EX-99.1 15 d677438dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

 

 

 Annual Information Form

 February 25, 2019

 

 

 

LOGO


2018 Annual Information Form

 

 

 

Table of Contents

 

Nomenclature

     1  

Cautionary Statement on Forward-Looking Information

     1  

Glossary of Technical Terms

     7  

Corporate Structure

     9  

Name, Address and Incorporation

     9  

Intercorporate Relationships

     10  

General Development of the Business

     12  

Three-Year History

     12  

2016

     12  

2017

     12  

2018

     14  

Description of the Business

     16  

General

     16  

Product Summary

     17  

Steelmaking Coal

     17  

Copper

     18  

Zinc

     19  

Energy

     20  

Individual Operations

     21  

Steelmaking Coal

     21  

Copper

     30  

Zinc

     45  

Energy

     50  

Exploration

     53  

Corporate

     53  

Mineral Reserves and Resources

     54  

Definitions for Mineral Reserves and Mineral Resources

     61  

Comments on Individual Operations

     63  

Risks and Uncertainties

     67  

Qualified Persons

     68  

Oil and Gas Reserves

     68  

Health and Safety and Environmental Protection

     77  

Social and Environmental Policies

     80  

Human Resources

     81  

Technology

     81  

Foreign Operations

     82  

Competitive Conditions

     82  

Risk Factors

     83  

Dividends

     101  

Description of Capital Structure

     101  

General Description of Capital Structure

     101  

 

 

 

  Teck Resources Limited

  

 

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Ratings

     106  

Market for Securities

     108  

Trading Price and Volume

     108  

Directors and Officers

     109  

Directors

     109  

Officers

     110  

Audit Committee Information

     113  

Composition of the Audit Committee

     113  

Pre-Approval Policies and Procedures

     114  

Auditor’s Fees

     114  

Ownership by Directors and Officers and Interests in Material Transactions

     115  

Legal Proceedings and Regulatory Actions

     115  

Transfer Agents and Registrars

     118  

Material Contracts

     118  

Interests of Experts

     118  

Disclosure Pursuant to the Requirements of the New York Stock Exchange

     120  

Non-GAAP Measures

     120  

Additional Information

     121  

Schedule A – Audit Committee Charter

     A-1  

Schedule B – Report of Management and Directors on Reserves Data and Other Information

     B-1  

Schedule C – Report on Reserves Data by Independent Qualified Reserves Evaluator or Auditor

     C-1  

Schedule D – List of Technical Reports

     D-1  

 

 

 

  Teck Resources Limited

  

 

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2018 Annual Information Form

 

 

 

Nomenclature

In this Annual Information Form, unless the context otherwise dictates, “we”, “Teck” or the “Company” refers to Teck Resources Limited and its subsidiaries.

Cautionary Statement on Forward-Looking Information

This Annual Information Form contains certain forward-looking information and forward-looking statements as defined in applicable securities laws (collectively referred to as forward-looking statements). These statements relate to future events or our future performance. All statements other than statements of historical fact are forward-looking statements. The use of any of the words “anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “should”, “believe” and similar expressions is intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. These statements speak only as of the date of this Annual Information Form. These forward-looking statements include, but are not limited to, statements concerning:

 

   

forecast production;

 

   

forecast operating costs and capital costs;

 

   

sales forecasts;

 

   

our strategies and objectives;

 

   

future prices and price volatility for steelmaking coal, copper, zinc, blended bitumen and other products and commodities that we produce and sell, as well as oil, natural gas and petroleum products;

 

   

the demand for and supply of steelmaking coal, copper, zinc, blended bitumen and other products and commodities that we produce and sell;

 

   

expected receipt of regulatory approvals, and the expected timing thereof;

 

   

expected receipt or completion of prefeasibility studies, feasibility studies and other studies and the expected timing thereof;

 

   

proposed or expected changes in regulatory frameworks;

 

   

our interest and other expenses;

 

   

our tax position and the tax rates applicable to us;

 

   

the adequacy of our logistics arrangements related to Fort Hills;

 

   

curtailment measures imposed by the Government of Alberta and their impact on Fort Hills;

 

   

the timing and costs of construction and production with respect to, and the issuance of the necessary permits and other authorizations required for, certain of our development and expansion projects, including, among others, the Quebrada Blanca Phase 2 (QB2) project, the NuevaUnión copper project, the Frontier project and our Project Satellite projects;

 

 

 

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2018 Annual Information Form

 

 

 

   

expected mine lives and the possibility of extending mine lives;

 

   

the closure of our Coal Mountain operations, including our expectation to continue to capture latent processing capacity by hauling a portion of the raw coal from Elkview to Coal Mountain for processing;

 

   

our estimates of the quantity and quality of our mineral and oil reserves and resources;

 

   

the production capacity, planned production levels and future production of our operations;

 

   

availability of transportation for our products from our operations to our customers, including our participation in the crude-by-rail initiative;

 

   

availability of any of our credit facilities;

 

   

financial assurance requirements related to our projects and related agreements;

 

   

potential impact of transportation, port, pipeline and other potential production disruptions;

 

   

our planned capital expenditures and capital spending and timing for completion of our capital projects;

 

   

our estimates of reclamation and other costs related to environmental protection;

 

   

our future capital and mine production costs, including the costs and potential impact of complying with existing and proposed environmental laws and regulations in the operation and closure of various operations;

 

   

the costs, steps and potential impact of managing water quality at our coal operations, including but not limited to the statements under “Description of the Business — Individual Operations — Steelmaking Coal — Elk Valley Water Management” including our expectations regarding timing and costs of active water treatment, capital spending guidance, the potential for saturated rock fills to reduce capital and operating costs associated with active water treatment, the regulatory process relating to active water treatment and estimates of our long-term costs of water management;

 

   

our expectations regarding the increase in the royalty paid by POSCAN in respect of our Greenhills property;

 

   

our expectation that we can upgrade Neptune Bulk Terminals’ operational capacity;

 

   

our expectations regarding the regulatory application for Frontier and timelines for productions at Frontier;

 

   

anticipated benefits, timing and cost of our ball mill project at Highland Valley;

 

   

timing of the closing of the QB2 transaction and our expectation that the transaction will close;

 

   

expectations regarding the QB 2 project, including expectations regarding financing, capacity, mine life, regulatory approvals, projected expenditures and timing of any development decision in respect thereof;

 

   

expected spending and activities at our Project Satellite properties;

 

 

 

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2018 Annual Information Form

 

 

 

   

anticipated benefits, timing and costs of the Red Dog mill upgrade projects;

 

   

our financial and operating objectives;

 

   

our exploration, environmental, community, health and safety initiatives;

 

   

the outcome of legal and regulatory proceedings and other disputes in which we are involved;

 

   

the outcome of our coal sales negotiations and negotiations with metals and concentrate customers concerning treatment charges, price adjustments and premiums;

 

   

our dividend policy; and

 

   

general business and economic conditions.

Canadian disclosure rules require us to present projected capital and projected operating costs for each of our material mining operations. The amounts presented for each operation are estimates, based on current mine plans and assumptions believed to be reasonable, including assumptions with respect to energy and labour costs and the Canadian/U.S. dollar exchange rate. Future capital expenditures are based on management’s best estimate of expected future capital requirements for the extraction and processing of existing reserves and resources. Cash operating costs are not a measure recognized under International Financial Reporting Standards in Canada or generally accepted accounting principles in the United States. Various factors will cause actual results to vary from the projected operating and capital costs set out below. Our disclosed cash operating costs do not include transportation costs or royalties, and may not be comparable to similar measures reported by other issuers.

Inherent in forward-looking statements are risks and uncertainties beyond our ability to predict or control, including risks that may affect our operating or capital plans; risks generally encountered in the permitting and development of mineral and oil and gas properties such as unusual or unexpected geological formations, unanticipated metallurgical difficulties, delays associated with permit appeals or other regulatory processes, ground control problems, adverse weather conditions, process upsets and equipment malfunctions; risks associated with the Canadian Corruption of Foreign Public Officials Act and similar worldwide bribery laws; risks associated with labour disturbances and availability of skilled labour; risks associated with fluctuations in the market prices of our principal commodities, which are cyclical and subject to substantial price fluctuations; risks associated with changes to the tax and royalty regimes in which we operate; risks created through competition for mining and oil and gas properties; risks associated with lack of access to markets; risks associated with mineral and oil and gas reserve estimates; risks posed by fluctuations in exchange rates and interest rates, as well as general economic conditions; risks associated with access to capital; risks associated with changes to our credit ratings; risks associated with our material financing arrangements and our covenants thereunder; risks associated with climate change, environmental compliance, changes in environmental legislation and regulation and changes to our reclamation obligations; risks associated with our dependence on third parties for the provision of transportation, port, pipeline. and other critical services; risks associated with non-performance by contractual counterparties; risks associated with potential disputes with partners and co-owners; risks associated with Aboriginal title claims and other title risks; social and political risks associated with operations in foreign countries; risks associated with the preparation of our financial statements; risks related to trade barriers or

 

 

 

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import restrictions; risks of changes in tax laws or their interpretation; and risks associated with tax reassessments and legal proceedings. The amount and timing of actual capital expenditures is dependent upon, among other matters, being able to secure permits, equipment, supplies, materials and labour on a timely basis and at expected costs to enable the related capital project to be completed as currently anticipated. Fort Hills is not controlled by us and production schedules may be adjusted by our partners. Certain of our other operations and projects are operated through joint arrangements where we may not have control over all decisions, which may cause outcomes to differ from current expectations. Further factors associated with our Elk Valley Water Quality Plan are discussed under the heading “Description of the Business — Individual Operations — Steelmaking Coal — Elk Valley Water Management”. Declaration and payment of dividends is at the discretion of the Board, and our dividend policy will be reviewed regularly and may change. Closing of the QB2 transaction depends on certain regulatory approvals; if all required approvals are not received in a timely manner, the timing and ability to close will be jeopardized.

Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this Annual Information Form. Such statements are based on a number of assumptions that may prove to be incorrect, including, but not limited to, assumptions about:

 

   

general business and economic conditions;

 

   

interest rates;

 

   

commodity and power prices;

 

   

acts of foreign or domestic governments and the outcome of legal proceedings;

 

   

the supply and demand for, deliveries of, and the level and volatility of prices of copper, coal, zinc and blended bitumen and our other metals and minerals, as well as oil, natural gas and other petroleum products;

 

   

the timing of the receipt of permits and other regulatory and governmental approvals for our development projects and other operations, including mine extensions;

 

   

our costs of production and our production and productivity levels, as well as those of our competitors;

 

   

our ability to secure adequate transportation, pipeline and port services for our products;

 

   

changes in credit market conditions and conditions in financial markets generally;

 

   

the availability of funding to refinance our borrowings as they become due or to finance our development projects on reasonable terms;

 

   

our ability to procure equipment and operating supplies in sufficient quantities and on a timely basis;

 

   

the availability of qualified employees and contractors for our operations, including our new developments;

 

   

our ability to attract and retain skilled staff;

 

   

the satisfactory negotiation of collective agreements with unionized employees;

 

 

 

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the impact of changes in Canadian-U.S. dollar and other foreign exchange rates on our costs and results;

 

   

engineering and construction timetables and capital costs for our development and expansion projects;

 

   

costs of closure, and environmental compliance costs generally, of operations;

 

   

market competition;

 

   

the accuracy of our reserve and resource estimates (including, with respect to size, grade and recoverability) and the geological, operational and price assumptions on which these are based;

 

   

tax benefits and tax rates;

 

   

the outcome of our coal price and volume negotiations with customers;

 

   

the outcome of our copper, zinc and lead concentrate treatment and refining charge negotiations with customers;

 

   

the market price for our blended bitumen;

 

   

curtailment measures on oil production taken by the Government of Alberta;

 

   

the resolution of environmental and other proceedings or disputes;

 

   

the future supply of low-cost power to the Trail smelting and refining complex;

 

   

our ability to obtain, comply with and renew permits in a timely manner; and

 

   

our ongoing relations with our employees and with our business and joint venture partners.

In addition, assumptions regarding the Elk Valley Water Quality Plan include assumptions that additional treatment will be effective at scale, and that the technology and facilities operate as expected, as well as additional assumptions discussed under the heading “Description of the Business — Individual Operations — Steelmaking Coal — Elk Valley Water Management”. Expectations regarding QB2 are based on current project assumptions and the final feasibility study. Expectations regarding Fort Hills are based on assumptions regarding the performance of the plant and other facilities at Fort Hills, and the operation of the project. Statements regarding the availability of our credit facilities are based on assumptions that we will be able to satisfy the conditions for borrowing at the time of a borrowing request and that the credit facilities are not otherwise terminated or accelerated due to an event of default. Assumptions relating to our expectations for the closing of the QB2 transaction, include that all regulatory approvals will be obtained in a timely manner.

We caution you that the foregoing list of important factors and assumptions is not exhaustive. Other events or circumstances could cause our actual results to differ materially from those estimated or projected and expressed in, or implied by, our forward-looking statements. You should also carefully consider the matters discussed under “Risk Factors” in this Annual Information Form and in our “Cautionary Statement on Forward-Looking Information” section of our Management’s Discussion and Analysis for the year ended December 31, 2018, and subsequent filings, that can be found under our profile on SEDAR (www.sedar.com) and on

 

 

 

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EDGAR (www.sec.gov). Except as required by law, we undertake no obligation to update publicly or otherwise revise any forward-looking statements or the foregoing list of factors, whether as a result of new information or future events or otherwise.

Cautionary Note to U.S. Investors Concerning Estimates of Measured, Indicated and Inferred Mineral Resources and Oil and Gas Reserves

This Annual Information Form has been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of U.S. securities laws.

In this Annual Information Form we use the term “mineral resources” and its subcategories “measured”, “indicated”, and “inferred” mineral resources. Readers are advised that, while such terms are required by Canadian regulations, the U.S. Securities and Exchange Commission (SEC) does not currently require U.S. mining companies in their filings with the SEC to disclose estimates of mineral resources. Investors are cautioned not to assume that any part or all of the mineral resources in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. Under Canadian rules, issuers must not make any disclosure of results of an economic evaluation that includes inferred mineral resources, except in very limited cases. Investors are cautioned not to assume that part or all of an inferred mineral resource exists, or is, or will be, economically or legally mineable.

Canadian standards of oil and gas disclosure also differ significantly from the requirements of the SEC, and oil and gas reserve and resource information contained in this Annual Information Form may not be comparable to similar information disclosed by U.S. companies. The oil and gas reserves estimates in this Annual Information Form have been prepared in accordance with National Instrument 51-101 — Standards of Disclosure for Oil and Gas Activities, which has been adopted by securities regulatory authorities in Canada and imposes oil and gas disclosure standards for Canadian public issuers engaged in oil and gas activities and differs from the oil and gas disclosure standards of the SEC under Subpart 1200 of Regulation S-K. The SEC definitions of proved and probable reserves are different than the definitions contained in National Instrument 51-101. Therefore, proved and probable reserves disclosed in, or in the documents incorporated by reference into, this Annual Information Form in compliance with National Instrument 51-101 may not be comparable to those disclosed by U.S. companies.

 

 

 

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Glossary of Technical Terms

bitumen: a naturally occurring heavy viscous crude oil.

blended bitumen: bitumen blended with diluent to reduce its viscosity, such that the combined product can be easily pumped through a pipeline and placed in storage facilities.

cathode: an electrode in an electrolytic cell where electrons enter and which represents the final product of an electrolytic metal refining process.

clean coal: coal that has been processed to separate impurities and is in a form suitable for sale.

coking coal: coal possessing physical and chemical characteristics that facilitate the conversion into coke, which is used in the steelmaking process. Coking coal may also be referred to as metallurgical coal.

concentrate: a product containing valuable minerals from which most of the waste rock in the ore has been eliminated in a mill or concentrator.

crude oil: unrefined liquid hydrocarbons, excluding natural gas liquids.

dump leach: a process that involves dissolving and recovering minerals from typically lower-grade uncrushed ore from a mine dump.

flotation: a method of mineral separation in which a variety of reagents facilitate the attachment of certain minerals on to the surface of a froth while other minerals sink, thus effecting the separation of valuable minerals from non-valuable minerals.

grade: the classification of an ore according to its content of economically valuable material, expressed as grams per tonne for precious metals and as a percentage for most other metals.

hard coking coal: a type of coking coal used primarily for making high-strength coke for use in integrated steel mills.

heap leach: a process whereby metals are leached from a heap of crushed ore by leaching solutions seeping through the heap into a container or liner beneath the heap.

hypogene: primary sulphide ore located beneath shallow zones of ore affected by weathering processes.

