodwill as of October 31 of each year, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired. The total carrying value of the steelmaking coal goodwill as of December 31, 2019 was $702 million. An impairment loss exists if the steelmaking coal operations group of cash generating units' (the “CGU”) carrying amount, including goodwill, exceeds its recoverable amount. Management applied significant judgment in determining the recoverable amount of the CGU using a discounted cash flow model. The recoverable amount determined by management exceeded the carrying value of the CGU, and as a result no impairment loss was recognized. Significant assumptions are used in the discounted cash flow model, which include: commodity prices, mineral reserves and resources, mine production, operating costs, capital expenditures, discount rates, and foreign exchange rates. The Company’s mineral reserves and resources have been prepared by or under the supervision of qualified persons (management’s specialists).

The principal considerations for our determination that performing procedures relating to the steelmaking coal goodwill impairment assessment is a critical audit matter are: (i) there was significant judgment by management when determining the recoverable amount of the CGU; (ii) management’s specialists were

used to prepare the reserves and resources; and (iii) a high degree of auditor judgment, subjectivity and effort was required in performing procedures to evaluate management’s cash flow projections and significant assumptions used in preparing the discounted cash flow model, including: commodity prices, mineral reserves and resources, mine production, operating costs, capital expenditures, discount rates, and foreign exchange rates. In addition, the audit effort involved the use of professionals with specialized skills and knowledge to assist in performing procedures to evaluate the discount rate.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management's goodwill impairment assessment, including controls over the determination of the recoverable amount of the CGU. These procedures also included, among others, testing management’s process for determining  the recoverable amount of the CGU, including  evaluating the appropriateness of the discounted cash flow model, testing the completeness, accuracy, and relevance of underlying data and evaluating the reasonability of the significant assumptions used in the discounted cash flow model. Evaluating the reasonability of management’s assumptions involved considering their consistency with: (i) external market and industry data for commodity prices and foreign exchange rates, and (ii) recent actual mine production, operating costs and capital expenditures incurred, market data and other third party information, when available. Evaluating the reasonability of management's estimates of mineral reserves and resources involved considering the qualifications and objectivity of management’s specialists, obtaining an understanding of the work performed, including the methods and assumptions used by these specialists, testing data on a sample basis, and evaluating their findings. Professionals with specialized skill and knowledge were used to assist in the evaluation of the discount rate. 

Provision for post-mine closure water quality management costs for the steelmaking coal operations

As described in Notes 3, 4, and 23 to the consolidated financial statements, as of December 31, 2019 management recorded a decommissioning and restoration provision (“DRP”). The DRP represents the present value of estimated costs for required future decommissioning and other site restoration activities. After the end of the life of certain operations, water quality management costs may extend for periods in excess of 100 years. The provision for these expenditures is $745 million, of which $411 million is for its steelmaking coal operations (“Coal water DRP”). Management applied significant judgment in estimating the Coal water DRP, which involved the use of significant estimates and assumptions with respect to the volume and location of water to be treated, the methods used to treat the water, and the related water treatment costs, all of which relate to the required post-mine closure water quality management activities. The estimates of the volume and location of water to be treated have been developed by management’s specialists. 

The principal considerations for our determination that performing procedures relating to the provision for post-mine closure water quality management costs for the steelmaking coal operations is a critical audit matter are: (i) there is significant judgment made by management when developing the significant estimates and assumptions with respect to the volume and location of water to be treated, the methods used to treat the water and the related water treatment costs necessary to complete the required post-mine closure water quality management activities of its steelmaking coal operations; (ii)  management’s specialists developed the estimates of the volume and location of water to be treated; and (iii) there was significant complexity in evaluating the audit evidence related to the significant assumptions.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s process of estimating the Coal water DRP. These

procedures also included, among others, evaluating and testing management’s process for estimating the Coal water DRP, which included testing the model used by management. The procedures also included testing the reasonability of management’s assumptions in estimating the Coal water DRP, which included comparing the estimated future water treatment costs to actual water quality management operating and capital costs incurred by the Company, and understanding the methods used to treat the water.  Evaluating management's estimate of volume and location of water to be treated involved considering the qualifications and objectivity of management’s specialists, obtaining an understanding of the work performed, including the methods and assumptions used by management’s specialists, testing source data used on a sample basis, and evaluating their findings.   

Recoverable amount of the Fort Hills CGU 
As described in Notes 3, 4, and 8 to the consolidated financial statements, management performed an impairment assessment of its Fort Hills CGU (“Fort Hills CGU”) as of December 31, 2019 and noted an impairment indicator as a result of lower market expectations for the future Western Canadian Select heavy oil prices. As a result, the recoverable amount of the Fort Hills CGU was estimated by management to determine the extent of impairment. Management used a discounted cash flow model to determine the recoverable amount of the Fort Hills CGU in the amount of $3.1 billion. The recoverable amount was lower than the carrying value and as a result, a pre-tax impairment loss of $1.2 billion was recorded to property, plant and equipment in the energy operating segment. In determining the recoverable amount, management used significant assumptions such as: commodity prices, oil reserves and resources, mine production, operating costs, capital expenditures, discount rate and foreign exchange rates. Oil reserves and resources were prepared by qualified reserves evaluators (management’s specialists). 

The principal considerations for our determination that performing procedures relating to the recoverable amount of the Fort Hills CGU is a critical audit matter are: (i) there was significant judgment by management when determining  the recoverable amount of the Fort Hills CGU; (ii) the use of management’s specialists in the preparation of oil reserves and resources; (iii) the high degree of auditor judgment, subjectivity, and effort in performing procedures to evaluate management’s discounted cash flows and significant assumptions including: commodity prices, oil reserves and resources, mine production, operating costs, capital expenditures, discount rate and foreign exchange rates, and (iv) the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing procedures to evaluate the discount rate.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s impairment assessment, including controls over the determination of the recoverable amount of the Fort Hills CGU. These procedures also included, among others, testing management’s process for determining the recoverable amount of the Fort Hills CGU, including evaluating the appropriateness of the discounted cash flow model, testing the completeness, accuracy, and relevance of underlying data used in the model, and evaluating the reasonability of the significant assumptions used in the discounted cash flow model. Evaluating the reasonability of management’s assumptions involved considering their consistency with (i) external market and industry data for commodity prices and foreign exchange rates, and (ii) recent actual mine production, operating costs and capital expenditures incurred, market data and other third party information, when available. Evaluating the reasonableness of the oil reserves and resources involved considering the qualifications and objectivity of management’s specialists, obtaining an understanding of the work performed, including the methods and assumptions used in estimating the oil reserves and resources, testing the data used by management’s specialists on a sample basis and evaluating overall findings. Professionals with specialized skill and knowledge were used to assist in the evaluation of the discount rate.

/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants

Vancouver, Canada
February 26, 2020

We have served as the Company’s auditor since 1964.


Teck Resources Limited
Consolidated Statements of Income (Loss)
Years ended December 31

(CAD$ in millions, except for share data)
 
2019
   
2018
 
 
           
Revenues (Note 6)
 
$
11,934
   
$
12,564
 
Cost of sales
   
(8,594
)
   
(7,943
)
Gross profit
   
3,340
     
4,621
 
 
               
Other operating income (expenses)
               
General and administration
   
(161
)
   
(142
)
Exploration
   
(67
)
   
(69
)
Research and innovation
   
(67
)
   
(35
)
Asset impairments (Note 8(a))
   
(2,690
)
   
(41
)
Other operating income (expense) (Note 9)
   
(505
)
   
450
 
Profit (loss) from operations
   
(150
)
   
4,784
 
 
               
Finance income (Note 10)
   
48
     
33
 
Finance expense (Note 10)
   
(266
)
   
(252
)
Non-operating expense (Note 11)
   
(97
)
   
(52
)
Share of loss of associates and joint ventures (Note 15)
   
(3
)
   
(3
)
Profit (loss) before taxes
   
(468
)
   
4,510
 
Provision for income taxes (Note 21)
   
(120
)
   
(1,365
)
Profit (loss) for the year
 
$
(588
)
 
$
3,145
 
Profit (loss) attributable to:
               
Shareholders of the company
 
$
(605
)
 
$
3,107
 
Non-controlling interests
   
17
     
38
 
Profit (loss) for the year
 
$
(588
)
 
$
3,145
 
Earnings (loss) per share (Note 24(f))
               
Basic
 
$
(1.08
)
 
$
5.41
 
Diluted
 
$
(1.08
)
 
$
5.34
 
Weighted average shares outstanding (millions)
   
559.8
     
573.9
 
Weighted average diluted shares outstanding (millions)
   
559.8
     
582.1
 
Shares outstanding at end of year (millions)
   
547.3
     
570.7
 

The accompanying notes are an integral part of these financial statements.

Teck Resources Limited
Consolidated Statements of Comprehensive Income (Loss)
Years ended December 31

(CAD$ in millions)
 
2019
   
2018
 
             
Profit (loss) for the year
 
$
(588
)
 
$
3,145
 
                 
Other comprehensive income (loss) in the year
               
Items that may be reclassified to profit (loss)
               
Currency translation differences (net of taxes of $(26) and $40)
   
(312
)
   
393
 
Change in fair value of debt securities (net of taxes of $nil and $nil)
   
1
     
 
     
(311
)
   
393
 
Items that will not be reclassified to profit (loss)
               
   Change in fair value of marketable equity securities
      (net of taxes of $(1) and $1)
   
6
     
(9
)
   Remeasurements of retirement benefit plans (net of taxes of $(31) and $(2))
   
74
     
8
 
     
80
     
(1
)
Total other comprehensive income (loss) for the year
   
(231
)
   
392
 
Total comprehensive income (loss) for the year
 
$
(819
)
 
$
3,537
 
                 
Total other comprehensive income (loss) attributable to:
               
Shareholders of the company
 
$
(201
)
 
$
382
 
Non-controlling interests
   
(30
)
   
10
 
   
$
(231
)
 
$
392
 
                 
Total comprehensive income (loss) attributable to:
               
Shareholders of the company
 
$
(806
)
 
$
3,489
 
Non-controlling interests
   
(13
)
   
48
 
    
$
(819
)
 
$
3,537
 

The accompanying notes are an integral part of these financial statements.
2

Teck Resources Limited
Consolidated Statements of Cash Flows
Years ended December 31

(CAD$ in millions)
 
2019
   
2018
 
 
           
Operating activities
           
Profit (loss) for the year
 
$
(588
)
 
$
3,145
 
Depreciation and amortization
   
1,619
     
1,483
 
Provision for income taxes
   
120
     
1,365
 
Asset impairments
   
2,690
     
41
 
Gain on sale of investments and assets
   
(17
)
   
(892
)
Foreign exchange losses (gains)
   
4
     
(16
)
Loss on debt redemption or purchase
   
224
     
26
 
Loss (gain) on debt prepayment options
   
(105
)
   
42
 
Net finance expense
   
218
     
219
 
Income taxes paid
   
(595
)
   
(780
)
Other
   
74
     
(166
)
Net change in non-cash working capital items
   
(160
)
   
(29
)
 
   
3,484
     
4,438
 
Investing activities
               
Expenditures on property, plant and equipment
   
(2,788
)
   
(1,906
)
Capitalized production stripping costs
   
(680
)
   
(707
)
Expenditures on investments and other assets
   
(178
)
   
(284
)
Proceeds from investments and assets
   
80
     
1,292
 
 
   
(3,566
)
   
(1,605
)
Financing activities
               
Redemption or purchase and repayment of debt
   
(835
)
   
(1,355
)
Repayment of lease liabilities
   
(150
)
   
(32
)
QB21 advances from SMM/SC2
   
938
     
 
QB2 equity contributions by SMM/SC
   
797
     
 
QB2 partnering and financing transaction costs paid
   
(113
)
   
 
Interest and finance charges paid
   
(386
)
   
(430
)
Issuance of Class B subordinate voting shares
   
10
     
54
 
Purchase and cancellation of Class B subordinate voting shares
   
(661
)
   
(189
)
Dividends paid
   
(111
)
   
(172
)
Distributions to non-controlling interests
   
(26
)
   
(40
)
 
   
(537
)
   
(2,164
)
Effect of exchange rate changes on cash and cash equivalents
   
(89
)
   
113
 
Increase (decrease) in cash and cash equivalents
   
(708
)
   
782
 
Cash and cash equivalents at beginning of year
   
1,734
     
952
 
Cash and cash equivalents at end of year
 
$
1,026
   
$
1,734
 

Supplemental cash flow information (Note 12)

The accompanying notes are an integral part of these financial statements.

Notes:
1)
Quebrada Blanca Phase 2 copper development project.
2)
Sumitomo Metal Mining Co., Ltd. (SMM) and Sumitomo Corporation (SC) are referred to together as SMM/SC.
3

Teck Resources Limited
Consolidated Balance Sheets
As at December 31

(CAD$ in millions)
 
2019
   
2018
 
 
           
ASSETS
           
Current assets
           
Cash and cash equivalents (Note 12)
 
$
1,026
   
$
1,734
 
Current income taxes receivable
   
95
     
78
 
Trade and settlement receivables
   
1,062
     
1,180
 
Inventories (Note 13)
   
1,981
     
2,065
 
Prepaids and other current assets
   
331
     
260
 
 
   
4,495
     
5,317
 
 
               
Financial and other assets (Note 14)
   
1,109
     
907
 
Investments in associates and joint ventures (Note 15)
   
1,079
     
1,071
 
Property, plant and equipment (Note 8, Note 16 and Note 20(a))
   
31,355
     
31,050
 
Deferred income tax assets (Note 21)
   
211
     
160
 
Goodwill (Note 8 and Note 17)
   
1,101
     
1,121
 
 
 
$
39,350
   
$
39,626
 
                 
LIABILITIES AND EQUITY
               
Current liabilities
               
Trade accounts payable and other liabilities (Note 18)
 
$
2,498
   
$
2,333
 
Current portion of debt (Note 19)
   
29
     
 
Current portion of lease liabilities (Note 20(b))
   
160
     
32
 
Current income taxes payable
   
89
     
151
 
 
   
2,776
     
2,516
 
 
               
Debt (Note 19)
   
4,133
     
5,181
 
Lease liabilities (Note 20(b))
   
512
     
306
 
QB2 advances from SMM/SC (Note 5(b))
   
912
     
 
Deferred income tax liabilities (Note 21)
   
5,902
     
6,331
 
Retirement benefit liabilities (Note 22)
   
505
     
482
 
Provisions and other liabilities (Note 23)
   
2,536
     
1,792
 
 
   
17,276
     
16,608
 
Equity
               
Attributable to shareholders of the company
   
21,304
     
22,884
 
Attributable to non-controlling interests (Note 25)
   
770
     
134
 
 
   
22,074
     
23,018
 
 
 
$
39,350
   
$
39,626
 

Contingencies (Note 26)
Commitments (Note 27)

The accompanying notes are an integral part of these financial statements.

Approved on behalf of the Board of Directors


Tracey L. McVicar
  Una M. Power
 
Tracey L. McVicar
 
Una M. Power
 
Chair of the Audit Committee
 
Director
 

4

Teck Resources Limited
Consolidated Statements of Changes in Equity
Years ended December 31

(CAD$ in millions)
 
2019
   
2018
 
 
           
Class A common shares (Note 24)
 
$
6
   
$
6
 
 
               
Class B subordinate voting shares (Note 24)
               
Beginning of year
   
6,595
     
6,603
 
Share repurchases (Note 24(h))
   
(285
)
   
(77
)
Issued on exercise of options (Note 24(c))
   
13
     
69
 
End of year
   
6,323
     
6,595
 
 
               
Retained earnings
               
Beginning of year
   
15,495
     
12,796
 
IFRS 16 transition adjustment on January 1, 2019 (Note 33(a))
   
(43
)
   
 
IFRS 9 transition adjustment on January 1, 2018
   
     
34
 
Profit (loss) for the year attributable to shareholders of the company
   
(605
)
   
3,107
 
Dividends paid (Note 24(g))
   
(111
)
   
(172
)
Share repurchases (Note 24(h))
   
(367
)
   
(119
)
Adjustment from SMM/SC transaction (Note 5(a))
   
4
     
 
Purchase of non-controlling interests (Note 5(d))
   
     
(159
)
Remeasurements of retirement benefit plans
   
74
     
8
 
End of year
   
14,447
     
15,495
 
 
               
Contributed surplus
               
Beginning of year
   
204
     
202
 
Share option compensation expense (Note 24(c))
   
18
     
17
 
Transfer to Class B subordinate voting shares on exercise of options
   
(3
)
   
(15
)
End of year
   
219
     
204
 
 
               
Accumulated other comprehensive income attributable
   to shareholders of the company (Note 24(e))
               
Beginning of year
   
584
     
244
 
IFRS 9 transition adjustment on January 1, 2018
   
     
(34
)
Other comprehensive income (loss)
   
(201
)
   
382
 
Less remeasurements of retirement benefit plans recorded in retained earnings
   
(74
)
   
(8
)
End of year
   
309
     
584
 
 
               
Non-controlling interests (Note 25)
               
Beginning of year
   
134
     
142
 
Profit for the year attributable to non-controlling interests
   
17
     
38
 
Other comprehensive income (loss) attributable to non-controlling interests
   
(30
)
   
10
 
Purchase of non-controlling interests
   
     
(16
)
Adjustments from SMM/SC transaction (Note 5(a))
   
675
     
 
Dividends or distributions
   
(26
)
   
(40
)
End of year
   
770
     
134
 
Total equity
 
$
22,074
   
$
23,018
 

The accompanying notes are an integral part of these financial statements.
5

Notes to Consolidated Financial Statements
Years ended December 31, 2019 and 2018

1.
Nature of Operations

Teck Resources Limited and its subsidiaries (Teck, we, us or our) are engaged in mining and related activities including research, exploration and development, processing, smelting, refining and reclamation. Our major products are steelmaking coal, copper, zinc and blended bitumen. We also produce lead, precious metals, molybdenum, fertilizers and other metals. Metal products are sold as refined metals or concentrates.

Teck is a Canadian corporation and our registered office is at Suite 3300, 550 Burrard Street, Vancouver, British Columbia, Canada, V6C 0B3.


2.
Basis of Preparation

These annual consolidated financial statements have been prepared by management in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and were approved by the Board of Directors on February 26, 2020.

In 2019, we adopted IFRS 16, Leases (IFRS 16) and IFRIC 23, Uncertainty over Income Tax Treatments (IFRIC 23), which both became effective January 1, 2019. Note 33 discloses the effects of the adoption of these new IFRS pronouncements for all periods presented, including the nature and effect of changes in accounting policies. Certain information has been reclassified to conform with the financial statement presentation adopted for the current year.


3.
Summary of Significant Accounting Policies

The significant accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated.

Basis of Presentation

Our consolidated financial statements include the accounts of Teck and all of its subsidiaries. Our significant operating subsidiaries include Teck Metals Ltd. (TML), Teck Alaska Incorporated (TAK), Teck Highland Valley Copper Partnership (Highland Valley Copper), Teck Coal Partnership (Teck Coal), Teck Washington Incorporated (TWI), Compañía Minera Teck Quebrada Blanca S.A. (QBSA or Quebrada Blanca) and Compañía Minera Teck Carmen de Andacollo (Carmen de Andacollo).

All subsidiaries are entities that we control, either directly or indirectly. Control is defined as the exposure, or rights, to variable returns from involvement with an investee and the ability to affect those returns through power over the investee. Power over an investee exists when our existing rights give us the ability to direct the activities that significantly affect the investee’s returns. This control is generally evidenced through owning more than 50% of the voting rights or currently exercisable potential voting rights of a company’s share capital. All of our intra-group balances and transactions, including unrealized profits and losses arising from intra-group transactions, have been eliminated in full. For subsidiaries that we control but do not own 100% of, the net assets and net profit attributable to outside shareholders are presented as amounts attributable to non-controlling interests in the consolidated balance sheet and consolidated statements of income and comprehensive income.

Certain of our business activities are conducted through joint arrangements. Our interests in joint operations include Galore Creek Partnership (Galore Creek, 50% share) and Fort Hills Energy L.P. (Fort Hills, 21.3% share), which operate in Canada, and Compañia Minera Antamina S.A. (Antamina, 22.5% share), which operates in Peru. We account for our interests in these joint operations by recording our share of the respective assets, liabilities, revenue, expenses and cash flows. We also have an interest in a joint venture, NuevaUnión SPA (NuevaUnión, 50% share), in Chile that we account for using the equity method (Note 15).
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3.
Summary of Significant Accounting Policies (continued)

During the year ended December 31, 2018, our share of the Fort Hills oil sands mine increased from 20.89% to 21.3% on resolution of a commercial dispute between the Fort Hills partners. We funded an increased share of the project capital in the amount of $58 million, as consideration for the additional interest in the project.

All dollar amounts are presented in Canadian dollars unless otherwise specified.

Interests in Joint Arrangements

A joint arrangement can take the form of a joint venture or joint operation. All joint arrangements involve a contractual arrangement that establishes joint control, which exists only when decisions about the activities that significantly affect the returns of the investee require unanimous consent of the parties sharing control. A joint operation is a joint arrangement in which we have rights to the assets and obligations for the liabilities relating to the arrangement. A joint venture is a joint arrangement in which we have rights to only the net assets of the arrangement.

Joint ventures are accounted for in accordance with the policy “Investments in Associates and Joint Ventures”. Joint operations are accounted for by recognizing our share of the assets, liabilities, revenue, expenses and cash flows of the joint operation in our consolidated financial statements.

Investments in Associates and Joint Ventures

Investments over which we exercise significant influence but do not control or jointly control are associates. Investments in associates are accounted for using the equity method, except when classified as held for sale. Investments in joint ventures as determined in accordance with the policy “Interests in Joint Arrangements” are also accounted for using the equity method.

The equity method involves recording the initial investment at cost and subsequently adjusting the carrying value of the investment for our proportionate share of the profit or loss, other comprehensive income or loss and any other changes in the associate’s or joint venture’s net assets, such as further investments or dividends.

Our proportionate share of the associate’s or joint venture’s profit or loss and other comprehensive income or loss is based on its most recent financial statements. Adjustments are made to align any inconsistencies between our accounting policies and our associate’s or joint venture’s policies before applying the equity method. Adjustments are also made to account for depreciable assets based on their fair values at the acquisition date of the investment and for any impairment losses recognized by the associate or joint venture.