LME: London Metals Exchange.

mill: a plant in which ore is ground to reduce particle size and physically liberating valuable from non-valuable minerals.

MMbbl: million barrels.

oil sands: sand and rock material that contains bitumen.

ore: naturally occurring material from which minerals of economic value can be extracted at a reasonable profit.

 

 

 

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orebody: a contiguous, well-defined mass of material of sufficient ore content to make extraction economically feasible.

pulverized coal injection (PCI) coal: coal that is pulverized and injected into a blast furnace. Those grades of coal used in the PCI process are generally non-coking. PCI grade coal is used primarily as a heat source in the steelmaking process in partial replacement for high-quality coking coals, which are typically more expensive.

semi-autogenous grinding (SAG): a method of grinding rock in which particle size reduction is achieved through tumbling action of a rotating grinding mill that primarily utilizes the contact of rock-on-rock supplemented with steel grinding balls to breakdown particles.

slag: a substance formed by way of chemical action and fusion at furnace operating temperatures; a by-product of the smelting process.

smelter: a plant in which concentrates are processed into an upgraded product by application of heat.

steelmaking coal: the various grades of coal that are used in the steelmaking process, including both coals to produce coke and coals that are pulverized for injection into the blast furnace as a fuel.

sulphide: a mineral compound containing sulphur but no oxygen.

supergene: near-surface ore that has been subject to secondary enrichment by weathering.

SX-EW: an abbreviation for solvent extraction-electrowinning, a hydrometallurgical process to produce cathode copper from leached copper ores.

tailings: the slurry that remains after selected minerals have been removed from the ore during processing.

thermal coal: coal that is used primarily for its heating value. Thermal coals tend not to have the carbonization properties possessed by coking coals. Most thermal coal is used to produce electricity in thermal power plants.

treatment and refining charges: the charge a mine pays to a smelter as a fee for conversion of concentrates into refined metal.

 

 

 

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Corporate Structure

Name, Address and Incorporation

Teck Resources Limited was continued under the Canada Business Corporations Act in 1978. It is the continuing company resulting from the merger in 1963 of the interests of The Teck-Hughes Gold Mines Ltd., Lamaque Gold Mines Limited and Canadian Devonian Petroleum Ltd., companies incorporated in 1913, 1937 and 1951, respectively. Over the years, several other reorganizations have been undertaken. These include our merger with Brameda Resources Limited and The Yukon Consolidated Gold Corporation in 1979, the merger with Highmont Mining Corporation and Iso Mines Limited in 1979, the consolidation with Afton Mines Ltd. in 1981, the merger with Copperfields Mining Corporation in 1983, and the acquisition of 100% of Cominco Ltd. in 2001. On July 23, 2001, Cominco Ltd. changed its name to Teck Cominco Metals Ltd. and on September 12, 2001, we changed our name to Teck Cominco Limited. On January 1, 2008, we amalgamated with our wholly owned subsidiary, Aur Resources Inc., by way of vertical short-form amalgamation under the name Teck Cominco Limited. On April 23, 2009, we changed our name to Teck Resources Limited from Teck Cominco Limited. On June 1, 2009 Teck Cominco Metals Ltd. changed its name to Teck Metals Ltd.

Since 1978, the Articles of Teck have been amended on several occasions to provide for various series of preferred shares and for other corporate purposes. On January 19, 1988, our Articles were amended to provide for the subdivision of our Class A common shares and Class B subordinate voting shares on a two-for-one basis. On September 12, 2001, the Articles were amended to effect the name change to Teck Cominco Limited and to convert each outstanding Class A common share into one new Class A common share and 0.2 Class B subordinate voting shares and to enact “coattail” provisions for the benefit of the Class B subordinate voting shares. Effective May 7, 2007, our Articles were amended to subdivide our Class A common shares and Class B subordinate voting shares on a two-for-one basis. See “Description of Capital Structure” below for a description of the attributes of the Class A common shares and Class B subordinate voting shares. On April 23, 2009, our Articles were amended to effect the name change to Teck Resources Limited as described above.

The registered and principal offices of Teck are located at Suite 3300, 550 Burrard Street, Vancouver, British Columbia, V6C 0B3.

 

 

 

  Teck Resources Limited

  

 

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Intercorporate Relationships

Our financial statements consolidate the accounts of all of our subsidiaries. Our material subsidiaries as at December 31, 2018 are listed below. Unless otherwise indicated, all subsidiaries listed below are wholly owned by Teck. Indentation indicates that the majority of the voting securities of the relevant subsidiary are held by the subsidiary listed immediately above.

 

Company Name  

 

  Jurisdiction of  

  Organization or  

  Formation  

 

   

  Teck South American Holdings Ltd.

  Canada
   

  Teck Chilean Holdings Ltd.

  Canada
   

    Teck Resources Chile Limitada

  Chile
   

  Teck Base Metals Ltd.

  Canada
   
  Teck Metals Ltd.   Canada
   

  Teck Resources Coal Partnership

  British Columbia
   

  Fording Partnership

  Alberta
   

    Teck Coal Partnership

  Alberta
   

        Elkview Mine Limited Partnership(1)

  Alberta
   

  Teck Highland Valley Copper Partnership

  British Columbia
   

  TCL U.S. Holdings Ltd.

  Canada
   

  TCAI Incorporated

          Washington, U.S.A.        
   

    Teck American Incorporated

  Washington, U.S.A.
   

        Teck Alaska Incorporated

  Alaska, U.S.A.

(1) 95% held, directly or indirectly, by Teck

In addition to the above, we own, directly or indirectly:

 

  ·  

a 21.3% limited partnership interest in Fort Hills Energy Limited Partnership;

 

  ·  

a 90% indirect share interest in Compañía Minera Teck Quebrada Blanca S.A. This is expected to decrease to 60% upon closing of the transaction with Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation – See “Description of the Business – Copper – Quebrada Blanca Mine, Chile (Copper)” for further information;

 

  ·  

a 90% share interest in Compañía Minera Teck Carmen de Andacollo S.A.; and

 

  ·  

a 22.5% indirect share interest in Compañía Minera Antamina S.A., which owns the Antamina copper and zinc mine in Peru.

 

 

 

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The following chart sets out the relationships among our material subsidiaries as at December 31, 2018. Certain aspects of the ownership structure have been simplified.

 

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General Development of the Business

Three-Year History

2016

In 2016, average annual prices for our principal products increased compared to 2015, except for copper. Annual average prices in 2016 for copper and zinc were US$2.21 and US$0.95 per pound, respectively, compared with US$2.49 and US$0.87 per pound in 2015. Average realized coal prices increased from US$93 per tonne in 2015 to US$115 per tonne in 2016, due primarily to dramatic price increases in the second half of the year.

Work advanced on a number of projects through 2016. Construction of our Fort Hills oils sands project advanced through the year and was approximately 76% complete by year-end. See “Description of the Business — Energy” for a discussion of the project. We submitted a Social and Environmental Impact Assessment for our Quebrada Blanca Phase 2 Project in September 2016 and the updated feasibility study for the project was completed in the first quarter of 2017. We also announced an agreement to increase our interest in the Zafranal project in November, through the public acquisition of AQM Copper Inc., one of our partners on the project. This acquisition was completed in January 2017.

During the year we undertook a number of transactions that supported our liquidity and strengthened our financial position. In June, we issued US$1.25 billion in aggregate principal amount of senior unsecured notes maturing in 2021 and 2024, and used the proceeds to repurchase, under a tender offer, notes maturing in 2017, 2018 and 2019, reducing near-term maturities. In September and early October we repurchased an additional US$759 million face value of debt in market transactions. We also extended the maturity of US$1.14 billion of our US$1.2 billion revolving credit facility from June 2017 to June 2019. See “General Description of Capital Structure — Credit Facilities and Debt Securities” for further details of our credit facilities and debt securities.

Notwithstanding improving commodity prices, we continued to implement our cost reduction program through 2016 and were generally able to maintain or increase production and achieve significant reductions of cash unit costs across our operations during the year. Our cash and cash equivalents as at December 31, 2016 were $1.4 billion against total debt of $8.3 billion, with the decrease in our reported total debt mainly resulting from the repurchases described above.

2017

In 2017, average annual prices for our principal products increased compared to 2016. Annual average prices in 2017 for steelmaking coal, copper and zinc were US$174 per tonne, US$2.80 and US$1.31 per pound, respectively, compared with US$115 per tonne, and US$2.21 and US$0.95 per pound in 2016.

During the year we announced a new dividend policy, completed and announced a number of dispositions of non-core assets, acquired further interests in a number of our projects and advanced various initiatives and projects intended to strengthen our financial position and our core business.

 

 

 

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In April we announced a new dividend policy and the doubling of our annualized base dividend to $0.20 per share, which was declared at $0.05 per quarter. See “Dividends” below for a further discussion of our dividend policy. We also announced a normal course issuer bid, which allowed us to purchase up to 20 million Class B subordinate voting shares through to September 2018. In December, we paid a dividend of $0.45 per share consisting of a supplemental dividend of $0.40 per share and our regular base quarterly dividend of $0.05 per share, which totalled approximately $260 million. In addition, taking into account our strong cash position, we also announced our intention to apply an additional $230 million to the repurchase of shares through March 31, 2018, of which 5.9 million Class B subordinate voting shares for $175 million were repurchased in the fourth quarter.

In May we announced the sale of our two-thirds interest in the Waneta Dam and related transmission assets to Fortis Inc. for $1.2 billion cash. BC Hydro subsequently exercised its right of first offer over the assets, and the sale of the Waneta Dam and associated assets to BC Hydro closed in July 2018. We also completed the sale of our 49% interest in the Wintering Hills wind power facility in 2017, for proceeds of $59 million.

Acquisitions during the year included the closing of our purchase of AQM Copper Inc., which held an indirect 30% interest in our Zafranal copper-gold project located in Peru, and the acquisition of the minority 21% interest in our San Nicolás copper-zinc project located in Mexico. Zafranal and San Nicolás are part of our Project Satellite initiative launched in 2017, which is focused on surfacing value from substantial base metal assets in Teck’s portfolio. See “Description of the Business — Copper” for a further discussion of Project Satellite. In addition, we increased our interest in the Fort Hills oil sands mining and processing operations from 20% to 20.89% in 2017, and our interest ultimately increased to approximately 21.3% in 2018.

Work advanced on a number of projects through 2017. At our Fort Hills oil sands mining and processing operation, the mine, primary extraction, utilities and froth assets were commissioned. An intermediate product, bitumen froth, was produced in September 2017, and first oil was achieved on January 27, 2018. See “Description of the Business — Energy” for a discussion of the project. We commenced a $72 million project to install an additional ball mill at our Highland Valley Copper Operations and a US$110 million upgrade project at our Red Dog zinc operations, and continued to advance through the regulatory process for our Quebrada Blanca Phase 2 project. We also commenced and advanced studies and expansion work at in respect of other projects.

We also continued to strengthen our liquidity and financial position in 2017. Over the course of the year we retired US$1.3 billion of debt through open market repurchases, tender offers and retirement at maturity. In October, we extended the maturity of our US$3.0 billion revolving credit facility to October 2022 (from July 2020) and US$1.2 billion revolving credit facility to October 2020 (from June 2019).

Our cash and cash equivalents as at December 31, 2017 were $952 million against total debt of $6.4 billion.

 

 

 

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2018

In 2018, average annual prices for our principal products increased compared to 2017. Average realized annual prices in 2018 for steelmaking coal, copper and zinc were US$187 per tonne, US$2.96 per pound and US$1.33 per pound, respectively, compared with US$174 per tonne, US$2.80 per pound and US$1.31 per pound, respectively, in 2017. The average realized annual price for our blended bitumen in 2018 was US$35 per barrel.

During the year we achieved first oil at Fort Hills; completed the sale of our interest in the Waneta Dam; acquired an additional 13.5% interest in Compania Minera Teck Quebrada Blanca, S.A. (QBSA), our majority owned subsidiary that holds the Quebrada Blanca Phase 2 project (QB2) and subsequently announced a transaction through which a new partner will subscribe for a 30% interest in QBSA; received regulatory approval for, and approved the construction of, our QB2 project; announced the retirement of our long-time Chairman and the appointment of his replacement; and advanced various initiatives and projects intended to strengthen our financial position and our core business.

In January, first oil was produced at Fort Hills, which has now been running at full capacity for much of the fourth quarter. Start-up has exceeded our expectations with respect to both production volumes and product quality.

In April, we acquired an additional 13.5% interest in QBSA, our majority owned subsidiary that holds the QB2 project, bringing our interest to 90%, and in August we received regulatory approval to develop the QB2 project.

In July, we completed the sale of our two-thirds interest in the Waneta Dam and related transmission assets to BC Hydro for $1.2 billion cash. In connection with the sale, we entered into a 20-year arrangement with BC Hydro, with an option to extend for an additional 10 years, to purchase power for our Trail Operations.

Work advanced on a number of projects through 2018. Our project to install an additional ball mill at our Highland Valley Copper Operations progressed, targeting commissioning in 2019, and installation of our new acid plant at our Trail Operations advanced towards commissioning in mid-2019. Work also continued on an upgrade project at our Red Dog zinc operations with planned start-up in the first quarter of 2020.

In December our Board approved the QB2 project for full construction, with first production targeted for late 2021. Concurrently, we announced a transaction through which Sumitomo Metal Mining Co. Ltd. and Sumitomo Corporation will subscribe for a 30% indirect interest in QBSA, which holds the QB2 project, by contributing US$1.2 billion to the project with additional contingent consideration payable in certain circumstances. Following closing of the transaction, Teck will hold a 60% interest in QBSA; Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation will collectively hold a 30% interest and Empresa Nacional de Minería will continue to hold a 10% carried interest.

In September, Dominic S. Barton joined our Board of Directors and in October Mr. Barton became Chair of the Board, replacing our long-standing Chairman of the Board, Dr. Norman B. Keevil, who retired, along with Mr. Warren S. R. Seyffert, Q.C., at the end of the year.

 

 

 

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In October, we announced a normal course issuer bid, which allows us to purchase up to 40 million Class B subordinate voting shares through to October 2019. In December, we paid a dividend of $0.15 per share consisting of a supplemental dividend of $0.10 per share and our regular base quarterly dividend of $0.05 per share, which totalled approximately $86 million. In addition, taking into account our strong cash position, we also announced that the Board has directed management to apply an additional $400 million to the repurchase of shares, of which 4.7 million Class B subordinate voting shares were repurchased in the fourth quarter for $131 million.

We also continued to strengthen our liquidity and financial position in 2018. Over the course of the year we retired US$1.0 billion of debt through open market repurchases, tender offers and retirement at maturity. In light of our strong financial position, we were able to terminate the subsidiary guarantees of our various credit facilities and public notes that were introduced during the commodity downturn in 2016.

Our cash and cash equivalents as at December 31, 2018 were $1.7 billion against total debt of $5.5 billion.

 

 

 

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Description of the Business

General

Teck’s business is exploring for, acquiring, developing and producing natural resources. Our activities are organized into business units focused on copper, steelmaking coal, zinc and energy. These are supported by Teck’s corporate offices, which manage corporate growth initiatives and provide marketing, administrative, technical, financial and other services.

We have interests in the following operations:

 

    

 

Type of Operation

 

 

 

Jurisdiction

 

 

Elkview

 

 

Steelmaking Coal Mine

 

 

British Columbia, Canada

 

 

Fording River

 

 

Steelmaking Coal Mine

 

 

British Columbia, Canada

 

 

Greenhills

 

 

Steelmaking Coal Mine

 

 

British Columbia, Canada

 

 

Line Creek

 

 

Steelmaking Coal Mine

 

 

British Columbia, Canada

 

 

Coal Mountain

 

 

Steelmaking Coal Mine

 

 

British Columbia, Canada

 

 

Cardinal River

 

 

Steelmaking Coal Mine

 

 

Alberta, Canada

 

 

Highland Valley

 

 

Copper/Molybdenum Mine

 

 

British Columbia, Canada

 

 

Antamina

 

 

Copper/Zinc Mine

 

 

Ancash, Peru

 

 

Quebrada Blanca

 

 

Copper Mine

 

 

Region I, Chile

 

 

Carmen de Andacollo

 

 

Copper/Gold Mine

 

 

Region IV, Chile

 

 

Trail Operations

 

 

Zinc/Lead Refinery

 

 

British Columbia, Canada

 

 

Red Dog

 

 

Zinc/Lead Mine

 

 

Alaska, U.S.A.

 

 

Pend Oreille

 

 

Zinc/Lead Mine

 

 

Washington, U.S.A.

 

 

Fort Hills

 

 

Oil Sands Mining and Processing Operation

 

 

Alberta, Canada

 

Our principal products are steelmaking coal, copper, zinc and blended bitumen. In addition we produce lead, silver, molybdenum, and various specialty and other metals, chemicals and fertilizers. We also actively explore for copper, zinc and gold.

 

 

 

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The following table sets out our revenue by product for each of our last two financial years:

 

   
     

2018
$(Billions)

 

   

%

 

 

2017(1)
$(Billions)

 

   

%

 

   

Copper(2)

 

    

 

2.242

 

 

 

 

18

 

   

 

2.022

 

 

 

 

17

 

   

Coal

 

    

 

6.349

 

 

 

 

50

 

   

 

6.014

 

 

 

 

50

 

   

Zinc(3)

 

    

 

2.391

 

 

 

 

19

 

   

 

2.364

 

 

 

 

20

 

   

Bitumen

 

    

 

0.407

 

 

 

 

3

 

   

 

-

 

 

 

 

-

 

   

Other(4)

 

    

 

1.175

 

 

 

 

10

 

   

 

1.510

 

 

 

 

13

 

   

Total

 

    

 

12.564

 

 

 

 

100

 

   

 

11.910

 

 

 

 

100

 

 

  (1)

Certain 2017 comparative figures have been restated for new IFRS pronouncements. Please refer to Note 32 to our audited annual consolidated financial statements for the year ended December 31, 2018.

  (2)

Copper revenues include sales of copper contained in concentrates and cathode copper.

  (3)

Zinc revenues include sales of refined zinc and zinc concentrate.

  (4)

Other revenues include sales of silver, lead, gold, molybdenum, various specialty metals, chemicals, energy and fertilizer.

Product Summary

Steelmaking Coal

Teck is the second-largest seaborne exporter of steelmaking coal in the world. Our hard coking coal, a type of steelmaking coal, is used primarily for making coke by integrated steel mills in Asia, Europe and the Americas. In 2018, sales to Asia accounted for approximately 75% of our annual coal sales volume, higher than in 2017 due to increased sales volumes to areas with the greatest demand growth, such as India and South East Asia. Approximately 75% of all coal we produce is high-quality hard coking coal, although the percentages can vary from period to period. We also produce lesser quality semi-hard coking coal, semi-soft coking coal, PCI and thermal coal products, which in aggregate accounted for a little over 25% of our annual sales volume in 2018.

Coal is processed at our mine sites. Processed coal is primarily shipped westbound from our mines by rail to terminals along the coast of British Columbia and from there by vessel to overseas customers. In 2018, approximately 5% of our processed coal was shipped eastbound directly by rail, or by rail and by ship via Thunder Bay, to customers in North America.

Globally, we compete in the steelmaking coal market primarily with producers based in Australia and the United States. For sales to China, we also compete with Mongolian and Chinese domestic coal producers. Coal pricing is generally established in U.S. dollars and the competitive positioning among producers can be significantly affected by exchange rates. Our competitive position in the coal market continues to be determined primarily by the quality of our various coal products and our reputation as a reliable supplier, as well as by our production and transportation costs compared to other producers throughout the world.

The high-quality seaborne steelmaking coal markets are cyclical, being driven by a combination of demand, production and export capacity. Strong steel market fundamentals support demand

 

 

 

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and pricing for high-quality seaborne steelmaking coal. Conversely, in difficult steel markets, steelmakers can use a higher proportion of semi-soft and PCI coal products in their production process, which can result in reduced pricing premiums for higher quality hard coking coals.

Global steel production and demand for seaborne steelmaking coal remained strong in 2018. The World Steel Association reported strong steel production across all regions due to resilient steel pricing and demand supported by the recovery in investment activities in developed economies and the improved performance of emerging economies. Depletion and reduced production of some Eastern European coal mines continued to increase demand for seaborne steelmaking coal from European steel mills. A robust steelmaking coal market is supported by concerns regarding supply from Australia and the U.S, as well as demand impact of continued capacity growth in India and the relocation of steel production to coastal areas in China. While demand for steelmaking coal remains strong, pricing corrected from the beginning of 2019 reflecting shorter vessel queues in Australia and the relaxation of import restrictions in China in November 2018. We continue to monitor the effects that government policy and trade uncertainty might have on potential price volatility.

In the past few years, a number of our customers reduced the proportion of coal purchased through quarterly priced agreements and requested pricing for a portion of contract volumes on a spot basis in an effort to control costs in an environment of low steel prices. Coincident with the cyclone-induced price spike in April 2017, the pricing methodology for our quarterly contract sales changed from a negotiated quarterly benchmark to an index-linked pricing mechanism based on the average of key premium steelmaking coal price assessments. Quarterly priced sales represent approximately 40% of our sales, with the balance of our sales priced at levels reflecting market conditions when sales are concluded. Lower-grade semi-soft coals and PCI pricing continues to be negotiated on a quarterly benchmark basis.

Substantially all of our revenues from sales of coal products were derived from sales to third-party end users, most of which are steelmakers.

Copper

We produce both copper concentrates and copper cathode. Our principal market for copper concentrates is Asia, with a lesser amount sold in Europe. Copper concentrates produced at the Highland Valley Copper mine are distributed to customers in Asia by rail to a port in Vancouver, British Columbia, and from there by ship. Copper concentrates produced at Antamina are transported by a slurry pipeline to a port at Huarmey, Peru, and from there go by ship to customers in Asia and Europe. Copper concentrates produced at Carmen de Andacollo are trucked to the port of Coquimbo, Chile, and from there go by ship to customers in Asia and Europe. Copper concentrates are sold primarily under long-term contracts, with treatment and refining charges negotiated on an annual basis. Copper cathode from our Quebrada Blanca and Carmen de Andacollo mines is trucked from the mines and sold primarily under annual contracts to customers in Asia, Europe and North America.

The copper business is cyclical. Copper concentrate treatment charges rise and fall depending upon the supply of copper concentrates in the market and the demand for custom copper concentrates by the copper smelting and refining industry. Prices for copper cathode also rise and fall as a result of changes in demand for, and supply of, refined copper metal. The major use

 

 

 

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of refined copper is in electrical wiring and electronic applications, with prices and premiums highly dependent on the demand for electrical wire in construction, communications and automotive applications. We compete with other producers of copper concentrates and cathodes, as well as copper sourced through scrap sources.

Global demand for copper metal is estimated by Wood Mackenzie to have grown by 3.0% in 2018 to reach an estimated 23.7 million tonnes. Demand improved in Asia with Chinese copper cathode demand growth estimated at 5.0% over 2017, much higher than initial projections at the beginning of the year. Demand growth in Europe was relatively flat, while demand in North America was up 3.3% with better semi-fabricated copper demand in Mexico, Canada and the US. Copper demand in South East Asia was stronger on improved export demand in several countries to meet increasing Indian demand, which was up 9.2% to 0.54 million tonnes. India was left undersupplied when one of the two domestic Indian smelters was shut during 2018, increasing export demand in South East Asia. Copper scrap availability decreased in 2018 as global trade patterns were disrupted by environmental restrictions on certain types of scrap imports into China. Scrap and unrefined copper imports into China, including blister and anode, were down 15% year-over-year to September 2018.

All of our revenues from sales of copper concentrates and cathode copper were derived from sales to third parties.

Zinc

We produce refined zinc through our metallurgical operations at Trail and zinc concentrates through our mining operations. Our principal markets for refined zinc are North America and Asia. Refined zinc produced at our metallurgical operations at Trail, British Columbia, is distributed to customers in North America by rail and/or truck and to customers in Asia by ship.

Our principal markets for zinc concentrates are Asia and Europe. In addition, in 2018 approximately 34% of zinc concentrate produced at Red Dog was sold to our metallurgical operations at Trail for treatment and refining. All of the production from our Pend Oreille zinc mine is sold to Trail.

All of our 2018 revenues from sales of refined zinc and zinc concentrates (other than zinc concentrates produced at Red Dog or Pend Oreille that are sold to Trail) were derived from sales to third parties. We strive to differentiate our refined metal products by producing the alloys, sizes and shapes best suited to our customers’ needs. We have substantial long-term frame contracts for the sale of zinc concentrates from the Red Dog mine to customers in Asia and Europe.

Trail’s supply of zinc and lead concentrates, other than those sourced from Red Dog or Pend Oreille, is provided primarily through long-term contracts with mine producers in North America, South America and Australia.

The zinc business is cyclical. Treatment and refining charges rise and fall depending upon the supply of zinc concentrates in the market and the demand for custom zinc concentrates by the zinc smelting and refining industry. Refined zinc is used primarily for galvanizing steel, and prices and premiums are highly dependent on the demand for steel products.

 

 

 

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Energy

In January 2018 the Fort Hills mine in Alberta, which is operated by an affiliate of Suncor Energy Inc., produced first bitumen. As required by pipelines to meet shipping viscosity requirements, we purchase diluent to blend with our bitumen production and sell a blended bitumen product known as Fort Hills Reduced Carbon Lifecycle Dilbit Blend, or FRB.

Teck’s principal markets for the blended bitumen are refinery operators in Alberta, Ontario, the U.S. Midwest and the U.S. Gulf Coast. Bitumen production from Fort Hills is transported on the Northern Courier Pipeline to the East Tank Farm in Alberta, which is owned by the Thebacha Limited Partnership and operated by an affiliate of Suncor. At the East Tank Farm, the Fort Hills bitumen is blended with diluent that has been sourced and delivered from Edmonton on the Norlite Pipeline. The blended bitumen is subsequently transported from the East Tank Farm on the Wood Buffalo Pipeline to Hardisty, Alberta, where Teck has contracted storage capacity for blended bitumen.

Our tankage at Hardisty is connected to major export pipelines, including the Enbridge common carrier pipeline, the existing Keystone pipeline and the Express crude oil pipeline; it is also connected to a large unit train loading facility. We sell our share of FRB to variety of customers at the Hardisty market hub and on the U.S. Gulf Coast. Approximately 80% of our blended bitumen sales are at Hardisty, with the remainder at the U.S. Gulf Coast. We have entered into a long-term take-or-pay transportation agreement on the existing Keystone pipeline to ship 10,000 barrels per day (bpd) of blended bitumen to customers on the U.S. Gulf Coast. The balance of our production will be either sold at Hardisty or shipped to customers via the Enbridge common carrier pipeline, or transported by rail if required.

Export pipeline capacity for Canadian crude oil versus overall supply was in deficit through 2018 and is expected to remain so through 2019 and beyond, until new export capacity is developed. Exacerbating the imbalance was a slower than expected ramp-up of crude-by-rail takeaway capacity.

In support of future export pipeline expansions, we have entered into long-term transportation contracts on the proposed Kinder Morgan TransMountain and TransCanada Keystone XL pipeline expansions that, if built, will deliver to Burnaby, British Columbia and the US Gulf Coast, respectively.

Prices for our blended bitumen are market based, and determined through a combination of global and Canadian benchmark indices. Like our other commodities, the oil industry is cyclical and is highly competitive. Blended bitumen prices are influenced by a combination of North American crude oil benchmark prices, including the New York Mercantile Exchange (NYMEX) light sweet crude oil (WTI). Canadian heavy crude oil of the kind we produce trades at a differential to WTI, and is known as Western Canadian Select or WCS. WCS is a widely-marketed crude grade with transparent market price references quoted at the Hardisty market hub in Canada and the U.S. Gulf Coast. The WCS discount to WTI varies over time depending on the supply and demand for heavy crude production and the markets available to producers of those products, which are in turn influenced by available pipelines and other transportation options.

 

 

 

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WCS at Hardisty values were highly volatile throughout 2018 with differentials widening significantly in the third and fourth quarter. The widening was the result of overall increased Canadian crude production competing for limited export capacity and markets, exacerbated by planned maintenance turnarounds at refineries in the U.S. Midwest and Gulf Coast. The impact of these wider differentials at Hardisty to our sales values are somewhat mitigated by our sales into the U.S. Gulf Coast market.

WCS at Hardisty differentials have since materially improved, and are now reflective of the long-term average. Supply was reduced due to the announced 325,000 barrels per day production curtailment mandated by the Government of Alberta for the first quarter of 2019. The government subsequently revised the first quarter curtailment level to 250,000 barrels per day for the production months of February and March. In addition, Canadian crude-by-rail shipments sharply increased throughout 2018 and are now forecast to exceed 400,000 bpd in 2019. Throughout 2019, we will participate in the crude-by-rail initiative through an agreement to load 10,000 bpd of FRB blend onto customers’ railcars at Hardisty.

Individual Operations

Steelmaking Coal

Our coal mineral holdings consist of a mix of fee simple lands owned by us and Crown leases and licences, which are subject to licensing and leasing fees. In the past, renewals of these licences and leases have generally been granted, although there can be no assurance that this will continue in the future.

Five of Teck’s six operating coal mines are in British Columbia and are therefore subject to the B.C. Mineral Tax which is a two-tier tax with a minimum rate of 2% and a maximum rate of 13%. A minimum tax of 2% applies to operating cash flows, as defined by the regulations. A maximum tax rate of 13% applies to cash flows after taking available deductions for capital expenditures and other permitted deductions. The Alberta Coal Royalty, which is assessed on a similar basis, at rates of 1% and 13%, apply to the Cardinal River mine in Alberta.

All of Teck’s coal mines are conventional open pit operations and are designed to operate on a continuous basis, 24 hours per day, 365 days per year. Operating schedules can be varied depending on market conditions and are subject to shutdowns for maintenance activities. Capacity may be restricted for a variety of reasons and actual production will depend on sales volumes. All of the mines are accessed by two-lane all-weather roads that connect to public highways. All the mines operate under permits granted by provincial and/or federal regulatory authorities. Each of the mines will require additional permits as they progress through their long-term mine plans. The issuance of certain permits for mine life extensions may depend on a number of factors including our ability to meet the water quality targets set out in the Elk Valley Water Quality Plan, as discussed below. All permits necessary for the current operations of the mines are in hand and in good standing. Annual infill drilling programs are conducted to confirm and update the geological models used to develop the yearly mine plans.

Following mining, the coal is washed in coal preparation plants using a variety of conventional techniques and conveyed to coal or gas-fired dryers for drying. Processed coal is conveyed to clean coal silos or other storage facilities for intermediate storage and load-out to railcars.

 

 

 

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Our 2018 production of 26.2 million tonnes was a slight decline of 400,000 thousand tonnes from 2017, primarily due to declining production at Coal Mountain Operations as it reached the end of its life. The pressure event in the coal dryer at Elkview Operations that impacted production in the first quarter was fully offset in subsequent quarters by hauling a portion of raw coal from Elkview Operations to Coal Mountain Operations for processing.

Steelmaking coal production in 2019 is expected to be between 26.0 and 26.5 million tonnes. The business unit will continue to evaluate 2019 raw coal processing opportunities through the latent production capacity of Elk Valley processing plants. As in prior years, annual production volumes can be adjusted to reflect market demand for our products, subject to adequate rail and port service. Assuming that current market conditions persist, annual production from 2020 to 2022 is expected to be higher than in 2019.