If our share of the associate’s or joint venture’s losses were equal to or exceeded our investment in the associate or joint venture, recognition of further losses would be discontinued. After our interest is reduced to zero, additional losses would be provided for and a liability recognized only to the extent that we have incurred legal or constructive obligations to provide additional funding or make payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports profits, we resume recognizing our share of those profits only when we have a positive interest in the entity.

At each balance sheet date, we consider whether there is objective evidence of impairment in associates and joint ventures. If there is such evidence, we determine the amount of impairment to record, if any, in relation to the associate or joint venture.

Foreign Currency Translation

The functional currency of each of our subsidiaries and our joint operations, joint ventures and associates is the currency of the primary economic environment in which the entity operates. Transactions in foreign currencies are translated to the functional currency of the entity at the exchange rate in existence at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the period end date exchange rates.

The functional currency of Teck, the parent entity, is the Canadian dollar, which is also the presentation currency of our consolidated financial statements.
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3.
Summary of Significant Accounting Policies (continued)

Foreign operations are translated from their functional currencies, generally the U.S. dollar, into Canadian dollars on consolidation. Items in the statements of income and other comprehensive income are translated using weighted average exchange rates that reasonably approximate the exchange rate at the transaction date. Items on the balance sheet are translated at the closing spot exchange rate. Exchange differences on the translation of the net assets of entities with functional currencies other than the Canadian dollar, and any offsetting exchange differences on net debt used to hedge those assets, are recognized in a separate component of equity through other comprehensive income (loss).

Exchange differences that arise relating to long-term intra-group balances that form part of the net investment in a foreign operation are also recognized in this separate component of equity through other comprehensive income (loss).

On disposition or partial disposition of a foreign operation, the cumulative amount of related exchange differences recorded in a separate component of equity is recognized in the statement of income.

Revenue

Our revenue consists of sales of steelmaking coal, copper, zinc and lead concentrates, refined zinc, lead and silver, and blended bitumen. We also sell other by-products, including molybdenum concentrates, various refined specialty metals, chemicals and fertilizers. Our performance obligations relate primarily to the delivery of these products to our customers, with each separate shipment representing a separate performance obligation.

Revenue, including revenue from the sale of by-products, is recognized at the point in time when the customer obtains control of the product. Control is achieved when a product is delivered to the customer, we have a present right to payment for the product, significant risks and rewards of ownership have transferred to the customer according to contract terms and there is no unfulfilled obligation that could affect the customer’s acceptance of the product.

Steelmaking coal

For steelmaking coal, control of the product generally transfers to the customer when an individual shipment parcel is loaded onto a carrier accepted or directly contracted by the customer. For a majority of steelmaking coal sales we are not responsible for the provision of shipping or product insurance after the transfer of control. For certain sales we arrange shipping on behalf of our customers and are agent to these shipping transactions.

Steelmaking coal is sold under spot or average pricing contracts. For spot price contracts, pricing is final when revenue is recognized. For average pricing contracts, the final pricing is determined based on quoted steelmaking coal price assessments over a specific period. Control of the goods may transfer and revenue may be recognized before, during or subsequent to the period in which final average pricing is determined. For all steelmaking coal sales under average pricing contracts where pricing is not finalized when revenue is recognized, revenue is recorded based on estimated consideration to be received at the date of sale with reference to steelmaking coal price assessments. For average pricing contracts, adjustments are made to settlement receivables in subsequent periods based on published price assessments up to the date of final pricing. This adjustment mechanism is based on the market price of the commodity and accordingly, the changes in value of the settlement receivables are not considered to be revenue from contracts with customers. The changes in fair value of settlement receivables are recorded in other operating income (expense).

Steelmaking coal sales are billed based on final quality and quantity measures upon the passage of control to the customer. If pricing is not finalized when control of the product is transferred, a subsequent invoice is issued when pricing is finalized. The payment terms generally require prompt collection from customers; however, payment terms are customer specific and subject to change based on market conditions and other factors. We generally retain title to these products until we receive the first contracted payment, which is typically received shortly after loading, solely to manage the credit risk of the amounts due to us. This retention of title does not preclude the customer from obtaining control of the product.

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3.
Summary of Significant Accounting Policies (continued)

Base metal concentrates

For copper, lead and zinc concentrates, control of the product generally transfers to the customer when an individual shipment parcel is loaded onto a carrier accepted by the customer. We sell a majority of our concentrates on commercial terms where we are responsible for providing freight services after the date at which control of the product passes to the customer. We are the principal to this freight performance obligation. A minority of zinc and lead concentrate sales are made on consignment. For consignment transactions, control of the product transfers to the customer and revenue is recognized at the time the product is consumed in the customers’ process.

The majority of our metal concentrates are sold under pricing arrangements where final prices are determined by quoted market prices in a period subsequent to the date of sale. For these sales, revenue is recorded based on the estimated consideration to be received at the date of sale with reference to relevant commodity market prices. Adjustments are made to settlement receivables in subsequent periods based on movements in quoted commodity prices up to the date of final pricing. This adjustment mechanism is based on the market price of the commodity and accordingly, the changes in value of the settlement receivables are not considered to be revenue from contracts with customers. The changes in fair value of settlement receivables are recorded in other operating income (expense).

Metal concentrate sales are billed based on provisional weights and assays upon the passage of control to the customer. The first provisional invoice is billed to the customer at the time of transfer of control. As final prices, weights and assays are received, additional invoices are issued and collected. In general, consideration is promptly collected from customers; however, the payment terms are customer specific and subject to change based on market conditions and other factors. We generally retain title to these products until we receive the first contracted payment, which is typically received shortly after loading, solely to manage the credit risk of the amounts due to us. This retention of title does not preclude the customer from obtaining control of the product.

Refined metals

For sales of refined metals, control of the product transfers to the customer when the product is loaded onto a carrier specified by the customer. For these products, loading generally coincides with the transfer of title.

Our refined metals are sold under spot or average pricing contracts. For spot sales contracts, pricing is final when revenue is recognized. For refined metal sales contracts where pricing is not finalized when revenue is recognized, revenue is recorded based on the estimated consideration to be received at the date of sale with reference to commodity market prices. Adjustments are made to settlement receivables in subsequent periods based on movements in quoted commodity prices up to the date of final pricing. This adjustment mechanism is based on the market price of the commodity and accordingly, the changes in value of the settlement receivables are not considered to be revenue from contracts with customers. The changes in fair value of settlement receivables are recorded in other operating income (expense).

We sell a portion of our refined metals on commercial terms where we are responsible for providing freight services after the date at which control of the product passes to the customer. We are the principal to this freight performance obligation.

Refined metal sales are billed based on final specification measures upon the passage of control to the customer. If pricing is not finalized when control of the product is transferred, a subsequent invoice is issued when pricing is finalized.

In general, consideration is promptly collected from customers; however, the payment terms are customer specific and subject to change based on market conditions and other factors.

Blended bitumen

For blended bitumen, control of the product generally transfers to the customer when the product passes the delivery point as specified in the contract, which normally coincides with title and risk transfer to the customer. The majority of our blended bitumen is sold under pricing arrangements where final prices are determined based on commodity price indices that are finalized at or near the date of sale. Payments for blended bitumen sales are usually due and settled within 30 days. Our revenue for blended bitumen is net of royalty payments to governments.

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3.
Summary of Significant Accounting Policies (continued)

Financial Instruments

We recognize financial assets and liabilities on the balance sheet when we become a party to the contractual provisions of the instrument.

Cash and cash equivalents

Cash and cash equivalents include cash on account, demand deposits and money market investments with maturities from the date of acquisition of three months or less, which are readily convertible to known amounts of cash and are subject to insignificant changes in value. Cash is classified as a financial asset that is subsequently measured at amortized cost. Cash equivalents are classified as subsequently measured at amortized cost, except for money market investments, which are classified as subsequently measured at fair value through profit or loss.

Trade receivables

Trade receivables relate to amounts received from sales under our spot pricing contracts for steelmaking coal, refined metals, blended bitumen, chemicals and fertilizers. These receivables are non-interest bearing and are recognized at face amount, except when fair value is materially different, and are subsequently measured at amortized cost. Trade receivables recorded are net of lifetime expected credit losses.

Settlement receivables

Settlement receivables arise from average pricing steelmaking coal contracts and base metal concentrate sales contracts where amounts receivable vary based on steelmaking coal price assessments or underlying commodity prices. Settlement receivables are classified as fair value through profit or loss and are recorded at fair value at each reporting period based on published price assessments or quoted commodity prices up to the date of final pricing. The changes in fair value are recorded in other operating income (expense).

Investments in marketable equity securities

Investments in marketable equity securities are classified, at our election, as subsequently measured at fair value through other comprehensive income. For new investments in marketable equity securities, we can elect the same classification as subsequently measured at fair value through other comprehensive income, or we can elect to classify an investment as at fair value through profit or loss. This election can be made on an investment-by-investment basis and is irrevocable. Investment transactions are recognized on the trade date with transaction costs included in the underlying balance. Fair values are determined by reference to quoted market prices at the balance sheet date.

When investments in marketable equity securities are disposed of, the cumulative gains and losses recognized in other comprehensive income (loss) are not recycled to profit and remain within equity. Dividends are recognized in profit and these investments are not assessed for impairment.

Investments in debt securities

Investments in debt securities are classified as subsequently measured at fair value through other comprehensive income and recorded at fair value. Investment transactions are recognized on the trade date with transaction costs included in the underlying balance. Fair values are determined by reference to quoted market prices at the balance sheet date.

Unrealized gains and losses on debt securities are recognized in other comprehensive income (loss) until investments are disposed of and the cumulative gains and losses recognized in other comprehensive income (loss) are reclassified from equity to profit at that time. Loss allowances and interest income are recognized in profit.

Trade payables

Trade payables are non-interest bearing if paid when due and are recognized at face amount, except when fair value is materially different. Trade payables are subsequently measured at amortized cost.
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3.
Summary of Significant Accounting Policies (continued)

Debt

Debt is initially recorded at fair value, less transaction costs. Debt is subsequently measured at amortized cost, calculated using the effective interest rate method.

Derivative instruments

Derivative instruments, including embedded derivatives in executory contracts or financial liability contracts, are classified as at fair value through profit or loss and, accordingly, are recorded on the balance sheet at fair value. Unrealized gains and losses on derivatives not designated in a hedging relationship are recorded as part of other operating income (expense) or non-operating income (expense) in profit depending on the nature of the derivative. Fair values for derivative instruments are determined using inputs based on market conditions existing at the balance sheet date or settlement date of the derivative. Derivatives embedded in non-derivative contracts are recognized separately unless they are closely related to the host contract.

Expected credit losses

For trade receivables, we apply the simplified approach to determining expected credit losses, which requires expected lifetime losses to be recognized upon initial recognition of the receivables.

Loss allowances on investments in debt securities are initially assessed based on the expected 12-month credit losses. At each reporting date, we assess whether the credit risk for our debt securities has increased significantly since initial recognition. If the credit risk has increased significantly since initial recognition, the loss allowance is adjusted to be based on the lifetime expected credit losses.

Hedging

Certain derivative investments may qualify for hedge accounting. At inception of hedge relationships, we document the economic relationship between hedging instruments and hedged items and our risk management objective and strategy for undertaking the hedge transactions.

For fair value hedges, any gains or losses on both the hedged item and the hedging instrument are recognized in the same line item in profit.