Elk Valley Water Management

We continue to implement the water quality management measures required by the Elk Valley Water Quality Plan (the Plan), an area-based management plan that was approved in 2014 by the British Columbia Minister of Environment. The Plan establishes short-, medium- and long-term water quality targets for selenium, nitrate, sulphate and cadmium to protect the environment and human health, as well as a plan to manage calcite formation. In accordance with the Plan, we have constructed and are operating the first active water treatment facility (AWTF) at West Line Creek. In the fourth quarter of 2018, we commissioned an additional treatment step to address an issue regarding selenium compounds in effluent from the West Line Creek AWTF. The facility is operating as designed. We have commenced construction on our next AWTF at Fording River Operations, which will use the same treatment process as the modified West Line Creek AWTF.

In 2018, we successfully operated our first saturated rock fill (SRF) project at Elkview Operations. The SRF has been in operation for the past 12 months and is demonstrating near-complete removal of nitrate and selenium from the feed water. Results to date from the full-scale trial show that the technology has the potential to replace future AWTFs, as well as to reduce capital and operating costs for water treatment. We are working to increase the capacity of the Elkview SRF to potentially reduce reliance on active water treatment. This approach has not yet received necessary approvals and we continue to progress the construction of additional AWTFs to comply with the Plan.

Capital spending on water treatment in 2019 is expected to be approximately $235 million, including advancing a clean water diversion at Fording River, application of SRF technology at Elkview, construction of Fording River South AWTF, and advancing management of calcite and the early development of water treatment for Fording River North. This compares to approximately $57 million of capital spending on water treatment in 2018.

In our previous guidance, we estimated total capital spending for water treatment between 2018 and 2022 of $850 to $900 million. We intend to complete construction of the Fording River South AWTF, currently under construction. If we are successful in permitting SRF projects to replace the Elkview AWTF and the Fording River North AWTF, we estimate that total capital spending on water treatment during this period would reduce to $600 to $650 million. If no reduction in AWTF capacity is permitted, overall capital in the same period would increase by approximately $250 million over our previous guidance as a result of engineering scope changes at the Elkview

 

 

 

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AWTF and an increased volume of water treated at the Fording River North AWTF. We have presented regulators with evidence that SRFs are a viable technical alternative to active water treatment and are working through a review process. We expect that this process will result in a decision in the first half of 2019.

We continue to advance research and development, including the SRF technology. We estimate that over the longer term, SRFs will have capital and operating costs that are 20% and 50%, respectively, of AWTFs of similar capacity. If we are successful in replacing a substantial portion of active water treatment capacity with SRFs, we believe that our long-term operating costs associated with water treatment could be reduced substantially.

All of the foregoing estimates are uncertain. Final costs of implementing the Plan will depend in part on the technologies applied and on the results of ongoing environmental monitoring and modelling. The timing of expenditures will depend on resolution of technical issues, permitting timelines and other factors. We expect that, in order to maintain water quality, some form of water treatment will continue for an indefinite period after mining operations end. The Plan contemplates ongoing monitoring to ensure that the water quality targets set out in the Plan are in fact protective of the environment and human health, and provides for adjustments if warranted by monitoring results. This ongoing monitoring, as well as our continued research into treatment technologies, could reveal unexpected environmental impacts, technical issues or advances associated with potential treatment technologies that could substantially increase or decrease both capital and operating costs associated with water quality management.

Inability to meet targets in the Plan or new information regarding environment inputs could adversely affect our ability to extend mining operations into new areas. See “Risk Factors — We face risks associated with the issuance and renewal of environmental permits”, “Risk Factors - Failure to comply with environmental, health and safety laws may have a material adverse effect on our operations and projects” and “Risk Factors — Changes in environmental, health and safety laws may have a material adverse effect on our operations” for a further discussion of permitting and water quality management.

During the third quarter of 2018, Teck received notice from Canadian federal prosecutors of potential charges under the Fisheries Act in connection with discharges of selenium and calcite from coal mines in the Elk Valley. Since 2014, compliance limits and site performance objectives for selenium and other constituents, as well as requirements to address calcite, in surface water throughout the Elk Valley and in the Koocanusa Reservoir have been established under a regional permit issued by the Provincial government, which references the Plan. If Federal charges are laid, potential penalties may include fines as well as orders with respect to operational matters. We expect that discussions with respect to the draft charges will continue at least into the third quarter of 2019. It is not possible at this time to fully assess the viability of our potential defences to any charges, or to estimate the potential financial impact on us of any conviction. Nonetheless, that impact may be material. See “Risk Factors — Litigation” for a further discussion of risks associated with this issue.

 

 

 

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Coal Transportation

Most of the coal produced at the mines in the Elk Valley region of British Columbia and at the Cardinal River mine in west-central Alberta is shipped to west coast ports in British Columbia.

Westbound rail service from the mines located in the Elk Valley is provided by Canadian Pacific Railway Company (CPR) pursuant to a 10-year agreement that expires in 2021. CPR transports a portion of these westbound shipments to Kamloops, B.C., and interchanges the trains with Canadian National Railway Company (CN) for further transportation to the west coast. CN also provides rail service from the Cardinal River mine to the west coast. Both CN’s Cardinal River services and Kamloops’ interchange services are provided to Teck Coal under a two-year agreement that expired on December 31, 2017. We are in discussions with CN in regard to a new contract and currently operate under Tariff for each segment.

A small portion of the coal produced at the mines in the Elk Valley is transported by rail and ship via Thunder Bay Terminals in Thunder Bay, Ontario, to customers in the Great Lakes region of Canada and by direct rail to the United States. CPR transports the United States shipments via CPR directly or via the Burlington Northern Santa Fe railway, in which case CPR transports the coal from Elk Valley to Coutts, Alberta, and then interchanges the trains with the Burlington Northern Santa Fe for further transport to the United States. Rail shipments destined for Thunder Bay and the United States are transported under rail tariff and related agreements.

Teck exports its seaborne coal primarily through three west coast terminals (Westshore, Neptune and Ridley). Westshore Terminals provides ship-loading services at Roberts Bank, British Columbia, and in 2018 provided services for approximately 66% of Teck’s coal shipments. Our contract with Westshore Terminals provides us with 19 million tonnes of annual capacity through to March 2021, and we have contracted capacity at Ridley Terminals near Prince Rupert to provide for steelmaking coal shipments from our Cardinal River Operations in Alberta and surge capacity to manage interruptions throughout the supply chain.

Neptune Bulk Terminals, in which we have a 46% ownership interest, has a current annual capacity for steelmaking coal shipments of 12.5 million tonnes and provides ship-loading services for steelmaking coal shipments loaded on a cost-of-service basis. Construction work to upgrade Neptune’s operational capacity commenced in 2018 and is expected to be completed in the third quarter of 2020.

Property Description

The following sections cover details for each of the operating mines and potential projects. For the operating mines, the remaining reserve life is shown, calculated by dividing remaining reserves by current annual production rates. As mine plans and capacities change, these reserve lives will also change. Because each mine covers a substantial lease area, the development required for accessing the reserves can be substantial, and can involve a range of expenditures in terms of pit access and development and infrastructure to support the development. The reserve lives also assume that the required permits for life extensions will be obtained in a timely fashion to maintain production continuity, as has been the case in previous years.

 

 

 

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Geology of the Elk Valley Mines (B.C., Canada)

In the mines in the Elk Valley Region of British Columbia, coal is contained within the sedimentary Mist Mountain Formation of the lower Cretaceous Kootenay Group. The Mist Mountain sediments were involved in the mountain-building movements of the late Cretaceous to early Tertiary Laramide orogeny and are approximately 500 metres thick, with the depth of burial ranging from zero to 1,500 metres. The major structural features are north-south trending synclines with near horizontal to steep westerly dipping thrust faults and a few high-angle normal faults. This faulting has allowed for the Mist Mountain sequence to be repeated throughout the Elk Valley.

Fording River Mine, B.C., Canada

The Fording River mine is located 29 kilometres northeast of the community of Elkford, in southeastern British Columbia. The mine site consists of approximately 23,000 hectares of coal lands, including four operating surface coal pits along with several areas planned for surface mine development held under multiple contiguous coal leases and licences. The leases and licences relating to Fording River are held by Teck Coal. Teck Coal also controls the surface and subsurface rights to the properties that are in operation and those that are planned for development.

Coal mined at Fording River is primarily steelmaking coal, although a small amount of thermal coal is also produced. The current annual production capacities of the mine and preparation plant are approximately 9.0 million and 9.5 million tonnes of clean coal, respectively.

Approximately half of the current production is derived from the Eagle Mountain pit area with the other half produced from the Swift pit area. Proven and probable reserves at Fording River are projected to support mining at planned production rates for a further 43 years. Fording River’s reserve areas include Eagle Mountain, Swift, Turnbull, and Castle Mountain.

2019 projected capital costs for Fording River are approximately $171 million. The major components of the projected capital costs are:

 

   

Component

 

 

Approximate projected cost ($/million)

 

   

Sustaining

  102
   

Major Enhancement

  69

 

 

 

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2019 projected cash operating costs for Fording River are approximately $575 million. The major components of the projected cash operating costs are:

 

   

Component

 

 

Approximate projected cost ($/million)

 

   

Labour

  251
   

Supplies

  235
   

Energy

  124
   

Other (including general &

administrative, inventory changes)

  44
   

Less amounts associated with

projected capitalized stripping

  (79)
   

Total

  575

The cash operating costs presented above do not include transportation or royalties.

Elkview Mine, B.C., Canada

Teck Coal has a 95% partnership interest in the Elkview Mine. The remaining 5% is indirectly held equally by Nippon Steel & Sumitomo Metal Corporation, a Japanese steel producer, and POSCO, a Korean steel producer, each of which acquired a 2.5% interest in 2005. The Elkview mine is an open pit coal mine located approximately 3 kilometres east of Sparwood in southeastern British Columbia. The mine site consists of approximately 27,100 hectares of coal lands.

The coal produced is a high-quality mid-volatile hard coking coal. Lesser quantities of lower-grade hard coking coal are also produced. The current annual production capacities of the mine and preparation plant (on a 100% basis) are approximately 7.0 million and 7.0 million tonnes of clean coal, respectively.

Proven and probable reserves at Elkview are projected to support mining at planned production rates for a further 38 years.

2019 projected capital costs for Elkview are approximately $127 million. The major components of the projected capital costs are:

 

   

Component

 

 

Approximate projected cost ($/million)

 

   

Sustaining

  37
   

Major Enhancement

  90

 

 

 

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2019 projected cash operating costs for Elkview are approximately $345 million. The major components of the projected cash operating costs are:

 

   

Component

 

 

Approximate projected cost ($/million)

 

   

Labour

  201
   
   

Supplies

  185
   
   

Energy

  104
   
   

Other (including general &

administrative, inventory changes)

  62
   
   

Less amounts associated with

projected capitalized stripping

  (207)
   
   

Total

 

 

345

 

The cash operating costs presented above do not include transportation or royalties.

Greenhills Mine, B.C., Canada

Greenhills is operated under a joint venture agreement among Teck Coal, POSCO Canada Limited (POSCAN) and POSCAN’s parent, POSCO. Pursuant to the joint venture agreement, Teck Coal has an 80% interest in the joint venture while POSCAN has a 20% interest. Teck Coal and POSCAN own the mine equipment and preparation plant in proportion to their respective joint venture interests. Under the joint venture agreement, Teck Coal is the manager and operator of Greenhills and takes 80% of all coal produced at Greenhills. POSCAN takes the remaining 20% and pays a quarterly royalty based on the price achieved for Greenhills coal sales.

Teck Coal and POSCAN bear all costs and expenses incurred in operating Greenhills in proportion to their respective joint venture interests. POSCAN, pursuant to a property rights grant, has a right to 20% of all coal mined from certain defined lands at Greenhills until the end of the operational phase of the joint venture; POSCAN pays Teck a royalty for access to other coal reserves owned by Teck that are processed by Greenhills equipment and facilities. The joint venture agreement provides for a review of the terms of the agreement in 2018 and 2022 and, in the event the parties disagree on the continuation of the terms of the agreement, the operational phase will come to an end. Pursuant to this review, on February 11, 2019, we agreed with POSCAN to substantially increase the royalty paid by POSCAN in respect of its 20% share of production. At current coal prices of approximately US$200 per tonne, the increase in the royalty will amount to approximately $90 million annually. The new royalty remains in effect until December 31, 2022.

The Greenhills mine is located 8 kilometres northeast of the community of Elkford, in southeastern British Columbia. The mine site consists of approximately 11,800 hectares of coal lands. Coal mined at Greenhills is primarily steelmaking coal, although a small amount of thermal coal is also produced. The current annual production capacities of the mine and preparation plant (on a 100% basis) are 5.9 million and 5.4 million tonnes of clean coal, respectively.

Production is derived primarily from the Cougar pit area. Proven and probable reserves at Greenhills are projected to support mining at planned production rates for a further 28 years.

 

 

 

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Our 80% share of 2019 projected capital costs for Greenhills is approximately $64 million. The major components of our share of projected capital costs are:

 

   

Component

 

 

Approximate projected cost ($/million)

 

   

Sustaining

  46
   
   

Major Enhancement

 

 

18

 

Our 80% share of 2019 projected cash operating costs for Greenhills is approximately $269 million. The major components of our share of projected cash operating costs are:

 

   

Component

 

 

Approximate projected cost ($/million)

 

   

Labour

  105
   
   

Supplies

  111
   
   

Energy

  60
   
   

Other (including general &

administrative, inventory changes)

  35
   
   

Less amounts associated with

projected capitalized stripping

  (42)
   
   

Total

 

 

269

 

The cash operating costs presented above do not include transportation or royalties.

Coal Mountain Mine, B.C., Canada

The Coal Mountain mine is located 30 kilometres southeast of Sparwood in southeastern British Columbia. The mine site consists of approximately 3,000 hectares of coal lands

In 2018 Coal Mountain Operations experienced declining production as it reached the end of its mine reserve. Favourable geology at Coal Mountain provided an opportunity to mine and process a small amount of coal in the first quarter 2019. In 2018, we captured the latent processing capacity and hauled a portion of raw coal from the Elkview Operations to Coal Mountain Operations for processing and we anticipate this practice to continue through the first quarter of 2019.

Line Creek Mine, B.C., Canada

The Line Creek mine is located approximately 25 kilometres north of Sparwood in southeastern British Columbia. Line Creek supplies steelmaking and thermal coal to a variety of international and domestic customers. The Line Creek property consists of approximately 8,200 hectares of coal lands.

The current annual production capacities of the mine and preparation plant are approximately 4.0 million and 4.0 million tonnes of clean coal, respectively. Proven and probable reserves at Line Creek are projected to support mining at planned production rates for a further 18 years.

 

 

 

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Cardinal River Mine, Alberta, Canada

The Cardinal River mine is located approximately 42 kilometres south of Hinton, Alberta. Prior to 2003 the mine was owned by Luscar and CONSOL, each of which retained a net revenue royalty of 2.5% based on any coal mined from the Cheviot pit and certain other former Luscar properties. The Cardinal River mine property consists of approximately 15,300 hectares of coal lands.

In 2005, Teck Coal completed the development of the Cheviot Creek pit located approximately 20 kilometres south of the Cardinal River coal plant. Coal mined at Cardinal River is primarily steelmaking coal, although a small amount of thermal coal is also produced. The current annual production capacities of the mine and preparation plant are approximately 2.0 million and 3.5 million tonnes of clean coal, respectively.

We invested approximately $7.5 million in 2018 to continue to evaluate the MacKenzie Redcap detailed design study and will be continuing this evaluation in 2019. The MacKenzie Redcap development, if it advances, is expected to supply approximately 1.8 million tonnes of steelmaking coal production per year and has the potential to extend production at Cardinal River Operations to approximately 2027, beyond the planned closure in 2020. Beyond 2020, that additional tonnage would add to the current longer-term planned production capacity of 27 million tonnes in the Elk Valley.

Quintette Coal Project, B.C., Canada

Our Quintette mine in northeastern British Columbia has been closed since 2000. In the third quarter of 2012 we completed the feasibility study for reopening the Quintette mine. The feasibility study estimates the capital cost to reopen Quintette at $858 million, not including escalation or interest during construction. The study contemplates an average clean coal production rate of 3.5 million tonnes per year over the estimated 12-year life of Quintette. We received a Mines Act Permit Amendment for Quintette in June 2013. Quintette has been placed on care and maintenance, and the potential restart has been deferred until it is determined the market conditions would support the economics and the incremental production on a sustained basis.

Other Coal Projects, B.C., Canada

Other coal properties include Mt. Duke (92.6% interest) south of Tumbler Ridge, B.C., Elco (75% interest) at the north end of the Elk Valley, and the Coal Mountain Phase II Property (100% interest) situated between Elkview and the current Coal Mountain Operation.

 

 

 

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Copper

Copper Operations

Highland Valley Copper Mine, Canada (Copper)

We hold a 100% interest in the Highland Valley Copper mine located near Kamloops, British Columbia through our wholly owned subsidiary Teck Highland Valley Copper Partnership (HVC).

Highland Valley’s primary product is copper concentrate; it also produces molybdenum in concentrate. The property comprising the Highland Valley Copper mine consists of mineral leases, mineral claims and Crown grants. The mine property covers a surface area of approximately 34,000 hectares and HVC holds the mineral rights to that area pursuant to various leases, claims and licences.

The Highland Valley mine is located adjacent to Highway 97C connecting Merritt, Logan Lake and Ashcroft, British Columbia. Access to the mine is from a 1-kilometre access road from Highway 97C. The mine is approximately 50 kilometres southwest of Kamloops, and approximately 200 kilometres northeast of Vancouver. The mine operates throughout the year. Power is supplied by BC Hydro through a 138-kilovolt line which terminates at the Trans-Canada Highway west of Spuzzum in the Thompson Valley. Mine personnel live in nearby areas, primarily Logan Lake, Kamloops, Ashcroft, Cache Creek and Merritt.

The mine is an open pit operation. The processing plant, which uses autogenous and semi-autogenous grinding and flotation to produce metal in concentrate from the ore, has the capacity to process up to 145,000 tonnes of ore per day, depending on ore hardness. Water from mill operations is collected and contained in a tailings impoundment area. Mill process water is reclaimed from the tailings pond. The operation is subject to water and air permits issued by the Province of British Columbia and is in material compliance with those permits. The operation holds all of the permits that are material to its current operations.

An autonomous haulage pilot project was successfully started during the second half of 2018 in the Lornex pit, with six autonomous haulage trucks now fully operational. A $73 million project to install an additional ball mill to increase grinding circuit capacity is progressing, with start-up anticipated in the third quarter of 2019. The project is anticipated to increase overall mill throughput by 5% and copper recovery by over 2% in comparison to levels that would otherwise be achieved.

Concentrates from the operation are transported first by truck to Ashcroft and then by rail to a port in Vancouver for export overseas, with the majority being sold under long-term sales contracts to smelters in Asia. The price of copper concentrate under these long-term sales agreements is based on LME prices during quotation periods determined with reference to the time of delivery, with treatment and refining charges negotiated annually. The balance is sold on the spot market. Molybdenum concentrates are sold to third-party roasters on market terms.

Ore is currently mined from the Valley and Lornex pits. The pits are located in the Guichon batholith, which hosts all of the orebodies located in the area. The host rocks of the Valley deposit are mainly porphyritic quartz monzonites and granodiorites of the Bethsaida phase of the batholith. These rocks are medium-to-coarse-grained with large phenocrysts of quartz and biotite.

 

 

 

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The rocks of the deposit were subjected to hydrothermal alteration followed by extensive quartz veining, quartz-sericite veining, and silicification. Bornite, chalcopyrite and molybdenum were introduced with the quartz and quartz-sericite veins and typically fill angular openings in them. Accessory minerals consist of hornblende, magnetite, hematite, sphene, apatite and zircon. Pre-mineral porphyry and aplite dykes intrude the host rocks of the deposit.

The Lornex orebody occurs in skeena quartz diorite host rock, intruded by younger pre-mineral quartz porphyry and aplite dykes. The skeena quartz diorite is an intermediate phase of the Guichon batholith and is generally a medium-to-coarse grained equigranular rock distinguished by interstitial quartz and moderate ferromagnesian minerals. The sulphide ore is primarily fracture fillings of chalcopyrite, bornite and molybdenite with minor pyrite, magnetite, sphalerite and galena.

In 2015, additional drilling and engineering studies were conducted to define resources near the existing Valley, Lornex and Highmont pits, and to examine other options to optimize and extend production past the current mine life. Additional drilling and studies were conducted in 2016 and 2017 focused on evaluating the viability of a substantial expansion of the Valley and Highmont pits.

In 2018, 77 diamond drillholes, totalling approximately 16,800 metres, were drilled in the Valley, Lornex and Highmont pit areas. In addition, 13 holes, totalling 3,500 metres, were drilled near the pits and in the surrounding district. Quick logs of these holes indicate no material impacts on the quantity or grade of reserves and resources. Diamond drill core is split in halves using core saws and sampled in two-metre intervals (HQ diameter core). One half is sent to an independent, off-site laboratory for analysis and the other is retained for future reference. Field duplicates and external umpire checks of approximately 5% of pulp samples are elements of the Highland Valley quality assurance/quality control program procedures.

Highland Valley Copper’s 2018 copper production was 100,800 tonnes, compared to 92,800 tonnes in 2017 and 119,300 tonnes in 2016. The increase in 2018 was primarily due to significantly higher copper grades and higher recoveries in the first half of 2018 compared to 2017. Copper and molybdenum ore grades declined as expected in the second half of 2018 as we mined ore from lower-grade sections of the Lornex and Valley pits. Grades are expected to increase further in 2019 in accordance with the current life of mine plan. Molybdenum production was slightly lower in 2018 at 8.7 million pounds, compared to 9.3 million pounds in 2017.

Copper production in 2019 is anticipated to be between 115,000 and 120,000 tonnes, with a relatively even distribution throughout the year. We expect annual copper production from 2020 to 2022 to be between 135,000 and 155,000 tonnes per year, increasing from the low end to the high end of the range during the three-year period. Copper production is anticipated to average about 150,000 tonnes per year after 2022, through to the end of the current mine plan in 2028. Molybdenum production in 2019 is expected to be approximately 6.0 million pounds contained in concentrate, with annual production expected to decline to between 4.0 and 5.0 million pounds per year afterwards. We have commenced studies to assess the potential economic viability of extending the Highland Valley Copper mine life to 2040.

See “Mineral Reserves and Resources” for information about the mineral reserve and resource estimates for Highland Valley, including metal price and exchange rate assumptions.

 

 

 

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The Highland Valley copper mine is subject to the B.C. Mineral Tax which is a two-tier tax with a minimum rate of 2% and a maximum rate of 13%. A minimum tax of 2% applies to operating cash flows, as defined by the regulations. A maximum tax rate of 13% applies to cash flows after taking available deductions for capital expenditures and other permitted deductions.

2019 projected capital costs for Highland Valley are approximately $120 million. The major components of the projected capital costs are:     

 

 

Component

 

  

 

Approximate projected cost  ($/million)

 

   
Sustaining    64
   
Major enhancement    56

2019 projected aggregate cash operating costs for Highland Valley are approximately $557 million. The major components of the projected cash operating costs are:

 

 

Component

 

  

 

Approximate projected cost  ($/million)

 

   
Labour    259
   
Supplies    216
   
Energy    112
   
Other (including general & administrative, inventory changes)    56
   
Less amounts associated with projected capitalized stripping    (86)
   
Total    557

The cash operating costs presented above do not include transportation or royalties.

Antamina Mine, Peru (Copper, Zinc)

We own indirectly 22.5% of the Antamina copper/zinc mine in Peru, with the balance held indirectly by BHP Billiton plc (33.75%), Glencore plc (33.75%) and Mitsubishi Corporation (10%). The participants’ interests are represented by shares of Compañía Minera Antamina S.A. (CMA), the Peruvian company that owns and operates the project. Our interest is subject to a net profits royalty of 1.667% on CMA’s free cash flow.

The Antamina property consists of numerous mining concessions and mining claims covering an area of approximately 82,200 hectares and an area of approximately 15,000 hectares of surface rights. These rights concessions and claims can be held indefinitely, contingent upon the payment of annual licence fees and provision of certain production and investment information. CMA also owns a port facility located at Huarmey and an electrical substation located at Huallanca. In addition, CMA holds title to all easements and rights of way for the 302-kilometre concentrate pipeline from the mine to CMA’s port at Huarmey.

The deposit is located at an average elevation of 4,200 metres, 385 kilometres by road and 270 kilometres by air north of Lima, Peru. Antamina lies on the eastern side of the Western

 

 

 

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Cordillera in the upper part of the Rio Marañon basin. Mine personnel live in a camp facility while at work and commute from both local communities and larger population centres, including Lima.

The mine is an open pit, truck-and-shovel operation. The ore is crushed within the pit and conveyed through a 2.7-kilometre tunnel to a coarse ore stockpile at the mill. It is then processed utilizing two SAG mills, followed by ball mill grinding and flotation to produce separate copper, zinc, molybdenum and lead/bismuth concentrates. The mill has the capacity to process approximately 145,000 tonnes per day, depending on ore hardness. A 302-kilometre-long slurry concentrate pipeline, approximately 22 centimetres in diameter with a single pump station at the mine site, transports copper and zinc concentrates to the port where they are dewatered and stored prior to loading onto vessels for shipment to smelters and refineries worldwide.

The mine is accessible via an access road maintained by CMA. Power for the mine is taken from the Peru national energy grid through an electrical substation constructed at Huallanca. Fresh water requirements are sourced from a dam-created reservoir upstream from the tailings impoundment facility. The tailings impoundment facility is located next to the mill. Water reclaimed from the tailings impoundment is used as process water in the mill operation. The operation is subject to water and air permits issued by the Government of Peru and is in material compliance with those permits. The operation holds all of the permits that are material to its current operations.

The Antamina polymetallic deposit is skarn-hosted. It is unusual in its persistent mineralization and predictable zonation, and has a SW-NE strike length of more than 2,500 metres and a width of up to 1,000 metres. The skarn is well-zoned symmetrically on either side of the central intrusion with the zoning used as the basis for four major subdivisions being a brown garnet skarn, green garnet skarn, wollastonite/diopside/green garnet skarn and a marbleized limestone with veins or mantos of wollastonite. Other types of skarn, including the massive sulphides, massive magnetite, and chlorite skarn, represent the remainder of the skarn and are randomly distributed throughout the deposit. The variability of ore types can result in significant changes in the relative proportions of copper and zinc produced in any given year.

In 2018, 15 primary and 43 branch infill drillholes, as well as five primary and nine branch deep drillholes were completed within the Antamina pit, for a total of approximately 41,200 metres. For diamond core, three-metre samples of half core (HQ or NQ) are collected and prepared for assay at an external laboratory. The remaining half of the core is retained for future reference. The assay program includes approximately 15% of quality-control samples, comprising reference materials, duplicates and blanks. The reference materials consist of matrix-matched material from Antamina, homogenized and certified in accordance with industry practice.

Antamina’s copper production (100% basis) in 2018 was 446,100 tonnes, compared to 422,500 tonnes in 2017, with the increase primarily as a result of higher copper grades and recovery, partially offset by processing less copper-only ore. Zinc production was 409,300 tonnes in 2018, an increase from 372,100 tonnes produced in 2017, primarily due to processing more copper-zinc ore. In 2018, molybdenum production was 10.2 million pounds, which was 17% higher than 2017.

Our 22.5% share of Antamina’s 2019 production is expected to be in the range of 95,000 to 100,000 tonnes of copper, 65,000 to 70,000 tonnes of zinc and approximately 2.0 million pounds of molybdenum in concentrate. The lower zinc production in 2019 is a result of mine sequencing,

 

 

 

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and is expected to return to higher production levels after 2019 with higher grades and a higher proportion of copper-zinc ore to process. Our share of copper production is expected to be between 90,000 and 95,000 tonnes per year from 2020 to 2022. Our share of zinc production is expected to average between 100,000 and 110,000 tonnes per year from 2020 to 2022, although annual production will fluctuate due to feed grades and the amount of copper-zinc ore processed. Our share of annual molybdenum production is expected to be between 2.0 and 3.0 million pounds per year between 2020 and 2022.

Antamina has entered into long-term off-take agreements with affiliates of the Antamina shareholders on market terms for copper, zinc and molybdenum concentrates.

In Peru, the mining tax regime includes the Special Mining Tax and the Modified Mining Royalty, which apply to CMA’s operating margin based on a progressive sliding scale ranging from 3% to 20.4%. CMA is also subject to Peruvian income tax.

Based on current designed tailings storage capacity, the mine life is expected to continue until 2028. CMA is currently conducting engineering studies for additional tailings storage options and alternative mine plans that could result in significant mine life extensions.

Our 22.5% share of 2019 projected capital costs for Antamina is approximately US$77 million. The major components of the projected capital costs are:

 

Component   

Approximate projected cost

(US$/million)

 

   
Sustaining    67
   
Major Enhancement    10

Our 22.5% share of 2019 projected cash operating costs for Antamina is approximately US$179 million. The major components of the projected cash operating costs are:

 

Component   

Approximate projected cost

(US$/million)

 

   
Labour    91
   
Supplies    94
   
Energy    45
   
Other (including general & administrative, inventory changes)    11
   
Less amounts associated with projected capitalized stripping    (62)
   
Total    179

The cash operating costs presented above do not include transportation or royalties.

Under a long-term streaming agreement with FN Holdings ULC (FNH), a subsidiary of Franco-Nevada Corporation, Teck has agreed to deliver silver to FNH equivalent to 22.5% of the payable silver sold by Compañía Minera Antamina S.A. FNH made a payment of US$610 million on

 

 

 

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closing of the arrangement in 2015 and will pay 5% of the spot price at the time of delivery for each ounce of silver delivered under the agreement, in addition to an upfront acquisition price paid in a previous year. After 86 million ounces of silver have been delivered under the agreement, the stream will be reduced by one-third. The streaming agreement restricts distributions from Teck Base Metals, our subsidiary that holds our 22.5% interest in CMA, to the extent of unpaid amounts under the agreement if there is an event of default under the streaming agreement or an insolvency of Teck. Compañía Minera Antamina S.A., which owns and operates Antamina, is not a party to the agreement and operations will not be affected by it.

The labour agreement at Antamina expired in the third quarter of 2018; negotiations for a new agreement are ongoing.

Quebrada Blanca Mine, Chile (Copper)

The Quebrada Blanca mine is owned by a Chilean private company, Compañía Minera Teck Quebrada Blanca S.A. (QBSA). In April 2018, we acquired an additional 13.5% indirect interest in QBSA and as of December 31, 2018 we own 100% of the Series A shares of QBSA and 100% of the Series C shares of QBSA. Empresa Nacional de Minería (ENAMI), a Chilean government entity, owns 100% of the Series B shares of QBSA. When combined with the Series B shares of QBSA, our 100% interest in the Series A and Series C shares equates to a 90% interest in QBSA’s total share equity. ENAMI’s 10% interest is a carried interest and, as a result, ENAMI is generally not required to contribute further funding to QBSA and is entitled to a minimum dividend in certain circumstances.

In December, we announced a transaction through which Sumitomo Metal Mining Co. Ltd. and Sumitomo Corporation will subscribe for a 30% indirect interest in QBSA by contributing US$1.2 billion to the project with additional contingent consideration due in certain circumstances. The transaction is expected to close at the end of March. Following the transaction, Teck will hold a 60% interest in QBSA; Sumitomo Metal and Sumitomo Corporation will collectively hold a 30% interest in QBSA and ENAMI will continue to hold a 10% carried interest.

QBSA owns the exploitation and/or exploration rights in the immediate area of the Quebrada Blanca deposit pursuant to various mining concessions and other rights. There are currently 119,587 ha of mining rights incorporating exploitation and exploration mining concessions held in the name of QBSA. The exploitation mining concessions have no expiry date. In addition, QBSA holds surface rights covering the mine site and other areas aggregating approximately 3,150 hectares as well as certain other exploration rights in the surrounding area and certain water rights.