For cash flow hedges, any unrealized gains or losses on the hedging instrument relating to the effective portion of the hedge are initially recorded in other comprehensive income (loss). Where a cash flow hedge relates to a transaction where a non-financial asset or liability is recognized, accumulated gains or losses are recognized directly in the carrying amount of the non-financial asset or liability. The gains or losses are reclassified to profit in the same period or periods in which the hedged expected future cash flows affect profit or loss, when the hedged item ceases to exist, or when the hedge is determined to be ineffective.

For hedges of net investments in foreign operations, any foreign exchange gains or losses on the hedging instrument relating to the effective portion of the hedge are initially recorded in other comprehensive income (loss). Gains and losses are recognized in profit on the ineffective portion of the hedge, or when there is a disposition or partial disposition of a foreign operation being hedged.

Inventories

Finished products, work in process, raw materials and supplies inventories are valued at the lower of weighted average cost and net realizable value. Raw materials include concentrates for use at smelting and refining operations. Work in process inventory includes inventory in the milling, smelting or refining process and stockpiled ore at mining operations. For our oil sands mining and processing operation, raw materials consist of diluent used in blending, work in process inventory consists of raw bitumen and finished products consist of blended bitumen.

For work in process and finished product inventories, cost includes all direct costs incurred in production, including direct labour and materials, freight, depreciation and amortization, and directly attributable overhead costs. Production stripping costs that are not capitalized are included in the cost of inventories as incurred. Depreciation and amortization of capitalized production stripping costs are included in the cost of inventory.

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3.
Summary of Significant Accounting Policies (continued)

When inventories have been written down to net realizable value, we make a new assessment of net realizable value in each subsequent period. If the circumstances that caused the write-down no longer exist, the remaining amount of the write-down on inventory not yet sold is reversed.

We use both joint-product and by-product costing for work in process and finished product inventories. Joint-product costing is applied to primary products where the profitability of the operations is dependent upon the production of these products. Joint-product costing allocates total production costs based on the relative values of the products. By-product costing is used for products that are not the primary products produced by the operation. The by-products are allocated only the incremental costs of processes that are specific to the production of that product.

Supplies inventory is valued at the lower of weighted average cost and net realizable value. Cost includes acquisition, freight and other directly attributable costs.

Property, Plant and Equipment

Land, buildings, plant and equipment

Land is recorded at cost and buildings, plant and equipment are recorded at cost less accumulated depreciation and impairment losses. Cost includes the purchase price and the directly attributable costs to bring the assets to the location and condition necessary for them to be capable of operating in the manner intended by management.

Depreciation of mobile equipment, buildings used for production, and plant and processing equipment at our mining operations are calculated on a units-of-production basis. Depreciation of buildings not used for production, and of plant and equipment at our smelting operations is calculated on a straight-line basis over the assets’ estimated useful lives. Where components of an asset have different useful lives, depreciation is calculated on each component separately. Depreciation commences when an asset is ready for its intended use. Estimates of remaining useful lives and residual values are reviewed annually. Changes in estimates are accounted for prospectively.

The expected useful lives are as follows:

Buildings and equipment (not used for production)
1—47 years
     
Plant and equipment (smelting operations)
3—30 years

Mineral properties and mine development costs

The cost of acquiring and developing mineral properties or property rights, including pre-production waste rock stripping costs related to mine development and costs incurred during production to increase future output, are capitalized.

Waste rock stripping costs incurred in the production phase of a surface mine are recorded as capitalized production stripping costs within property, plant and equipment when it is probable that the stripping activity will improve access to the orebody, when the component of the orebody or pit to which access has been improved can be identified, and when the costs relating to the stripping activity can be measured reliably. When the actual waste-to-ore stripping ratio in a period is greater than the expected life-of-component waste-to-ore stripping ratio for that component, the excess is recorded as capitalized production stripping costs.

Once available for use, mineral properties and mine development costs are depreciated on a units-of-production basis over the proven and probable reserves to which they relate. Since the stripping activity within a component of a mine improves access to the reserves of the same component, capitalized production stripping costs incurred during the production phase of a mine are depreciated on a units-of-production basis over the proven and probable reserves expected to be mined from the same component.

Underground mine development costs are depreciated using the block depreciation method, where development costs associated with each distinct section of the mine are depreciated over the reserves to which they relate.
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3.
Summary of Significant Accounting Policies (continued)

Exploration and evaluation costs

Property acquisition costs are capitalized. Other exploration and evaluation costs are capitalized if they relate to specific properties for which resources, as defined under National Instrument 43-101, Standards of Disclosure for Mineral Projects, exist or are near a specific property with a defined resource, and it is expected that the expenditure can be recovered by future exploitation or sale. All other costs are charged to profit in the year in which they are incurred. Capitalized exploration and evaluation costs are considered to be tangible assets. These assets are not depreciated as they are not currently available for use. When proven and probable reserves are determined and development is approved, capitalized exploration and evaluation costs are reclassified to mineral properties within property, plant and equipment.

Costs of oil sands properties

The costs of acquiring, exploring, evaluating and developing oil sands properties are capitalized when it is expected that these costs will be recovered through future exploitation or sale of the property. Capitalized development costs of oil sands properties are tangible assets. These assets are not depreciated as they are not currently available for use. When proven and probable reserves are determined and development is approved, capitalized development costs for oil sands properties are reclassified to mineral properties within property, plant and equipment.

Construction in progress

Assets in the course of construction are capitalized as construction in progress. On completion, the cost of construction is transferred to the appropriate category of property, plant and equipment, and depreciation commences when the asset is available for its intended use.

Repairs and maintenance

Repairs and maintenance costs, including shutdown maintenance costs, are charged to expense as incurred, except when these repairs significantly extend the life of an asset or result in a significant operating improvement. In these instances, the portion of these repairs relating to the betterment is capitalized as part of plant and equipment.

Borrowing costs

We capitalize borrowing costs that are directly attributable to the acquisition, construction or production of an asset that takes a substantial period of time to construct or prepare for its intended use. We begin capitalizing borrowing costs when there are borrowings, expenditures are incurred, and activities are undertaken to prepare the asset for its intended use. The amount of borrowing costs capitalized cannot exceed the actual amount of borrowing costs incurred during the period. All other borrowing costs are expensed as incurred.

We discontinue the capitalization of borrowing costs when substantially all of the activities necessary to prepare the qualifying asset for its intended use or sale are complete. In addition, we cease capitalization of borrowing costs when there is suspension of activities to prepare an asset for its intended use or sale. Capitalization recommences when the activities are restarted. Capitalized borrowing costs are amortized over the useful life of the related asset.

Impairment of non-current assets

The carrying amounts of assets included in property, plant and equipment and intangible assets are reviewed for impairment whenever facts and circumstances indicate that the carrying amounts are less than the recoverable amounts. If there are indicators of impairment, the recoverable amount of the asset is estimated in order to determine the extent of any impairment. Where the asset does not generate cash flows that are independent from other assets, the recoverable amount of the cash-generating unit (CGU) to which the asset belongs is determined. The recoverable amount of an asset or CGU is determined as the higher of its fair value less costs of disposal and its value in use. An impairment loss exists if the asset’s or CGU’s carrying amount exceeds the estimated recoverable amount, and is recorded as an expense immediately.

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Summary of Significant Accounting Policies (continued)

Fair value is the price that would be received from selling an asset in an orderly transaction between market participants at the measurement date. Costs of disposal are incremental costs directly attributable to the disposal of an asset. For mining assets, when a binding sale agreement is not readily available, fair value less costs of disposal is usually estimated using a discounted cash flow approach, unless comparable market transactions on which to estimate fair value are available. Estimated future cash flows are calculated using estimated future commodity prices, reserves and resources, and operating and capital costs. All inputs used are those that an independent market participant would consider appropriate. Value in use is determined as the present value of the future cash flows expected to be derived from continuing use of an asset or CGU in its present form. These estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimates of future cash flows have not been adjusted. A value in use calculation uses a pre-tax discount rate and a fair value less costs of disposal calculation uses a post-tax discount rate.

Indicators of impairment for exploration and evaluation assets are assessed on a project-by-project basis or as part of the mining operation to which they relate.

Tangible or intangible assets that have been impaired in prior periods are tested for possible reversal of impairment whenever events or significant changes in circumstances indicate that the impairment may have reversed. Indicators of a potential reversal of an impairment loss mainly mirror the indicators present when the impairment was originally recorded. If the impairment has reversed, the carrying amount of the asset is increased to its recoverable amount, but not beyond the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior periods. A reversal of an impairment loss is recognized in profit immediately.

Intangible Assets

Intangible assets are recorded at cost less accumulated depreciation and impairment losses. Cost includes the purchase price and the directly attributable costs to bring the assets to the location and condition necessary for them to be capable of operating in the manner intended by management.

Finite life intangible assets are amortized on a straight-line basis over their useful lives. Amortization commences when an asset is ready for its intended use. Estimates of remaining useful lives are reviewed annually. Changes in estimates are accounted for prospectively. The expected useful lives of our finite-life intangible assets are between 7—40 years.

Goodwill

We allocate goodwill arising from business combinations to each CGU or group of CGUs that are expected to receive the benefits from the business combination. The carrying amount of the CGU or group of CGUs to which goodwill has been allocated is tested annually for impairment or when there is an indication that the goodwill may be impaired. Any impairment is recognized as an expense immediately. Should there be a recovery in the value of a CGU, any impairment of goodwill previously recorded is not subsequently reversed.

Leases

The following leases accounting policies have been applied as of January 1, 2019 on adoption of IFRS 16. For comparative periods prior to 2019, we applied leases policies in accordance with IAS 17, Leases (IAS 17) and IFRIC 4, Determining Whether an Arrangement Contains a Lease (IFRIC 4). Note 33 outlines the effect of adopting IFRS 16 requirements on January 1, 2019, and Note 20 outlines the effect of leases as at and for the year ended December 31, 2019.

At inception of a contract, we assess whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. We assess whether the contract involves the use of an identified asset, whether we have the right to obtain substantially all of the economic benefits from use of the asset during the term of the arrangement and if we have the right to direct the use of the asset. At inception or on reassessment of a contract that contains a lease component, we allocate the consideration in the contract to each lease component on the basis of their relative standalone prices.

As a lessee, we recognize a right-of-use asset, which is included in property, plant and equipment, and a lease liability at the commencement date of a lease. The right-of-use asset is initially measured at cost, which is comprised of the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any decommissioning and restoration costs, less any lease incentives received.
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Summary of Significant Accounting Policies (continued)

The right-of-use asset is subsequently depreciated from the commencement date to the earlier of the end of the lease term, or the end of the useful life of the asset. In addition, the right-of-use asset may be reduced due to impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by the interest rate implicit in the lease, or if that rate cannot be readily determined, our incremental borrowing rate. Lease payments included in the measurement of the lease liability are comprised of:

fixed payments, including in-substance fixed payments, less any lease incentives receivable;
variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
amounts expected to be payable under a residual value guarantee;
exercise prices of purchase options if we are reasonably certain to exercise that option; and
payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if there is a change in our estimate or assessment of the expected amount payable under a residual value guarantee, purchase, extension or termination option. Variable lease payments not included in the initial measurement of the lease liability are charged directly to profit.

We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. The lease payments associated with these leases are charged directly to profit on a straight-line basis over the lease term.