The Quebrada Blanca property is located in the Tarapacá Region of northern Chile approximately 240 kilometres southeast of the port city of Iquique and 1,500 kilometres north of the city of Santiago, the capital of Chile. The Quebrada Blanca property is located approximately 4,400 metres above sea level. The local topography is represented by rounded hills disrupted by steep gulches. Vegetation cover consists of sparse tufts of grass and small shrubs. Access to the mine site is via road from Iquique. Mine personnel are based in a camp facility, and the majority commute from large population centres, including Iquique and Santiago.

 

 

 

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Previously mined for its surficial supergene mineralization, the Quebrada Blanca Cu-Mo sulfide deposit is characterized by a series of Eocene-Oligocene aged intrusions, hydrothermal breccias and vein-related mineralization over an area of ~5 x 3 km and controlled primarily by a north-east oriented structures. Alteration associated with the emplacement of the porphyritic and related intrusions includes chalcopyrite- and bornite-related veins, disseminations, and cement fill associated with potassic alteration. A large, vertically zoned hydrothermal breccia developed in associated with the potassic event. This breccia has biotite, biotite-magnetite, chalcopyrite and locally bornite preserved at depth, whilst at shallower levels it transitions to a tourmaline-rich breccia with pyrite and chalcopyrite. A series of quartz-molybdenite veins are commonly associated with the biotite-magnetite breccia on the east side of the deposit. A subsequent chalcopyrite and molybdenite event cuts across the system and is characterized by grey-green sericite and quartz veins. This type of transitional alteration is best-preserved in the western part of the deposit. A late quartz-sericite-pyrite assemblage cuts the copper-bearing stages, and is strongly controlled by northwest-oriented structures. This phyllic event also occurs along northeast-oriented structures, which were a key control in the location of the supergene mineralization at surface.

The Quebrada Blanca orebody occurs within a 2-kilometre by 5-kilometre quartz monzonite intrusive stock. Supergene enrichment processes have dissolved and redeposited primary (hypogene) chalcopyrite as a blanket of supergene copper sulphides, the most important being chalcocite and covellite, with lesser copper oxides/silicates such as chrysocolla in the oxide zone. Irregular transition zones, with (locally) faulted contacts separate the higher and lower-grade supergene/dump leach ores from the leached cap and hypogene zones.

Quebrada Blanca is an open pit mine that produces ore that, since the first quarter of 2017, has been sent directly to the dump leach circuit. Prior to the first quarter of 2017, ore was sent for both heap leach and dump leach production. Copper-bearing solutions are collected from the heap and dump leach pads for processing in an SX-EW plant that produces copper cathode. Mining operations in the open pit were suspended in the fourth quarter of 2018 as the supergene ore was exhausted. Copper cathode production is expected to continue through early 2020. Copper cathode is trucked to Iquique for shipment to purchasers.

The majority of copper cathode produced at Quebrada Blanca is sold under annual contracts to metal consumers and metal trading companies. The remaining copper cathode is sold on the spot market. The price of copper cathodes is based on LME prices plus a premium based on market conditions.

Quebrada Blanca produced 25,500 tonnes of copper cathode in 2018, compared to 23,400 tonnes in 2017. We expect production of approximately 20,000 to 23,000 tonnes of copper cathode in 2019.

Quebrada Blanca Phase 2

As previously outlined, Quebrada Blanca Phase 2 (QB2) is expected to extend the life of the existing mine as a large-scale concentrate-producing operation. As part of the regulatory process for Quebrada Blanca Phase 2, we submitted a Social and Environmental Impact Assessment (SEIA) to the Region of Tarapacá Environmental Authority in the third quarter of 2016, which was approved in August 2018. As expected, various administrative and legal appeals have been filed

 

 

 

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in respect of the SEIA approval, and QBSA and the relevant Chilean authorities are responding in the ordinary course.

The project was approved for full construction in December 2018. Teck, SMM and SC are in discussions with export credit agencies and commercial banks with respect to a proposed limited recourse project finance facility of up to US$2.5 billion. The combination of proceeds from the transaction with SMM and SC and the proposed project financing will reduce Teck’s share of equity contributions toward the un-escalated US$4.739 billion estimated capital cost of the QB2 project to approximately US$700 million with Teck’s first contributions post-closing not required until late 2020. The target date for project completion and the start of commissioning and ramp up is the fourth quarter of 2021. Full production is expected in the middle of 2022.

In early 2017, we completed an updated feasibility study on the QB2 project, which incorporates recent project optimization and certain scope changes, including a different tailings facility located closer to the mine. The 2017 feasibility study estimated a capital cost for the development of the project on a 100% basis of US$4.7 billion (in first quarter 2016 dollars, not including working capital or interest during construction). The study is based on an initial mine life of 25 years, consistent with the capacity of the new tailings facility. Various aspects of the QB2 project have been optimized and updated based on additional technical and engineering work completed since the 2017 feasibility study, in anticipation of the decision to sanction the project. Capital and operating costs have been re-estimated. The capital cost for development of the project is now estimated at US$4.739 billion as of January 1, 2019 (in constant Q2 2017 dollars, not including working capital, escalation or interest during construction, and assuming a CLP/USD exchange rate of 625). Detailed engineering for the project is nearly 80% complete, and procurement is well advanced, increasing confidence in the capital cost estimate and construction schedule.

Mining operations will continue to use open pit methods, and conventional truck-and-shovel operations. From an operational standpoint, QB2 represents a continuation of the existing supergene mining activities; however, there are significant differences between the two mining operations, such as the significant increase in the ultimate pit depth, the change in mineralization type from enriched supergene to hypogene, and the proposed increase to the mining extraction rate.

The project scope includes the construction of a 143,000 tonne per day concentrator and related facilities, which will be connected to a new port and desalination plant by 165 kilometre concentrate and desalinated water pipelines. An additional access road, known as the A-97 bypass, will be constructed from the A-97B highway to the mine. In addition, there will be construction of a new overhead high voltage electric power transmission line. The primary crushing facility will contain a single primary crusher with a double-sided dump pocket for dumping ore from the mine haulage trucks. The coarse ore conveyor facility will consist of two overland conveyors to transport the crushed ore from the primary crusher to the coarse ore stockpile. The coarse ore stockpile will have a live capacity of 80,000 tonnes, and an overall 270,000 tonne capacity. The concentrator facility will contain two semi-autogenous grinding mills and four ball mills, cyclone feed pumps, and cyclone clusters.

On a 100% basis, average annual production capacity is expected to be 316,000 tonnes of copper equivalent per year for the first full five years of mine life.

 

 

 

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QBSA has signed a number of power purchase agreements for electric power supply for QB2. There are three primary power purchase agreements for QB2 with staggered supply dates. Each of these agreements imposes a take-or-pay obligation on QBSA, under which QBSA is required to pay for the contracted power regardless of whether it is required in the operations. Supply from the first contract commenced in the fourth quarter of 2016 and the other supply dates commenced in early 2018.

QBSA’s obligations under the power purchase agreements are guaranteed by Teck until QB2 enters production. So long as Teck’s unsecured unsubordinated debt does not carry an investment grade credit rating from Moody’s, Standard & Poor’s or Fitch ratings agencies (or any two of these agencies, if Teck is rated by more than one of them), we are required to deliver letters of credit to support these guarantees. As of December 31, 2018, there were US$672 million of letters of credit outstanding to support the guarantees. On February 21, 2019, Teck received its second investment grade credit rating and requested termination of all of the letters of credit relating to the QB2 power purchase agreements. Teck has delivered parent guarantees in replacement of the letters of credit.

The aggregate fixed commitment of the three primary power supply agreements is approximately US$6.8 million per month, determined as of December 31, 2018. QBSA is taking steps to manage its exposure, and may sell power at spot market rates or under contract to offset its exposure under these take-or-pay contracts until power is required for the QB2 project. Based on current spot market rates, current mitigation efforts and QBSA’s projected power consumption, its net estimated aggregate monthly exposure under its power arrangements is anticipated to be in the range of US$5.5 to US$6.6 million in 2019. Teck has agreed to cover Sumitomo’s share of the cost of power under these existing power purchase agreements in excess of QBSA’s actual needs until the earlier of the start-up of the first grinding line in the mill or September 30, 2022.

In 2018, 39 diamond drillholes were completed within the Quebrada Blanca deposit for a total of approximately 18 kilometers. For diamond core, 3-metre samples of half core are taken and crushed for assay at an external laboratory. The remaining half of the core is retained for future reference. The assay program includes approximately 15% of quality-assurance/quality-control samples, comprising reference materials, duplicates and blanks. The reference materials consist of matrix-matched material from Quebrada Blanca, homogenized and certified in accordance with industry practice.

2019 projected capital costs for QB2 are approximately US$1,460 million. Assuming completion of the transaction with Sumitomo at the end of March, as expected, our share of the 2019 projected capital costs will be limited to approximately US$285 million. The major components of the projected capital costs are:

 

Component   

Approximate projected cost

(US$/million)

 

   
New Mine Development    1,460

 

 

 

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QB2 has a 28 year mine life and the Sanction Case (described below) includes 199 million tonnes of inferred resources within the life of mine plan. The majority of this inferred material is not scheduled to be mined until late in the mine life and is displacing lower grade economic material within the pit. Teck refers to the planned development of the QB2 project that includes these inferred resources as the “Sanction Case”. Inferred resources are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserve. Inferred resources are subject to greater uncertainty than measured or indicated resources and it cannot be assumed that they will be successfully upgraded to measured and indicated through further drilling. Based on Teck’s understanding of the deposit and history of resource to reserve conversion, the Sanction Case is regarded as a realistic and financeable development plan; however, key information regarding the reserve-only case is included in the table below for reference.

The table below summarizes the financial projections of the planned operation of QB2 for both the reserve case and the Sanction Case:

 

100% Project

Basis(1)(2)

 

   Units    Reserve Case       Sanction case    

IRR

   %          13.5%   14.1%

NPV

   US$ M          $2,030   $2,426

Average Annual Cash

Flow – 1st Five Years(3)

   US$ M          $935   $956

Average Annual Cash

Flow – After 1st Five Years(4)

   US$ M          $496   $585

Payback Period

   years          5.7   5.6
     (1)

Assumes US$3.00 per pound of copper; US$10.00 per pound of molybdenum and US$18.00 per ounce of silver

     (2)

As at January 1, 2019 on an unlevered, after-tax bases for a Chilean domiciled entity assuming an optimized funding structure

     (3)

Excludes the first partial year of operation

     (4)

Excludes the last partial year of operation

Taxes payable in Chile that affect the operation include the Chilean Specific Mining Tax which applies to operating margin based on a progressive sliding scale from 5% to 14%. QBSA is also subject to federal income tax in Chile.

Carmen de Andacollo Mine, Chile (Copper)

The Carmen de Andacollo property is owned by a Chilean private company, Compañía Minera Teck Carmen de Andacollo (CDA). We own 100% of the Series A shares of CDA while ENAMI owns 100% of the Series B shares of CDA. Our Series A shares of CDA equate to 90% of CDA’s total share equity and ENAMI’s Series B shares comprise the remaining 10% of total share equity. ENAMI’s interest is a carried interest and, as a result, ENAMI is not required to contribute further funding to CDA.

CDA owns the exploitation and/or exploration rights over an area of approximately 206 square kilometres in the area of the Carmen de Andacollo supergene and hypogene deposits pursuant to

 

 

 

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various mining concessions and other rights. In addition, CDA owns the surface rights covering the mine site and other areas aggregating approximately 21 square kilometres as well as certain water rights. Since 1996, CDA has been conducting mining operations on the supergene deposit on the Carmen de Andacollo property that overlies the hypogene deposit and since 2010 has been processing hypogene ore through a concentrator on the site.

The Carmen de Andacollo property is located in Coquimbo Province in central Chile. The site is adjacent to the town of Carmen de Andacollo, approximately 55 kilometres southeast of the city of La Serena and 350 kilometres north of Santiago. Access to the Carmen de Andacollo mine is by paved roads from La Serena. The mine is located near the southern limit of the Atacama Desert at an elevation of approximately 1,000 metres. The climate around Carmen de Andacollo is transitional between the desert climate of northern Chile and the Mediterranean climate of the Santiago area. The majority of mine personnel live in the town of Carmen de Andacollo, immediately adjacent to the mine, or in the nearby cities of Coquimbo and La Serena.

The Carmen de Andacollo orebody is a porphyry copper deposit consisting of disseminated and fracture-controlled copper mineralization contained within a gently dipping sequence of andesitic to trachytic volcanic rocks and sub-volcanic intrusions. The mineralization is spatially related to a feldspar porphyry intrusion and a series of deeply rooted fault structures. A primary copper-gold sulphide hypogene deposit containing principally disseminated and quartz vein-hosted chalcopyrite mineralization lies beneath the supergene deposit. The hypogene deposit was subjected to surface weathering processes, resulting in the formation of a barren leached zone 10 to 60 metres thick. The original copper sulphides leached from this zone were re-deposited below the barren leached zone as a copper-rich zone comprised of copper silicates (chrysocolla) and supergene copper sulphides (chalcocite with lesser covellite).

The Carmen de Andacollo mine is an open pit mine. Copper concentrate is produced by processing hypogene ore through semi-autogenous grinding and a flotation plant with the capacity to process up to 55,000 tonnes of ore per day depending on ore hardness. Some supergene ore is also mined, which is transported to heap leach pads. Copper-bearing solutions are processed in an SX-EW plant to produce grade A copper cathode.

The majority of copper cathode produced at Carmen de Andacollo is sold under annual contracts with metal trading companies. The remaining Carmen de Andacollo copper cathode production is sold in the spot market. The price of copper cathodes is based on LME prices plus a premium based on market conditions. Copper concentrates are sold under long-term contracts to smelters in Asia and Europe, using the LME price as the basis for copper pricing, and with treatment and refining charges negotiated on an annual basis.

During 2018, nine diamond drillholes totalling approximately 2,200 metres were drilled at the Carmen de Andacollo mine. Four of these drillholes were for geological logging and grade modelling purposes, and five of these drillholes were for geotechnical and hydrogeological purposes. The geological logging of these drillholes confirms the geological features identified in the deposit and only local changes of geological boundaries were recognized. Diamond drill core is split in halves and sampled in 2.5-metre intervals. One half is sent to the lab at the site for analysis and the other is retained for future reference. For this drilling campaign, one in five samples was submitted to metallurgical testing; subsequently, these samples were returned to the mechanical preparation process. Coarse blank, field duplicated (prior to shipment to the

 

 

 

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laboratory), crushing duplicated, fine coarse blank, pulp duplicated and standards were used as part of the quality assurance/quality control program.

Carmen de Andacollo produced 63,500 tonnes of copper contained in concentrate in 2018, 12% less than 2017, primarily due to lower copper grades as anticipated in the mine plane partially offset by higher mill throughput. Copper cathode production was 3,700 tonnes in 2018, compared with 3,500 tonnes in 2017. Gold production, on a 100% basis, of 59,600 ounces was higher than the 54,500 ounces produced in 2017, with 100% of the gold produced for the account of RGLD Gold AG, a wholly owned subsidiary of Royal Gold, Inc. In effect, 100% of gold production from the mine has been sold to RGLD Gold AG, which pays a cash price of 15% of the monthly average gold price at the time of each delivery, in addition to an upfront acquisition price paid in previous years.

Consistent with the mine plan, copper grades are expected to continue to decline towards reserve grades in 2019 and future years. Carmen de Andacollo’s production in 2019 is expected to be in the range of 60,000 to 65,000 tonnes of copper in concentrate and approximately 2,000 tonnes of copper cathode. Annual copper in concentrate production is expected to be approximately 60,000 tonnes for the subsequent three-year period. Cathode production volumes are uncertain past 2019, although there is some potential to extend production.

The current life of mine for Carmen de Andacollo is expected to continue until 2035. Additional permitting or amendments will be required to execute the life of mine plan.

Taxes payable in Chile that affect the operation include the Chilean Specific Mining Tax which applies to operating margin based on a progressive sliding scale from 5% to 14%. CDA is also subject to federal income tax in Chile.

Project Satellite

In March 2017, we publicly launched our Project Satellite initiative, the focus of which is to surface value from five substantial base metals assets all of which are located in the Americas: Zafranal, San Nicolás, Galore Creek, Mesaba, and Schaft Creek. Since 2017, we have invested in consolidating our ownership in a number of the assets, renewing partnerships in others, developing a path-to-development for each asset, and establishing project teams to carry out a range of technical, environmental and social work programs that aim to remove value impediments and to create a more certain business case for each asset.

The focus in 2018 has been to complete environmental and social baseline studies, community engagement programs, and engineering and design work to prepare social and environmental impact assessments (SEIAs) and development permit applications on the Zafranal and San Nicolás assets. In addition, we advanced the Zafranal feasibility study that is scheduled for completion in the first quarter of 2019. At San Nicolás, the project team focused on collecting information to inform a prefeasibility study which was initiated in the fourth quarter of 2018. Lastly, a significant effort was made to renew the Galore Creek partnership, which culminated in the introduction of Newmont Mining Corporation as our 50/50 partner in the Galore Creek Partnership.

 

 

 

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Zafranal, Peru

The Zafranal property, located in southern Peru 85 kilometres northwest of Arequipa within the Provinces of Castilla and Caylloma, is a mid-sized copper-gold porphyry deposit. The project is held by Compañía Minera Zafranal S.A.C. (CMZ), in which Teck holds an 80% interest, with Mitsubishi Materials Corporation holding the other 20%.

During 2017 and 2018, CMZ completed 35,880 metres of infill and geotechnical drilling programs along with extensive hydrogeological, environmental, social and archeological studies. With the benefit of an additional 163 diamond drill holes, updated geological and geometallurgical models were developed which were used to inform updated reserve and resource estimates as well as an updated mine plan for the feasibility study. With this additional drilling and modeling work complete, 92% of the mineralization is now categorized as proven mineral reserves; 6.3% as probable mineral reserves, 1.0% as measured mineral resources; 0.4% as indicated mineral resources and 12.3% as inferred mineral resources.

During 2018, the project team significantly advanced its understanding of the regional and local hydrogeological environment within both the planned mine and tailings management facility areas. A multi-year water study was completed which identified available and sustainable water sources for the life of the project. Work programs focused on clean water, health and wellness, local infrastructure, and small business development were successfully completed in partnership with several local communities. The feasibility study and the SEIA studies initiated in November 2017 are expected to be completed in the first half of 2019.

Our share of spending in 2018 was $29 million and our share of planned spending in 2019 is $40 million that will be included in capital expenditures for new mine development within our copper business unit.

San Nicolás, Mexico

The San Nicolás property, located in Zacatecas State, one of the oldest mining regions in Mexico, is a massive sulphide deposit with significant copper, zinc, gold and silver. The property is held by Minas de San Nicolas, S.A. de C.V. which is a wholly owned indirect subsidiary of Teck.

During 2018, the San Nicolás project team completed property-wide environmental and social baseline studies, regional and property specific hydrogeological studies and preliminary project engineering programs that had been initiated in the third quarter of 2017. In addition, 30,226 metres of infill, metallurgical, geotechnical and hydrogeological drilling in 109 reverse circulation and diamond drill holes was completed in 2018. This additional drilling, together with the completion of an improved geological and geometallurgical model, resulted in 29% of the mineral resources being categorized as measured mineral resources, 67% as indicated mineral resources and 4% as inferred mineral resources.

This additional geological, geotechnical, hydrogeological and metallurgical information and engineering focused field information, in combination with the baseline study work, has been compiled and integrated and will be used to support a prefeasibility study and an SEIA each of which commenced in November 2018. We expect to complete the prefeasibility study and the SEIA in the second half of 2019.

 

 

 

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A community office was established in November 2018 in San Nicolás, a small village located immediately south of the project area, to expand awareness and understanding of the planned project with community members in the region.

Spending in 2018 was $18 million and planned spending in 2019 is $26 million that will be included in capital expenditures for new mine development within our copper business unit.

Galore Creek, Canada

The Galore Creek property, located in the territory of the Tahltan in northwestern British Columbia approximately 150 kilometres northwest of the Port of Stewart, BC and 370 kilometres northwest of Smithers, BC, is a significant copper-gold-silver porphyry deposit. The project is owned by the Galore Creek Partnership, a 50/50 partnership between Teck and Newmont Mining Corporation (Newmont), and is managed by Galore Creek Mining Corporation (GCMC), a wholly owned subsidiary of the Galore Creek Partnership.

Following Newmont’s acquisition of a 50% interest in Galore Creek from NOVAGOLD Canada Inc. in July 2018, Teck and Newmont agreed to fund future work programs estimated to be $12 to $20 million annually (on a 50% basis) over a three-to-four year period and to reinitiate permitting activities as appropriate. Further, the partners established a project team to carry out the necessary work and studies to inform an updated prefeasibility study which is expected to commence in late 2019 or early 2020.

During 2018, the majority of the program work at Galore Creek was directed at maintaining the mineral properties, managing GCMC’s commitments under the existing environmental impact assessment and special use permits, maintaining commitments with the Tahltan, and carrying out preliminary geological mapping, prospecting and mineral deposit studies. The mapping and prospecting work identified several high quality targets in the Galore Creek Valley that have the potential to positively impact the life of mine and provide resources for future development. These targets, along with other high quality prospects in the substantial land tenure package, will be further evaluated in 2019.

Our share of spending in 2018 was $5 million and our share of planned spending in 2019 is $19 million which is included in capital expenditures for new mine development within our copper business unit.

Mesaba, United States

The Mesaba property, located in northeastern Minnesota 100 kilometres north of Duluth, is part of a potentially significant copper, nickel and platinum-palladium-cobalt mining district in the United States. Known ore deposits in the district, including Mesaba, consist of metallurgically complex disseminated copper-nickel sulphides that require a range of mineral processing steps to make saleable concentrate or metal products while meeting state and federal requirements to protect the environment. Mineral rights over the Mesaba deposit are held 100% by Teck through lease agreements with private interests and the State of Minnesota.

A Mesaba project team was formed during 2018 and carried out a range of planning activities, preliminary development and environmental studies and mineral resource estimate work. Drill core logging, extensive re-assaying, sample analysis and geometallurgical modeling work was

 

 

 

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completed in mid-2018. This work has resulted in an estimate of measured mineral resources of 244 million tonnes of 0.47% copper, 0.1% nickel, indicated mineral resources of 1,344 million tonnes of 0.42% copper, 0.09% nickel and inferred mineral resources of 1,464 million tonnes of 0.35% copper and 0.08% nickel each with important gold, silver, platinum and palladium credits.

In concert with the resource estimation work, in September 2018 we completed a Mineral Inventory Resource Assessment, which is used to describe overall mineral potential and assist in framing future exploration programs. In addition to study work, we acquired several key land parcels in the project area that helped consolidate our land position in and around the project footprint.

Spending in 2018 was $6 million and planned spending in 2019 of $14 million will be included in exploration expenses.

Schaft Creek, Canada

The Schaft Creek property, located in the territory of the Tahltan in northwestern British Columbia, approximately 60 kilometres south of Telegraph Creek and 37 kilometres northeast of the Galore Creek property, is a large copper-molybdenum-gold porphyry deposit. The project is a 75/25 joint venture between Teck and Copper Fox Metals Inc., with Teck holding a 75% interest and acting as the operator.

A multi-disciplinary team was established in early 2018 to describe and further characterize several development scenarios for the Schaft Creek deposit that stemmed from the primary development option outlined in the 2013 Feasibility Study. Based on the work completed in 2018, additional scoping level engineering and design work is planned in 2019 that will assess risks and opportunities associated with a range of development scenarios, the focus of which is to improve financial returns over those outlined in the 2013 Feasibility Study.

Planned fieldwork in 2018 on the Schaft Creek project, intended to collect environmental data, maintain camp and facilities, and maintain existing permits, was not carried out as planned due to wildfires in the district that limited the availability of qualified contractors and access to the project site. Obligations to the Tahltan, outlined in a Communication and Exploration Agreement signed in early 2018, were met. The fieldwork that was not completed in 2018 will be carried out in 2019.

Planned spending in 2019 is $2 million and will be included in capital expenditures for new mine development within our copper business unit.

Other Copper Projects

NuevaUnión, Chile

In November 2015 we combined Goldcorp’s La Fortuna (formerly El Morro) project and Teck’s Relincho project, located approximately 40 kilometres apart in the Huasco Province in the Atacama region of Chile, into a single copper-gold-molybdenum project called NuevaUnión. We hold a 50% interest in NuevaUnión. A prefeasibility study was completed in early 2018, which incorporates key design changes to improve project economics and respond to input from communities and Indigenous Peoples. A Feasibility Study was commenced in the third quarter of 2018 and is expected to be completed by the end of 2019.

 

 

 

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CESL Limited (CESL)

In 2018, our CESL hydrometallurgical facility, located in Richmond, B.C., continued to advance the commercialization of our proprietary copper, nickel and copper-arsenic process technologies on internal and external opportunities.

Zinc

Mining Operations

Red Dog Mine, United States (Zinc, Lead)

The Red Dog zinc-lead mine, concentrator and shipping facility in the Northwest Arctic Borough, approximately 144 kilometres north of Kotzebue, Alaska, commenced production in December 1989 and began shipping concentrates in July 1990. The Red Dog mine is operated by Teck Alaska Incorporated on lands owned by, and leased from, the NANA Regional Corporation (NANA). The Red Dog mine covers approximately 1,000 hectares.

Red Dog mine is located on a ridge between the middle and south forks of Red Dog Creek, in the DeLong Mountains of the Western Brooks Range. The topography is moderately sloping, with elevations ranging from 260 metres to 1,200 metres above sea level. Vegetation is classified as woody tundra. The mine is accessible from a paved airstrip, five kilometres from the Red Dog mine, which allows jet access from Anchorage and Kotzebue. Mine personnel are generally drawn from surrounding communities as well as from other locations within the State and in North America. Power for the mine is produced on-site by diesel generators with a maximum capacity of 30 megawatts, sufficient for present and expected future power requirements. Potable water is sourced from Bons Creek.

Red Dog is comprised of a number of sedimentary hosted exhalative lead-zinc sulphide deposits hosted in Mississippian-age to Pennsylvanian-age sedimentary rocks. The orebodies are lens shaped and occur within structurally controlled (thrust faults) plates, are relatively flat-lying and are hosted by marine clastic rocks (shales, siltstones, turbidites) and lesser chert and carbonate rocks. Barite rock is common in and above the sulphide units. Silicification is the dominant alteration type.

The sulphide mineralization consists of semi-massive to massive sphalerite, pyrite, marcasite and galena. Common textures within the sulphide zone include massive, fragmental, veined and, rarely, sedimentary layering.

Ore is currently mined from the Aqqaluk and Qanaiyaq pits. All future ore production is also expected to be mined from these pits. The mining method employed is conventional open pit drill-and-blast and truck-and-shovel technology. The mineral processing facilities employ conventional grinding and sulphide flotation methods to produce zinc and lead concentrates.

Tailings storage and waste disposal areas have adequate design capacity to sustain the current life of mine plan. All contaminated water from the mine area and waste dumps is collected and contained in a tailings impoundment and seasonally discharged through a water treatment plant. Mill process water is reclaimed from the tailings pond.

 

 

 

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In 2018, 19 holes totalling approximately 3,050 metres were drilled in the Aqqaluk pit for resource definition and geotechnical data collection. In addition, 13 holes totalling approximately 650 metres were drilled in the Qanaiyaq pit for resource infill and confirmation. Updates to the Aqqaluk and Qanaiyaq resource models are in progress. While we are not able to fully quantify the impacts until the model updates are complete, no material impacts to the quantity or grade of reserves or resources are anticipated. Diamond drill core (both HQ and NQ diameters) is sawn into halves and sampled in 1.5-metre intervals, with one half being sent to Bureau Veritas in Vancouver for analysis and the other half retained at Red Dog for future reference. The quality assurance/quality control program consists of standards and blanks inserted at regular intervals as well as core, coarse crush and pulp duplicates all analyzed by Bureau Veritas. Five percent of core sample pulps are split and sent to a second lab as a check.

The mine and concentrator properties are leased from, and are being operated under the terms of a development and operating agreement with, NANA, a Regional Alaska Native corporation. Since the third quarter of 2007, we have paid NANA a percentage of the net proceeds of production from the mine, starting at 25% and increasing to 50% by successive increments of 5% at five-year intervals. The net proceeds of production percentage increased from 25% to 30% in the fourth quarter of 2012 and increased to 35% in October 2017. The development and operating agreement also provides for employment and contracting preferences and additional lease rental payments. In addition to the royalties payable to NANA, the operation is subject to federal and state income taxes and the Alaska Mining Licence tax, which applies at 7% of taxable income.

A payment in lieu of taxes (PILT) agreement between Teck Alaska and the Northwest Arctic Borough (the Borough) expired on December 31, 2015. Teck Alaska and the Borough agreed to a new 10-year PILT agreement effective January 1, 2016. Under the new agreement, PILT payments to the Borough, based on the net book value of the mine lands, buildings and equipment in accordance with U.S. Generally Accepted Accounting Principles, increase by approximately US$4 million to between US$14 million and US$18 million per year. In addition, Teck Alaska will make annual payments to a separate fund aimed at social investment in villages in the region. These payments, based on mine profitability, will be between US$4 million and US$8 million per year, with US$11 million invested in the first year.

The mine is in material compliance with all of its permits and related regulatory instruments, and has obtained all of the permits that are material to its current operations.

In 2018, approximately 34% of the zinc concentrate produced at Red Dog was shipped to our metallurgical facilities at Trail, British Columbia, and the balance to customers in Asia and Europe. The lead concentrate production is also shipped to Trail and to customers in Asia. The majority of concentrate sales are pursuant to long-term contracts at market prices, subject to annually negotiated treatment charges. The balance is sold on the spot market at prices based on prevailing market quotations. The shipping season at Red Dog is restricted to approximately 100 days per year because of sea ice conditions and Red Dog’s sales are seasonal, with the majority of sales in the last five months of each year. Concentrate is stockpiled at the port facility and is typically shipped between July and October.

In 2018, zinc production at Red Dog increased to 583,200 tonnes compared to 541,900 tonnes in 2018, primarily due to higher zinc grades and recoveries. Lead production in 2018 declined to

 

 

 

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98,400 tonnes, compared to 111,300 tonnes in 2017, primarily due to lower grades and recoveries.

Work continues on the mill upgrade project that is expected to increase average mill throughput by about 15% over the remaining mine life, helping to offset lower grades and harder ore in the Aqqaluk pit. This project is expected to be complete by the end of 2019 at a capital cost of US$110 million.

Because the upgrade project will permit lower-grade material to be processed, the current mine life, based on existing developed deposits, will remain unchanged through to 2031. In 2019, we plan to continue an exploration drilling program and various studies focused on extending the life of Red Dog past 2031, including possible development of the Paalaaq, Anarraaq and Aktigiruq deposits.

Red Dog’s production of contained metal in 2019 is expected to be in the range of 535,000 to 555,000 tonnes of zinc and 85,000 to 90,000 tonnes of lead. From 2020 to 2022, Red Dog’s production of contained metal is expected to be in the range of 500,000 to 520,000 tonnes of zinc and 85,000 to 100,000 tonnes of lead per year, respectively.

2019 projected capital costs for Red Dog are approximately US$117 million. The major components of the projected capital costs are:

 

Component   

Approximate projected cost

(US$/million)

 

Sustaining

   72

Major Enhancement

   45

2019 projected cash operating costs for Red Dog are approximately US$242 million. The major components of the projected cash operating costs are:

 

Component   

Approximate projected cost

(US$/million)

 

Labour

   127

Supplies

   75

Energy

   41
Other (including general & administrative, inventory changes)    33
Less amounts associated with capitalized stripping    (34)

Total

   242

The cash operating costs presented above do not include transportation or royalties.

 

 

 

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Pend Oreille Mine, United States (Zinc, Lead)

We own 100% of the Pend Oreille mine, near Metaline Falls, Washington, which began commercial production in early 2004 under Teck’s ownership. In February 2009, we suspended operations and put the mine on care and maintenance as a result of low zinc prices. The mine restarted operations in December 2014.