Income Taxes

Taxes, comprising both income taxes and resource taxes, are accounted for as income taxes under IAS 12, Income Taxes and are recognized in the statement of income, except where they relate to items recognized in other comprehensive income (loss) or directly in equity, in which case the related taxes are recognized in other comprehensive income (loss) or equity.

Current taxes receivable or payable are based on estimated taxable income for the current year at the statutory tax rates enacted or substantively enacted less amounts paid or received on account.

Deferred tax assets and liabilities are recognized based on temporary differences (the difference between the tax and accounting values of assets and liabilities) and are calculated using enacted or substantively enacted tax rates for the periods in which the differences are expected to reverse. The effect of changes in tax legislation, including changes in tax rates, is recognized in the period of substantive enactment.

Deferred tax assets are recognized only to the extent that it is probable that future taxable profits of the relevant entity or group of entities in a particular jurisdiction will be available, against which the assets can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, joint ventures and associates. However, we do not recognize such deferred tax liabilities where the timing of the reversal of the temporary differences can be controlled without affecting our operations or business, and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are not recognized if the temporary differences arise from the initial recognition of goodwill or an asset or liability in a transaction, other than in a business combination, which will affect neither accounting profit nor taxable profit.

We are subject to assessments by various taxation authorities, who may interpret tax legislation differently than we do. The final amount of taxes to be paid depends on a number of factors, including the outcomes of audits, appeals or negotiated settlements. We account for such differences based on our best estimate of the probable outcome of these matters.
15

3.
Summary of Significant Accounting Policies (continued)

Employee Benefits

Defined benefit pension plans

Defined benefit pension plan obligations are based on actuarial determinations. The projected unit credit method, which sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit separately to build up the final obligation, is used to determine the defined benefit obligations, the related current service costs and, where applicable, the past service costs. Actuarial assumptions used in the determination of defined benefit pension plan assets and liabilities are based upon our best estimates, including discount rates, salary escalation, expected health care costs and retirement dates of employees.

Vested and unvested costs arising from past service following the introduction of changes to a defined benefit plan are recognized immediately as an expense when the changes are made.

Actuarial gains and losses can arise from differences between expected and actual outcomes or changes in actuarial assumptions. Actuarial gains and losses, changes in the effect of asset ceiling and return on plan assets are collectively referred to as remeasurements of retirement benefit plans and are recognized immediately through other comprehensive income (loss) and directly into retained earnings. Measurement of our net defined benefit asset is limited to the lower of the surplus of assets less liabilities in the defined benefit plan and the asset ceiling less liabilities in the defined benefit plan. The asset ceiling is the present value of the expected economic benefit available to us in the form of refunds from the plan or reductions in future contributions to the plan.

We apply one discount rate to the net defined benefit asset or liability for the purposes of determining the interest component of the defined benefit cost. This interest component is recorded as part of finance expense. Depending on the classification of the salary of plan members, current service costs and past service costs are included in either operating expenses or general and administration expenses.

Defined contribution pension plans

The cost of providing benefits through defined contribution plans is charged to profit as the obligation to contribute is incurred.

Non-pension post-retirement plans

We provide health care benefits for certain employees when they retire. Non-pension post-retirement plan obligations are based on actuarial determinations. The cost of these benefits is expensed over the period in which the employees render services. We fund these non-pension post-retirement benefits as they become due.

Termination benefits

We recognize a liability and an expense for termination benefits when we have demonstrably committed to terminate employees. We are demonstrably committed to a termination when, and only when, there is a formal plan for the termination with no realistic possibility of withdrawal. The plan should include, at a minimum, the location, function and approximate number of employees whose services are to be terminated, the termination benefits for each job classification or function, and the time at which the plan will be implemented without significant changes.

Share-Based Payments

The fair value method of accounting is used for share-based payment transactions. Under this method, the cost of share options and other equity-settled share-based payment arrangements is recorded based on the estimated fair value at the grant date, including an estimate of the forfeiture rate, and charged to other operating income (expense) over the vesting period. For employees eligible for normal retirement prior to vesting, the expense is charged to other operating income (expense) over the period from the grant date to the date they are eligible for retirement.

16


3.
Summary of Significant Accounting Policies (continued)

Share-based payment expense relating to cash-settled awards, including deferred, restricted, performance and performance deferred share units, is accrued over the vesting period of the units based on the quoted market value of Class B subordinate voting shares. Performance share units (PSUs) and performance deferred share units (PDSUs) have two additional vesting factors determined by our total shareholder return in comparison to a group of specified companies and by the ratio of the change in our earnings before interest, taxes, depreciation and amortization (EBITDA) over the vesting period of the share unit to the change in a specified weighted commodity price index. As these awards will be settled in cash, the expense and liability are adjusted each reporting period for changes in the underlying share price as well as changes to the above-noted vesting factors, as applicable.

Share Repurchases

Where we repurchase any of our equity share capital, the excess of the consideration paid over book value is deducted from retained earnings.

Provisions

Decommissioning and restoration provisions

Future obligations to retire an asset and to restore a site, including dismantling, remediation and ongoing treatment and monitoring of the site related to normal operations, are initially recognized and recorded as a provision based on estimated future cash flows discounted at a credit-adjusted risk-free rate. This decommissioning and restoration provision is adjusted at each reporting period for changes to factors including the expected amount of cash flows required to discharge the liability, the timing of such cash flows and the discount rate.

The provisions are also accreted to full value over time through periodic charges to profit. This unwinding of the discount is charged to finance expense in the statement of income.

The amount of the decommissioning and restoration provision initially recognized is capitalized as part of the related asset’s carrying value. The method of depreciation follows that of the underlying asset. For a closed site or where the asset that generated a decommissioning and restoration provision no longer exists, there is no longer any future benefit related to the costs, and as such, the amounts are expensed through other operating income (expense). For operating sites, a revision in estimates or a new disturbance will result in an adjustment to the provision with an offsetting adjustment to the capitalized asset retirement cost.

During the operating life of an asset, events such as infractions of environmental laws or regulations may occur. These events are not related to the normal operation of the asset. The costs associated with these provisions are accrued and charged to other operating income (expense) in the period in which the event giving rise to the liability occurs. Changes in the estimated liability resulting in an adjustment to the provision are also charged to other operating income (expense) in the period in which the estimate changes.

Other provisions

Provisions are recognized when a present legal or constructive obligation exists as a result of past events, and it is probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Where the effect is material, the provision is discounted using an appropriate credit-adjusted risk-free rate.

Research and Development

Research costs are expensed as incurred. Development costs are only capitalized when the product or process is clearly defined; the technical feasibility has been established; the future market for the product or process is clearly defined; and we are committed, and have the resources, to complete the project.

Earnings per Share

Earnings per share is calculated based on the weighted average number of shares outstanding during the year. For diluted earnings per share, dilution is calculated based upon the net number of common shares issued should “in-the-money” options and warrants be exercised and the proceeds be used to repurchase common shares at the average market price in the year.
17

4.
Areas of Judgment and Estimation Uncertainty

In preparing our consolidated financial statements, we make judgments in applying our accounting policies. The judgments that have the most significant effect on the amounts recognized in our financial statements are outlined below. In addition, we make assumptions about the future in deriving estimates used in preparing our consolidated financial statements. We have outlined below information about assumptions and other sources of estimation uncertainty as at December 31, 2019 that have a risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next year.

a)
Areas of Judgment

Assessment of Impairment Indicators

Judgment is required in assessing whether certain factors would be considered an indicator of impairment or impairment reversal. We consider both internal and external information to determine whether there is an indicator of impairment or impairment reversal present and, accordingly, whether impairment testing is required. The information we consider in assessing whether there is an indicator of impairment or impairment reversal includes, but is not limited to, market transactions for similar assets, commodity prices, interest rates, inflation rates, our market capitalization, reserves and resources, mine plans and operating results.

As at December 31, 2019, as a result of lower market expectations for Western Canadian Select (WCS) heavy oil prices, we reviewed our energy assets for impairment. For our interest in Fort Hills, we determined that the reduction in WCS heavy oil prices was an indicator of impairment under the requirements of IAS 36, Impairment of Assets and accordingly, we performed an impairment test (Note 8(a)).

The remainder of our energy assets are oil sands properties, the most significant of which is our Frontier oil sands project. These assets are considered exploration and evaluation assets and accordingly, our assessment of impairment indicators is performed under the requirements of IFRS 6, Exploration for and Evaluation of Mineral Resources. We determined that our withdrawal of our Frontier oil sands property from the regulatory review process was an indicator of impairment and consequently, we recorded an impairment of Frontier as at December 31, 2019 (Note 8(a)).

Property, Plant and Equipment and Intangible Assets – Determination of Available for Use Date

Judgment is required in determining the date that property, plant and equipment or an intangible asset is available for use. An asset is available for use when it is in the location and condition necessary to operate in the manner intended by management. At that time, we commence depreciation of the asset and cease capitalization of borrowing costs. We consider a number of factors in making the determination of when an asset is available for use including, but not limited to, design capacity of the asset, production levels achieved, capital spending remaining and commissioning status. Fort Hills produced first oil in January 2018 and was considered available for use as at June 1, 2018. When concluding that these assets were available for use at June 1, 2018, we considered whether all three secondary extraction trains were running as expected, whether the production and product quality were consistent with expectations, and the status of asset commissioning. We have included the operating results for Fort Hills in our consolidated statements of income from that date forward.
18

4.
Areas of Judgment and Estimation Uncertainty (continued)

Joint Arrangements

We are a party to a number of arrangements over which we do not have control. Judgment is required in determining whether joint control over these arrangements exists and, if so, which parties have joint control and whether each arrangement is a joint venture or joint operation. In assessing whether we have joint control, we analyze the activities of each arrangement and determine which activities most significantly affect the returns of the arrangement over its life. These activities are determined to be the relevant activities of the arrangement. If unanimous consent is required over the decisions about the relevant activities, the parties whose consent is required would have joint control over the arrangement. The judgments around which activities are considered the relevant activities of the arrangement are subject to analysis by each of the parties to the arrangement and may be interpreted differently. When performing this assessment, we generally consider decisions about activities such as managing the asset while it is being designed, developed and constructed, during its operating life and during the closure period. We may also consider other activities including the approval of budgets, expansion and disposition of assets, financing, significant operating and capital expenditures, appointment of key management personnel, representation on the board of directors and other items. When circumstances or contractual terms change, we reassess the control group and the relevant activities of the arrangement.

If we have joint control over the arrangement, an assessment of whether the arrangement is a joint venture or joint operation is required. This assessment is based on whether we have rights to the assets, and obligations for the liabilities, relating to the arrangement or whether we have rights to the net assets of the arrangement. In making this determination, we review the legal form of the arrangement, the terms of the contractual arrangement and other facts and circumstances. In a situation where the legal form and the terms of the contractual arrangement do not give us rights to the assets and obligations for the liabilities, an assessment of other facts and circumstances is required, including whether the activities of the arrangement are primarily designed for the provision of output to the parties and whether the parties are substantially the only source of cash flows contributing to the arrangement. The consideration of other facts and circumstances may result in the conclusion that a joint arrangement is a joint operation. This conclusion requires judgment and is specific to each arrangement. Other facts and circumstances have led us to conclude that Antamina and Fort Hills are joint operations for the purposes of our consolidated financial statements. The other facts and circumstances considered for both of these arrangements include the provision of output to the parties of the joint arrangements and the funding obligations. For both Antamina and Fort Hills, we will take our share of the output from the assets directly over the life of the arrangement. We have concluded that this gives us direct rights to the assets and obligations for the liabilities of these arrangements proportionate to our ownership interests.

Streaming Transactions

When we enter into a long-term streaming arrangement linked to production at specific operations, judgment is required in assessing the appropriate accounting treatment for the transaction on the closing date and in future periods. We consider the specific terms of each arrangement to determine whether we have disposed of an interest in the reserves and resources of the respective operation or executed some other form of arrangement. This assessment considers what the counterparty is entitled to and the associated risks and rewards attributable to them over the life of the operation. These include the contractual terms related to the total production over the life of the arrangement as compared to the expected production over the life of the mine, the percentage being sold, the percentage of payable metals produced, the commodity price referred to in the ongoing payment and any guarantee relating to the upfront payment if production ceases.

For our silver and gold streaming arrangements at Antamina and Carmen de Andacollo, respectively, there is no guarantee associated with the upfront payment. We have concluded that control of the rights to the silver and gold mineral interests were transferred to the buyers when the contracts came into effect. Therefore, we consider these arrangements a disposition of a mineral interest.

Based on our judgment, control of the interest in the reserves and resources transferred to the buyer when the contracts were executed. At that time, we recognized the amount of the gain related to the disposition of the reserves and resources as we had the right to payment, the customer was entitled to the commodities, the buyer had no recourse in requiring Teck to mine the product, and the buyer had significant risks and rewards of ownership of the reserves and resources.

We recognize the amount of consideration related to refining, mining and delivery services as the work is performed.
19

4.
Areas of Judgment and Estimation Uncertainty (continued)

Deferred Tax Assets and Liabilities

Judgment is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognized on the balance sheet and what tax rate is expected to be applied in the year when the related temporary differences reverse, particularly in regard to the utilization of tax loss carryforwards. We also evaluate the recoverability of deferred tax assets based on an assessment of our ability to use the underlying future tax deductions before they expire against future taxable income. Deferred tax liabilities arising from temporary differences on investments in subsidiaries, joint ventures and associates are recognized unless the reversal of the temporary differences is not expected to occur in the foreseeable future and can be controlled. Judgment is also required on the application of income tax legislation. These judgments are subject to risk and uncertainty and could result in an adjustment to the deferred tax provision and a corresponding credit or charge to profit.

b)
Sources of Estimation Uncertainty

Impairment Testing

When impairment testing is required, discounted cash flow models are used to determine the recoverable amount of respective assets. These models are prepared internally or with assistance from third-party advisors when required. When market transactions for comparable assets are available, these are considered in determining the recoverable amount of assets. Significant assumptions used in preparing discounted cash flow models include commodity prices, reserves and resources, mine production, operating costs, capital expenditures, discount rates, foreign exchange rates and inflation rates. Note 8 outlines the significant inputs used when performing goodwill and other asset impairment testing. These inputs are based on management’s best estimates of what an independent market participant would consider appropriate. Changes in these inputs may alter the results of impairment testing, the amount of the impairment charges or reversals recorded in the statement of income and the resulting carrying values of assets.

Estimated Recoverable Reserves and Resources

Mineral and oil reserve and resource estimates are based on various assumptions relating to operating matters as set forth in National Instrument 43-101, Standards of Disclosure for Mineral Projects and National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities. Assumptions used include production costs, mining and processing recoveries, cut-off grades, sales volumes, long-term commodity prices, exchange rates, inflation rates, tax and royalty rates and capital costs. Cost estimates are based on pre-feasibility or feasibility study estimates or operating history. Estimates are prepared by or under the supervision of appropriately qualified persons, or qualified reserves evaluators, but will be affected by forecasted commodity prices, inflation rates, exchange rates, capital and production costs, and recoveries, among other factors. Estimated recoverable reserves and resources are used to determine the depreciation of property, plant and equipment at operating mine sites, in accounting for capitalized production stripping costs, in performing impairment testing, and in forecasting the timing of settlement of decommissioning and restoration costs. Therefore, changes in the assumptions used could affect the carrying value of assets, depreciation and impairment charges recorded in the statement of income and the carrying value of the decommissioning and restoration provision.

Decommissioning and Restoration Provisions

The decommissioning and restoration provision (DRP) is based on future cost estimates using information available at the balance sheet date that are developed by management’s experts (Note 23(a)). The DRP represents the present value of estimated costs of future decommissioning and other site restoration activities including costs associated with the management of water and water quality in and around each closed site. The DRP is adjusted at each reporting period for changes to factors such as the expected amount of cash flows required to discharge the liability, the timing of such cash flows and the credit-adjusted discount rate. The DRP requires other significant estimates and assumptions, including the requirements of the relevant legal and regulatory framework and the timing, extent and costs of required decommissioning and restoration activities. Our estimates of the cost associated with the management of water and water quality in and around each closed site includes assumptions with respect to the volume and location of water to be treated, the methods used to treat the water and the related water treatment costs. To the extent the actual costs differ from these estimates, adjustments will be recorded and the income statement may be affected.
20

4.
Areas of Judgment and Estimation Uncertainty (continued)

Provision for Income Taxes

We calculate current and deferred tax provisions for each of the jurisdictions in which we operate. Actual amounts of income tax expense are not final until tax returns are filed and accepted by the relevant authorities. This occurs subsequent to the issuance of our financial statements, and the final determination of actual amounts may not be completed for a number of years. Therefore, profit in subsequent periods will be affected by the amount that estimates differ from the final tax return.

Deferred Tax Assets and Liabilities

Assumptions about the generation of future taxable profits and repatriation of retained earnings depend on management’s estimates of future production and sales volumes, commodity prices, reserves and resources, operating costs, decommissioning and restoration costs, capital expenditures, dividends and other capital management transactions. These estimates could result in an adjustment to the deferred tax provision and a corresponding credit or charge to profit.


5.
Transactions

a)
SMM/SC Subscription

On March 29, 2019, Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation (together referred to as SMM/SC) subscribed for a 30% indirect interest in QBSA, which owns the Quebrada Blanca Phase 2 (QB2) copper development project located in Northern Chile. Post-transaction, QBSA’s effective ownership is 60% Teck, 30% SMM/SC and 10% Empresa Nacional de Minería (ENAMI). ENAMI, a Chilean State agency, holds a preference share interest in QBSA, which does not require ENAMI to make contributions toward QBSA capital spending.

To subscribe for the indirect 30% interest in QBSA, SMM/SC made $900 million (US$673 million) of loan advances, net of financing fees of $7 million (US$6 million), and $797 million (US$600 million) of equity contributions during 2019. Together these loan advances and equity contributions totalled $1.704 billion (US$1.279 billion). This represented US$1.2 billion of contributions agreed to by SMM/SC plus a matching contribution from SMM/SC of 50% of the capital expenditures funded by us from January 1, 2019 to the closing date. SMM/SC made additional contributions of $38 million (US$29 million) for interest on the loan advances during 2019.

SMM/SC have agreed to make a supplemental payment of US$50 million if QB2 mill throughput reaches 154,000 tonnes per day prior to the earlier of the sanctioning of a major expansion or December 31, 2025. We have recorded a financial receivable in the amount of $35 million (US$27 million) for this contingent supplemental payment, which reflects its estimated fair value as at December 31, 2019. SMM/SC have also agreed to make an additional supplemental payment if they elect to participate in the funding of a major expansion project (QB3), if it is sanctioned before December 31, 2031, by contributing an additional amount equal to 8% of the incremental net present value of QB3 at the expansion sanction date in addition to their pro rata share of expansion project costs. We will record a financial receivable if and when QB3 is sanctioned and SMM/SC choose to participate.

Based on the provisions of the shareholders agreement, we retain control of QBSA and continue to consolidate its results. This transaction was considered a change in the ownership interest of a subsidiary that we control and accordingly, we accounted for this as an equity transaction. We have correspondingly recorded a non-controlling interest for SMM/SC’s interest in QBSA, which was $782 million as at December 31, 2019.



21

5.
Transactions (continued)

In conjunction with the process to bring in an additional funding partner for QB2, we amended the terms of the QBSA shareholders agreement with ENAMI. The revised terms clarified shareholders’ rights and responsibilities regarding the development and financing of QB2 and any major project expansion. The revised terms provide ENAMI with a preferential dividend stream, which is partly determined by the amount of interest on subordinated loans provided to QBSA by us and SMM/SC. The preferential dividend stream was recorded as a financial liability within provisions and other liabilities in the amount of $118 million, concurrent with the closing of the SMM/SC transaction described above. The initial recognition of the liability was recorded as a reduction to non-controlling interests as it arises from a transaction between shareholders of QBSA. The financial liability was initially measured at fair value using a discounted cash flow model based on the estimated subordinated financing provided by us and SMM/SC. Significant assumptions used in the valuation include the interest rate on the subordinated loans and copper prices, which affect the timing of when QBSA repays the subordinated loans. The liability is subsequently measured at amortized cost. As at December 31, 2019, the liability is $82 million. The decrease in the financial liability of $36 million in the year was primarily due to changes in estimated interest cash flows from changes in interest rates. This change is recorded in non-operating income (expense) (Note 11).

b)
Advances from SMM/SC

In conjunction with the subscription arrangement with SMM/SC, QBSA entered into a subordinated loan facility agreement with SMM/SC to advance QBSA up to US$1.3 billion. The advances are due to be repaid in full at maturity on January 15, 2038. Amounts outstanding under the facility bear interest at LIBOR plus an applicable margin. The carrying value of the advances approximates fair value based on prevailing market interest rates in effect at December 31, 2019. This is considered a Level 2 fair value measurement with significant other observable inputs on the fair value hierarchy (Note 30).

($ in millions)
 
US$
   
CAD$ Equivalent
 
   
2019
   
2019
 
As at January 1
 
$
   
$
 
                 
Cash flows
               
   Advances
   
708
     
946
 
   Finance fees paid
   
(6
)
   
(8
)
Non-cash changes
               
   Changes in foreign exchange rates
   
     
(26
)
As at December 31
 
$
702
   
$
912
 

c)
QB2 Project Financing

On November 18, 2019, we closed our US$2.5 billion limited recourse project financing facility to fund the development of the QB2 project. As at December 31, 2019, the facility was undrawn. Amounts drawn under the facility will bear interest at LIBOR plus applicable margins that vary over time and will be repaid in 17 semi-annual instalments starting the earlier of six months after project completion or June 2023. These project finance loans are guaranteed pre-completion on a several basis by Teck, SMM and SC pro rata to the respective equity interests in the Series A shares of QBSA. The loans are secured by pledges of Teck’s and SMM/SC’s interests in QBSA and by security over QBSA’s assets, which consist primarily of QB2 project assets.

d)
Quebrada Blanca – 2018

In 2018, we acquired an additional 13.5% interest in QBSA through the purchase of Inversiones Mineras S.A. (IMSA), a private Chilean company. This acquisition brought our interest in QBSA from 76.5% to 90%, prior to the SMM/SC subscription in QBSA described in Note 5(a).

The purchase price consisted of US$53 million paid in cash on closing, an additional US$60 million paid in 2018 on the issuance of the major approval of the social and environmental impact assessment for QB2 and a further US$50 million payable within 30 days of the commencement of commercial production at QB2. Additional amounts may become payable to the extent that average copper prices exceed US$3.15 per pound in each of the first three years following commencement of commercial production, up to a cumulative maximum of US$100 million if commencement of commercial production occurs prior to January 21, 2024 or up to a lesser maximum in certain circumstances thereafter.
22

5.
Transactions (continued)

This transaction was considered a change in the ownership interest of a subsidiary that we control and accordingly, we accounted for this as an equity transaction. At the acquisition date, we recorded a cash payment of $67 million and liabilities for the estimated fair value of amounts due in the future, which are recorded in provisions and other liabilities on the balance sheet. The total fair value of $175 million was recorded as a reduction in non-controlling interests and equity attributable to shareholders of $16 million and $159 million, respectively, as at December 31, 2018.

e)
Waneta Dam Sale

During 2018, the transaction for the sale of our two-thirds interest in the Waneta Dam and related transmission assets to BC Hydro closed. As part of the sale, we entered into a 20-year arrangement to purchase power for our Trail Operations, with an option to extend the arrangement for a further 10 years on comparable terms. We recognized this transaction as a disposition of the Waneta Dam and related transmission assets and recorded a pre-tax gain, net of transaction costs, of $888 million (after-tax $812 million) based on proceeds of $1.203 billion. The gain was recorded in other operating income (expense) (Note 9). The power supply arrangement is accounted for as an ongoing cost to operate and is recorded in cost of sales.


6.
Revenues

a)
Total Revenues by Major Product Type and Business Unit

The following table shows our revenue disaggregated by major product type and by business unit. Our business units are reported based on the primary products that they produce and are consistent with our reportable segments (Note 28) that have revenue from contracts with customers. A business unit can have revenue from more than one commodity as it can include an operation that produces more than one product. Intra-segment revenues are accounted for at current market prices as if the sales were made to arm’s-length parties and are eliminated on consolidation.

(CAD$ in millions)
 
2019
 
   
Steelmaking Coal
   
Copper
   
Zinc
   
Energy
   
Total
 
Steelmaking coal
 
$
5,522
   
$
   
$
   
$
   
$
5,522
 
Copper
   
     
2,158
     
     
     
2,158
 
Zinc
   
     
163
     
2,366
     
     
2,529
 
Blended bitumen
   
     
     
     
975
     
975
 
Silver
   
     
24
     
376
     
     
400
 
Lead
   
     
5
     
395
     
     
400
 
Other
   
     
119
     
350
     
     
469
 
Intra-segment
   
     
     
(519
)
   
     
(519
)
   
$
5,522
   
$
2,469
   
$
2,968
   
$
975
   
$
11,934
 

23

6.
Revenues (continued)

(CAD$ in millions)
 
2018
 
   
Steelmaking Coal
   
Copper
   
Zinc
   
Energy1
   
Total
 
Steelmaking coal
 
$
6,349
   
$
   
$
   
$
   
$
6,349
 
Copper
   
     
2,242
     
     
     
2,242
 
Zinc
   
     
279
     
2,701
     
     
2,980
 
Blended bitumen
   
     
     
     
407
     
407
 
Silver
   
     
18
     
306
     
     
324
 
Lead
   
     
     
419
     
     
419
 
Other
   
     
175
     
318
     
     
493
 
Intra-segment
   
     
     
(650
)
   
     
(650
)
   
$
6,349
   
$
2,714
   
$
3,094
   
$
407
   
$
12,564
 

Note:
1)
Includes revenue for Fort Hills from June 1, 2018.

b)
Total Revenues by Regions

The following table shows our revenue disaggregated by geographical region. Revenues are attributed to regions based on the destination port or delivery location as designated by the customer.

(CAD$ in millions)
 
2019
   
2018
 
Asia
           
   China
 
$
1,983
   
$
2,060
 
   Japan
   
1,813
     
1,880
 
   South Korea
   
1,174
     
1,515
 
   India
   
947
     
981
 
   Other
   
1,077
     
1,207
 
Americas
               
   United States
   
1,617
     
1,609
 
   Canada
   
1,376
     
932
 
   Latin America
   
236
     
297
 
Europe
               
   Germany
   
486
     
561
 
   Finland
   
263
     
242
 
   Netherlands
   
176
     
240
 
   Other
   
786
     
1,040
 
   
$
11,934
   
$
12,564
 


24

7.
Expenses by Nature

(CAD$ in millions)
 
2019
   
2018
 
Employment-related costs:
           
   Wages and salaries
 
$
1,057
   
$
1,005
 
   Employee benefits and other wage-related costs
   
280
     
247
 
   Bonus payments
   
207
     
191
 
   Post-employment benefits and pension costs
   
105
     
112
 
     
1,649
     
1,555
 
                 
Transportation
   
1,476
     
1,408
 
Depreciation and amortization
   
1,619
     
1,483
 
Raw material purchases
   
974
     
914
 
Fuel and energy
   
881
     
830
 
Operating supplies consumed
   
743
     
640
 
Maintenance and repair supplies
   
742
     
775
 
Contractors and consultants
   
768
     
738
 
Overhead costs
   
277
     
365
 
Royalties
   
343
     
370
 
Other operating costs
   
45
     
15
 
     
9,517
     
9,093
 
                 
Adjusted for:
               
   Capitalized production stripping costs
   
(680
)
   
(707
)
   Change in inventory
   
52
     
(197
)
Total cost of sales, general and administration,
   exploration and research and innovation expenses
 
$
8,889
   
$
8,189
 

Approximately 24% (2018 – 26%) of our costs are incurred at our foreign operations where the functional currency is the U.S. dollar.


8.
Asset and Goodwill Impairment Testing

a)
Asset Impairments

The following pre-tax asset impairments were recorded in the statement of income:

Asset Impairments

(CAD$ in millions)
 
2019
   
2018
 
Fort Hills CGU
 
$
(1,241
)
 
$
 
Frontier oil sands project
   
(1,129
)
   
 
Steelmaking coal CGU
   
(289
)
   
 
Other
   
(31
)
   
(41
)
Total
 
$
(2,690
)
 
$
(41
)

Fort Hills CGU

As at December 31, 2019, we recorded a pre-tax impairment of $1.2 billion (after-tax $910 million) related to our interest in Fort Hills. The estimated post-tax recoverable amount of our interest in the Fort Hills CGU of $3.1 billion was lower than our carrying value. This impairment arose as a result of lower market expectations for future Western Canadian Select (WCS) heavy oil prices. The impairment affected the profit (loss) of our energy operating segment (Note 28).
25

8.
Asset and Goodwill Impairment Testing (continued)

Cash flow projections used in the 2019 analysis were based on current life of mine plans at the testing date and cash flows covered a period of 40 years.

Frontier Oil Sands Project

As at December 31, 2019, we recorded a pre-tax impairment of $1.1 billion (after-tax $944 million) related to our Frontier oil sands project. This impairment arose as a result of our decision to withdraw Frontier from the regulatory review process. We have written down the full carrying value of our interest in the Frontier oil sands project. The impairment affected the profit (loss) of our energy operating segment (Note 28).

Steelmaking Coal CGU

As a result of our decision not to proceed with the Mackenzie-Redcap extension and the short remaining mine life, combined with a decrease in short-term steelmaking coal prices, we recorded a pre-tax impairment of $289 million (after-tax $184 million) of our Cardinal River Operations as at December 31, 2019. The impairment affected the profit (loss) of our steelmaking coal operating segment (Note 28). Our Cardinal River Operations has been written down to the residual value of the remaining mobile equipment.

Other

During the year ended December 31, 2019, we recorded an asset impairment of $31 million related to our remaining cathode operations at Quebrada Blanca.

During the year ended December 31, 2018, we recorded asset impairments of $41 million, of which $31 million was related to capitalized exploration expenditures that are not expected to be recovered and $10 million related to Quebrada Blanca assets that will not be recovered through use.

Sensitivity Analysis

The key inputs used in our determination of recoverable amounts interrelate significantly with each other and with our operating plans. For example, a decrease in long-term commodity prices would result in us making amendments to the mine plans that would partially offset the effect of lower prices through lower operating and capital costs. It is difficult to determine how all of these factors would interrelate, but in estimating the effect of changes in these assumptions on fair values, we believe that all of these factors need to be considered together. A linear extrapolation of these effects becomes less meaningful as the change in assumption increases.

The recoverable amount of our Fort Hills CGU is most sensitive to changes in WCS heavy oil prices, the Canadian/U.S. dollar exchange rates and discount rates. Ignoring the above described interrelationships, in isolation a US$1 decrease in the real long-term WCS heavy oil price would result in a reduction in the recoverable amount of approximately $135 million. A $0.01 strengthening of the Canadian dollar against the U.S. dollar would result in a reduction in the recoverable amount of approximately $50 million. A 25 basis point increase in the discount rate would result in a reduction in the recoverable amount of approximately $110 million.

b)
Annual Goodwill Impairment Testing

The allocation of goodwill to CGUs or groups of CGUs reflects how goodwill is monitored for internal management purposes. Our Quebrada Blanca CGU and steelmaking coal CGU have goodwill allocated to them (Note 17). The Quebrada Blanca CGU primarily relates to QB2.

We did not identify any goodwill impairment indicators during 2019. We performed our annual goodwill impairment testing at October 31, 2019, calculating the recoverable amount on a FVLCD basis and did not identify any goodwill impairment losses.

Cash flow projections are based on expected mine life. For our steelmaking coal operations, the cash flows cover periods of 1 to 50 years, with a steady state thereafter until reserves and resources are exhausted. For Quebrada Blanca, the cash flow covers 30 years, with our estimate of cash flows thereafter until reserves and resources are exhausted.
26

8.
Asset and Goodwill Impairment Testing (continued)

Given the nature of expected future cash flows used to determine the recoverable amount, a material change could occur over time as the cash flows are significantly affected by the key assumptions described below in Note 8(c).

Sensitivity Analysis

Our annual goodwill impairment test carried out at October 31, 2019 resulted in the recoverable amount of our steelmaking coal CGU exceeding its carrying value by approximately $4.8 billion. The recoverable amount of our steelmaking coal CGU is most sensitive to the long-term Canadian dollar steelmaking coal price assumption. In isolation, a 10% decrease in the long-term Canadian dollar steelmaking coal price would result in the recoverable amount of the steelmaking coal CGU being equal to the carrying value.

The recoverable amount of our Quebrada Blanca CGU exceeded its carrying amount by approximately $798 million at the date of our annual goodwill impairment testing. The recoverable amount of our Quebrada Blanca CGU is most sensitive to the long-term copper price assumption. In isolation, a 5% decrease in the long-term copper price would result in the recoverable amount of the Quebrada Blanca CGU being equal to its carrying value.

c)
Key Assumptions

The following are the key assumptions used in our impairment testing calculations during the years ended December 31, 2019 and 2018:

 
2019
2018
WCS heavy oil prices
Current price used in initial year, increased to a real long-term price in 2024 of US$50 per barrel
N/A
Steelmaking coal prices
Current price used in initial year, increased to a real long-term price in 2024 of US$150 per tonne
Current price used in initial year, decreased to a real long-term price in 2023 of US$150 per tonne
Copper prices
Current price used in initial year, increased to a real long-term price in 2024 of US$3.00 per pound
Current price used in initial year, increased to a real long-term price in 2023 of US$3.00 per pound
Discount rate
5.4%—6.0%
6.0%
Long-term foreign exchange rate
1 U.S. to 1.30 Canadian dollars
1 U.S. to 1.25 Canadian dollars
Inflation rate
2%
2%

Commodity Prices

Commodity price assumptions are based on a number of factors, including forward curves in the near term, and are benchmarked with external sources of information, including information published by our peers and market transactions, where possible, to ensure they are within the range of values used by market participants.

Discount Rates

Discount rates are based on a mining weighted average cost of capital for all mining operations and an oil sands weighted average cost of capital for Fort Hills. For the year ended December 31, 2019, we used a discount rate of 6.0% real, 8.1% nominal post-tax (2018 – 6.0% real, 8.1% nominal post-tax) for mining operations and goodwill. For the year ended December 31, 2019, we used a discount rate of 5.4% real, 7.5% nominal post-tax for oil sands operations.

Foreign Exchange Rates

Foreign exchange rates are benchmarked with external sources of information based on a range used by market participants. Long-term foreign exchange assumptions are from year 2024 onwards for analysis performed in the year ended December 31, 2019 and are from year 2023 onwards for analysis performed in the year ended December 31, 2018.

27

8.
Asset and Goodwill Impairment Testing (continued)

Inflation Rates

Inflation rates are based on average historical inflation for the location of each operation and long-term government targets.

Reserves and Resources

Future mineral and oil production is included in projected cash flows based on mineral and oil reserve and resource estimates and on exploration and evaluation work undertaken by appropriately qualified persons or qualified reserves evaluators.

Operating Costs and Capital Expenditures

Operating costs and capital expenditures are based on life of mine plans and internal management forecasts. Cost estimates incorporate management experience and expertise, current operating costs, the nature and location of each operation, and the risks associated with each operation. Future capital expenditures are based on management’s best estimate of expected future capital requirements, which are generally for the extraction and processing of existing reserves and resources. All committed and anticipated capital expenditures based on future cost estimates have been included in the projected cash flows. Operating cost and capital expenditure assumptions are subject to ongoing optimization and review by management.

Recoverable Amount Basis

In the absence of a relevant market transaction, we estimate the recoverable amount of our CGUs on a FVLCD basis using a discounted cash flow methodology, taking into account assumptions likely to be made by market participants unless it is expected that the value-in-use methodology would result in a higher recoverable amount. For the asset impairment and goodwill impairment analyses performed in 2019 and 2018, we have applied the FVLCD basis. These estimates are classified as a Level 3 measurement within the fair value measurement hierarchy (Note 30).


9.
Other Operating Income (Expense)

(CAD$ in millions)
 
2019
   
2018
 
Settlement pricing adjustments (Note 29(b))
 
$
(49
)
 
$
(117
)
Share-based compensation
   
(4
)
   
(59
)
Environmental costs
   
(197
)
   
(20
)
Care and maintenance costs
   
(36
)
   
(11
)
Social responsibility and donations
   
(18
)
   
(18
)
Loss on sale of assets
   
(20
)
   
(3
)
Commodity derivatives
   
17
     
(36
)
Take or pay contract costs
   
(123
)
   
(106
)
Waneta Dam sale (Note 5(e))
   
     
888
 
Other
   
(75
)
   
(68
)
 
 
$
(505
)
 
$
450
 


28

10.
Finance Income and Finance Expense

(CAD$ in millions)
 
2019
   
2018
 
Finance income
           
   Investment income
 
$
48
   
$
33
 
Total finance income
 
$
48
   
$
33
 
                 
Finance expense
               
   Debt interest
 
$
276
   
$
338
 
   Interest on advances from SMM/SC
   
41
     
 
   Interest on lease liabilities (Note 20(c))
   
39
     
24
 
   Letters of credit and standby fees
   
51
     
65
 
   Net interest expense on retirement benefit plans
   
7
     
6
 
   Accretion on decommissioning and restoration provisions (Note 23(a))
   
112
     
101
 
   Other
   
15
     
11
 
     
541
     
545
 
   Less capitalized borrowing costs (Note 16(b))
   
(275
)
   
(293
)
Total finance expense
 
$
266
   
$
252
 


11.
Non-Operating Income (Expense)

(CAD$ in millions)
 
2019
   
2018
 
Foreign exchange gains (losses)
 
$
(4
)
 
$
16
 
Gain (loss) on debt prepayment option
   
105
     
(42
)
Loss on debt redemption or purchase (Note 19(a))
   
(224
)
   
(26
)
Other
   
26
     
 
 
 
$
(97
)
 
$
(52
)


12.
Supplemental Cash Flow Information

(CAD$ in millions)
 
December 31,
2019
   
December 31,
2018
 
Cash and cash equivalents
           
   Cash
 
$
149
   
$
438
 
   Investments with maturities from the date of acquisition of three months or less
   
877
     
1,296
 
   
$
1,026
   
$
1,734
 

(CAD$ in millions)
 
2019
   
2018
 
Net change in non-cash working capital items
           
   Trade and settlements receivables
 
$
97
   
$
282
 
   Prepaids and other current assets
   
(69
)
   
(26
)
   Inventories
   
16
     
(338
)
   Trade accounts payable and other liabilities
   
(204
)
   
53
 
   
$
(160
)
 
$
(29
)


29

13.
Inventories

(CAD$ in millions)
 
December 31, 2019
   
December 31, 2018
 
Supplies
 
$
721
   
$
693
 
Raw materials
   
271
     
300
 
Work in process
   
491
     
595
 
Finished products
   
573
     
539
 
 
   
2,056
     
2,127
 
Less long-term portion (Note 14)
   
(75
)
   
(62
)
   
$
1,981
   
$
2,065
 

Cost of sales of $8.6 billion (2018 – $7.9 billion) includes $7.9 billion (2018 – $7.3 billion) of inventories recognized as an expense during the year.

Total inventories held at net realizable value amounted to $95 million at December 31, 2019 (December 31, 2018 – $172 million). Total inventory write-downs in 2019 were $60 million (2018 – $82 million) and were included as part of cost of sales.

Long-term inventories consist of ore stockpiles and other in-process materials that are not expected to be processed within one year.


14.
Financial and Other Assets

(CAD$ in millions)
 
December 31, 2019
   
December 31, 2018
 
Long-term receivables and deposits
 
$
268
   
$
220
 
Marketable equity and debt securities carried at fair value
   
183
     
167
 
Debt prepayment option
   
     
73
 
Pension plans in a net asset position (Note 22(a))
   
360
     
254
 
Long-term portion of inventories (Note 13)
   
75
     
62
 
Intangibles
   
162
     
80
 
Other
   
61
     
51
 
   
$
1,109
   
$
907
 


15.
Investments in Associates and Joint Ventures

(CAD$ in millions)
 
NuevaUnión
   
Other
   
Total
 
At January 1, 2018
 
$
929
   
$
14
   
$
943
 
Contributions
   
48
     
     
48
 
Changes in foreign exchange rates
   
83
     
     
83
 
Share of loss
   
(2
)
   
(1
)
   
(3
)
At December 31, 2018
 
$
1,058
   
$
13
   
$
1,071
 
Contributions
   
67
     
1
     
68
 
Changes in foreign exchange rates
   
(52
)
   
     
(52
)
Share of loss
   
(2
)
   
(1
)
   
(3
)
Other
   
     
(5
)
   
(5
)
At December 31, 2019
 
$
1,071
   
$
8
   
$
1,079
 



30

16.
Property, Plant and Equipment

(CAD$ in millions)
 
Exploration and
Evaluation
   
Mineral Properties
   
Land, Buildings, Plant and Equipment
   
Capitalized Production Stripping Costs
   
Construction In Progress
   
Total
 
At December 31, 2017
                                   
   Cost
 
$
1,774
   
$
19,160
   
$
12,948
   
$
4,561
   
$
5,430
   
$
43,873
 
   Accumulated depreciation
   
     
(5,359
)
   
(7,206
)
   
(2,263
)
   
     
(14,828
)
Net book value
 
$
1,774
   
$
13,801
   
$
5,742
   
$
2,298
   
$
5,430
   
$
29,045
 
                                                 
Year ended December 31, 2018
                                               
Opening net book value
 
$
1,774
   
$
13,801
   
$
5,742
   
$
2,298
   
$
5,430
   
$
29,045
 
   Additions
   
144
     
86
     
710
     
761
     
1,135
     
2,836
 
   Disposals
   
     
     
(12
)
   
     
     
(12
)
   Asset impairments (Note 8)
   
(31
)
   
(6
)
   
(4
)
   
     
     
(41
)
   Depreciation and amortization
   
     
(372
)
   
(595
)
   
(543
)
   
     
(1,510
)
   Transfers between classifications
   
     
1,050
     
3,307
     
     
(4,357
)
   
 
   Decommissioning and restoration
provision change in estimate
   
     
(250
)
   
(29
)
   
     
     
(279
)
   Capitalized borrowing costs
      (Note 10)
   
     
108
     
     
     
185
     
293
 
   Other
   
     
(2
)
   
56
     
     
     
54
 
   Changes in foreign
      exchange rates
   
21
     
290
     
182
     
50
     
121
     
664
 
Closing net book value
 
$
1,908
   
$
14,705
   
$
9,357
   
$
2,566
   
$
2,514
   
$
31,050
 
At December 31, 2018
                                               
   Cost
 
$
1,908
   
$
20,444
   
$
17,452
   
$
5,435
   
$
2,514
   
$
47,753
 
   Accumulated depreciation
   
     
(5,739
)
   
(8,095
)
   
(2,869
)
   
     
(16,703
)
Net book value
 
$
1,908
   
$
14,705
   
$
9,357
   
$
2,566
   
$
2,514
   
$
31,050
 
                                                 
Year ended December 31, 2019
                                               
Opening net book value
 
$
1,908
   
$
14,705
   
$
9,357
   
$
2,566
   
$
2,514
   
$
31,050
 
   IFRS 16 adoption (Note 20
      and Note 33)
   
     
     
280
     
     
     
280
 
   Additions
   
119
     
     
201
     
757
     
3,076
     
4,153
 
   Disposals
   
     
(2
)
   
(53
)
   
     
     
(55
)
   Asset impairments (Note 8)
   
(1,129
)
   
(485
)
   
(1,008
)
   
(68
)
   
     
(2,690
)
   Depreciation and amortization
   
     
(325
)
   
(774
)
   
(592
)
   
     
(1,691
)
   Transfers between classifications
   
5
     
(112
)
   
418
     
13
     
(324
)
   
 
   Decommissioning and restoration
provision change in estimate
   
     
444
     
45
     
     
     
489
 
   Capitalized borrowing costs
      (Note 10)
   
     
115
     
     
     
160
     
275
 
   Changes in foreign
      exchange rates
   
(18
)
   
(158
)
   
(114
)
   
(32
)
   
(134
)
   
(456
)
Closing net book value
 
$
885
   
$
14,182
   
$
8,352
   
$
2,644
   
$
5,292
   
$
31,355
 
At December 31, 2019
                                               
   Cost
 
$
885
   
$
20,155
   
$
16,951
   
$
6,073
   
$
5,292
   
$
49,356
 
   Accumulated depreciation
   
     
(5,973
)
   
(8,599
)
   
(3,429
)
   
     
(18,001
)
Net book value
 
$
885
   
$
14,182
   
$
8,352
   
$
2,644
   
$
5,292
   
$
31,355
 

31

16.
Property, Plant and Equipment (continued)

a)