The Pend Oreille mine is a carbonate-hosted zinc-lead orebody situated within the Metaline Formation in the southern portion of the Kootenay arc, an arcuate, narrow belt of sedimentary, volcanic and metamorphic rocks separating Precambrian metasediments to the east and Mesozoic volcanic and sedimentary units to the west. Metaline carbonates host the known zinc-lead deposits within the district.

Mineralization at the Pend Oreille mine is located within the Yellowhead horizon of the Metaline Formation, an intensely altered stratabound dolomitic solution breccia, which has been invaded and replaced by fine-grained pyrite with lesser zinc and lead sulphides. The sulphide zone has relatively simple mineralogy. Sphalerite and galena are the two ore minerals of interest. Gangue minerals include pyrite, dolomite and calcite. The Pend Oreille mine is an underground mine. The mineral processing facilities employ conventional grinding and sulphide flotation methods to produce high-quality zinc and lead concentrates. Pend Oreille holds all permits necessary for its operation and is in material compliance with these permits.

The mine achieved zinc production of 29,700 tonnes in 2018, compared to 33,100 tonnes in 2017. We expect production for the first nine months of 2019 to be between 20,000 and 30,000 tonnes of zinc in concentrate. Production rates beyond the third quarter of 2019 are uncertain.

Other Zinc Projects

We have a 100% interest in the Teena/Reward project which is located eight kilometres west of the McArthur River Mine in the Northern Territory of Australia.

Refining and Smelting

Trail Operations

Teck Metals owns and operates the integrated smelting and refining complex at Trail, British Columbia. The complex’s major products are refined zinc, lead and silver. It also produces a variety of precious and specialty metals, chemicals and fertilizer products.

The zinc refinery consists of six major metallurgical plants, one fertilizer plant and two specialty metal plants. Depending on the mix of feeds, the facility has an annual capacity of approximately 300,000 to 310,000 tonnes of refined zinc. Zinc concentrates are initially treated in either roasters or pressure leach plants, where sulphur is separated from the metal-bearing solids. The zinc is put into solution where it is first purified to remove other metal impurities and then electroplated onto cathodes in an electrolytic refining plant. The zinc cathodes are melted and then the zinc is cast into various shapes, grades and alloys to meet customer requirements. Other valuable metals, including indium and germanium, are also recovered as co-products in the zinc plant. The lead smelting operation consists of two major metallurgical plants and one specialty metal plant. Lead concentrates, recycled lead acid batteries, residues from the zinc circuits and various other lead- and silver-bearing materials are treated in the KIVCET flash furnace to produce lead bullion.

 

 

 

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The bullion is electro-refined in the refinery to produce high-purity lead. The valuable silver and gold are also recovered in this circuit after further processing. Shutdown of the KIVCET furnace for regular maintenance is scheduled to occur approximately every four years. As a result, the KIVCET furnace was shut down for part of the third and fourth quarter of 2018.

Refined zinc production in 2018 was 302,900 tonnes, compared with 310,100 tonnes the previous year. Refined lead production was 61,000 tonnes, down from 87,100 tonnes in 2017, primarily due to the planned extended maintenance shutdown of the KIVCET furnace in late 2018. Other factors impacting production included a temporary shutdown of some facilities due to wildfire smoke and the treatment of lower-grade lead concentrate compared to last year as a result of operating disruptions at some mines that supply lead concentrates which required us to process alternative concentrates. Silver production declined to 11.6 million ounces in 2018 from 21.4 million ounces in 2017 due to the KIVCET maintenance shutdown and lower silver inputs.

Our recycling process treated 41,700 tonnes of material during the year, and we plan to treat about 44,700 tonnes in 2019. Our focus remains on treating lead acid batteries and cathode ray tube glass, plus small quantities of zinc alkaline batteries and other post-consumer waste.

In November 2016, we announced that we would invest $174 million in the installation of a second new acid plant to improve efficiency and environmental performance at Trail Operations. The construction of the acid plant is over 90% complete with commissioning planned in the second quarter of 2019.

In 2019, we expect Trail Operations to produce 305,000 to 310,000 tonnes of refined zinc, approximately 70,000 to 75,000 tonnes of refined lead and approximately 13.0 to 14.0 million ounces of silver. Zinc production from 2020 to 2022 is expected to increase to 310,000 to 315,000 tonnes per year, while annual lead production is expected to rise to 85,000 to 95,000 tonnes. Silver production depends on the amount of silver contained in the purchased concentrates.

Metallurgical effluent, together with site rainfall drainage water, is collected in ponds and treated through an effluent treatment plant before discharge into the Columbia River. The smelter operates under a variety of permits, including effluent and air emission permits issued by the British Columbia Ministry of Environment. The operation is in material compliance with all of its environmental permits and has obtained all of the permits that are material to its operations.

In July 2018, we sold our two-thirds interest in the Waneta Dam to BC Hydro. In connection with the sale, we entered into a 20-year arrangement with BC Hydro, with an option to extend for an additional 10 years, to purchase power for our Trail Operations. Our arrangement with BC Hydro retains our prior obligation to provide for the firm delivery of energy and capacity from Waneta to BC Hydro until 2036. If Teck Metals fails to deliver power as provided for in the agreement, it could be liable to pay liquidated damages to BC Hydro based on the market rate for power at the time of the shortfall. The costs of the liquidated damages could be significant if the shortfall continues and is not covered by our insurance policies.

We also own the related 15-kilometre transmission and distribution system from Waneta to the United States, which BC Hydro has agreed to purchase on a deferred schedule.

 

 

 

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Energy

Fort Hills Mine

Fort Hills mines, extracts and sells the recoverable bitumen found in certain oil sands deposits underlying six Alberta Oil Sands Leases No.’s 7404080933, 7404080932, 7400120008, 7406020438, 7405090634 and 7406020437. The Fort Hills leases are located approximately 90 kilometres north of Fort McMurray, Alberta, and cover a contiguous area of approximately 23,675 hectares on the east bank of the Athabasca River.

On November 30, 2005, we acquired a 15% limited partnership interest in Fort Hills Energy L.P. (the Fort Hills Partnership), which owns the Fort Hills mine. In 2007, we entered into an agreement to increase our interest in the Fort Hills Partnership to 20%. We further increased our interest to approximately 20.89% in 2017 and again to 21.3% in January 2018. As at December 31, 2018, the other limited partners were Suncor Energy Inc. (Suncor) with a 54.1% interest and Total E&P Canada Ltd. (Total) with a 24.6% interest. Relations among the partners are governed by a limited partnership agreement and a unanimous shareholder agreement pertaining to the governance of Fort Hills Energy Corporation, the general partner of the Fort Hills Partnership, in which the limited partners hold pro rata share interests.

Suncor Energy Operating Inc., an affiliate of Suncor, acts as contract operator of Fort Hills pursuant to an operating services contract. The contract operator has exclusive authority to operate Fort Hills, subject to the oversight of a management committee on which each of the shareholders of the general partner are represented. Certain fundamental decisions concerning Fort Hills require super-majority, and in certain cases, unanimous, approval of the management committee. Subject to certain exceptions, limited partners have a right of first refusal in the event of a transfer of another’s limited partnership interest.

Bitumen production from the first two secondary extraction trains at Fort Hills commenced in the first quarter of 2018, followed by the third and final train in May. All commissioning and construction activities are now complete and Fort Hills ran at full design nameplate capacity for much of the fourth quarter of 2018. Teck’s share of the overall costs was $3.7 billion from the date the project was sanctioned through to completion, including the impact of foreign exchange.

Fort Hills has produced 45.6 million barrels of bitumen, or 125,000 barrels per day, since first oil in January 2018. Our share of production since January 1, 2018 was 9.7 million barrels, or 26,580 barrels per day, which was near the high end of our guidance of 8.5 million to 10.0 million barrels for 2018.

To meet pipeline viscosity requirements Teck, along with the other Fort Hills partners, are required to purchase diluent blend-stock. In order to facilitate this and the transportation of blended bitumen to the market hub at Hardisty, the Fort Hills partners have jointly entered into long-term take-or-pay agreements with regional pipelines, terminals and blend facilities. These agreements relate to:

 

   

hot bitumen transportation from Fort Hills to the East Tank Farm on the Northern Courier Pipeline, operated by TransCanada;

   

diluent transportation from Edmonton to the East Tank Farm on the Norlite Pipeline, operated by Enbridge;

 

 

 

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use of diluent and bitumen blending facility at the East Tank Farm, operated by the Thebacha partnership, a joint venture between Suncor and regional First Nations (Fort McKay First Nation and Mikisew Cree First Nation); and

   

blended bitumen transportation from the East Tank Farm to the market hub at Hardisty, Alberta, on the Wood Buffalo Pipeline, operated by Enbridge.

We have separately contracted a 425,000-barrel working-capacity storage tank for our share of blended bitumen at Hardisty, Alberta, and 100,000 barrels of diluent storage capacity at Fort Saskatchewan, Alberta.

We sell our blended bitumen to customers at Hardisty and on the U.S. Gulf Coast. Our tankage at Hardisty is connected to major export pipelines, including the Enbridge common carrier pipeline, the existing Keystone pipeline and the Express crude oil pipeline. Our tankage is also connected to a large unit train loading facility. We have entered into a long-term take-or-pay agreement on the existing Keystone pipeline to ship 10,000 barrels per day of blended bitumen to our customers on the U.S. Gulf Coast. We have also entered into agreements to ship an additional 10,000 barrels per day on the proposed Keystone XL pipeline expansion and an additional 12,500 barrels per day on the proposed TransMountain pipeline expansion to customers on the U.S. Gulf Coast and in Burnaby, B.C., respectively. The balance of our production will be sold at Hardisty, shipped to customers via the Enbridge common carrier pipeline, or transported by rail if required.

Certain of these arrangements permit the infrastructure owners to require Teck to deliver letters of credit or other financial assurances if Teck does not maintain investment grade ratings by specified ratings agencies. Teck had approximately $204 million in letters of credit outstanding at December 31, 2018 as financial assurance related to certain pipeline and storage agreements we entered into in connection with Fort Hills. In addition, if requested by all of Teck’s counterparties, the amount of these letters of credit could increase up to approximately $499 million. These Fort Hills-related letters of credit will be terminated if and when we regain investment grade ratings.

Due to extreme price volatility for Alberta crude oil, the Government of Alberta announced a temporary curtailment of provincial crude oil and bitumen production of approximately 325,000 barrels per day effective January 1, 2019. Although some uncertainty on the impacts of the curtailment remains, consistent with the Government of Alberta announcement on December 2, 2018, the production estimates under “Description of the Business – Oil and Gas Reserves – Production Estimate” assume the mandatory industry-wide production curtailment of 325,000 barrels per day is in place for the first four months of the year declining to 95,000 barrels per day for the remainder of 2019.

Teck engaged GLJ Petroleum Consultants Ltd. (GLJ) to prepare an independent evaluation of the reserves at Fort Hills effective as of December 31, 2018. The best estimate of Teck’s share of the proved plus probable reserves at Fort Hills as at December 31, 2018 is 566 million barrels of bitumen. In 2018, Teck’s share of reserves decreased by 28 million barrels due to: the production of 44.6 million barrels of bitumen (on a 100% basis) during 2018 and a slight decrease in ore recovery certainty in the north pit as the latest data indicates that the piezometric head of the underlying Keg River aquifer in that area is higher than previously estimated, each partially offset by an increase in our ownership of Fort Hills from 20.89% to 21.3%. The revised mine plan is still

 

 

 

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expected to support mining at design production rates for over 46 years. See “Oil and Gas Resources” below for a further discussion of the reserves for Fort Hills.

Fort Hills is subject to the royalty framework issued by the Government of Alberta (the Oil Sands Royalty), and regulated by the Oil Sands Royalty Regulation 2009 (OSRR 2009) and related regulations. Under the Oil Sands Royalty, royalties for Fort Hills are based on a sliding scale of 25% to 40% of net revenue, subject to a minimum royalty within a range of 1% to 9% of gross revenue. Revenues used in royalty formulas are driven by realized net prices to arm’s-length customers or, if there are insufficient arm’s-length sales, benchmark prices for Western Canadian Select (WCS) while sliding-scale percentages in royalty formulas depend on prices for West Texas Intermediate (WTI) from CAD$55/bbl for the minimum rate to the maximum rate at a WTI price of CAD$120/bbl. Fort Hills remains subject to the minimum royalty (the pre-payout phase) until Fort Hills’ cumulative gross revenue exceeds its cumulative costs, including an annual investment allowance. After the pre-payout phase, the higher of the minimum and regular royalty rates will apply.

Fort Hills is required to upgrade the bitumen produced from the second phase of the project in Alberta or to pay a penalty to the Government of Alberta.

Our share of Fort Hills major enhancement capital expenditures for 2019 is expected to be $100 million and our share of sustaining capital expenditures for 2019 is expected to be $60 million.

Frontier Project

The Frontier oil sands project is wholly owned by Teck and consists of approximately 56,000 hectares of oil sands leases and is located on the west side of the Athabasca River. The Frontier project was designed for a total nominal production of approximately 260,000 barrels per day of bitumen.

During 2018, Teck relinquished 4,608 hectares from its Frontier oil sands leases as well as other oil sands leases back to the Crown to be included as part of a Biodiversity Stewardship Area located just south of the Wood Buffalo National Park.

The regulatory application review of Frontier continued in 2018 with a public hearing before a joint federal/provincial panel, which ran from September through mid-December. The earliest a federal decision statement could be expected for Frontier is in the second half of 2019.

Our expenditures on Frontier are limited to supporting this process. We continue to evaluate the future project schedule and development options as part of our ongoing capital review and prioritization process. Should the project proceed, first oil is not expected before the first quarter of 2026, with production expected to continue for 41 years.

Lease 421 Area

We own a 50% interest in the Lease 421 Area — oil sands leases 421, 022, 023 and 899 — east of the Athabasca River (approximately 17,900 hectares on a 100% basis). To date, a total of 89 core holes have been completed in the Lease 421 Area.

 

 

 

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Exploration

In 2018, we incurred exploration expenditures of $69 million, including $6 million for mine site and development/engineering projects. Approximately 59% of expenditures were dedicated to exploration for copper, 20% for zinc and 14% for gold, and approximately 7% were dedicated to other commodities. Of the total exploration expenditures, approximately 53% was spent in North America, 28% in South America, 13% in Europe and Asia, and 6% in Australia. In 2019, planned exploration expenditures are expected to be approximately $81 million, including $14 million for mine site and development/engineering projects.

Exploration is carried out through sole funding and joint ventures with major and junior exploration companies. Exploration is focused on areas in proximity to our existing operations or development projects in regions that we consider have high potential for discovery.

Corporate

For financial reporting purposes, we report on a corporate segment that includes all of our activities in commodities other than copper, coal, zinc and energy, our corporate development and growth initiatives, and groups that provide administrative, technical, financial and other support to all of our business units.

 

 

 

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Mineral Reserves and Resources

See “Notes to Mineral Reserves and Resources Tables” below, after the Mineral Resources table.

 

MINERAL RESERVES as at 31 December 2018 (1)

 

 

    

Proven

 

    

Probable

 

    

Total

 

    

 

Teck
Interest
(%)

    

 

Recoverable
Metal

(000 t) (7)

 
    

Tonnes
(000’s)

 

    

Grade
(%)

 

    

Tonnes
(000’s)

 

    

Grade
(%)

 

    

Tonnes
(000’s)

 

    

Grade
(%)

 

 

Copper

                       

  Highland Valley Copper

     363,000        0.32        172,500        0.28        535,500        0.30        100.0        1,440  

  Antamina

                       

Copper only ore OP

     153,800        1.01        125,600        0.96        279,500        0.98        22.5        570  

Copper-zinc ore OP

 

    

 

81,000

 

 

 

    

 

0.87

 

 

 

    

 

128,600

 

 

 

    

 

0.79

 

 

 

    

 

209,600

 

 

 

    

 

0.82

 

 

 

    

 

22.5

 

 

 

    

 

300

 

 

 

Total

     234,900        0.96        254,200        0.87        489,100        0.91        22.5        870  

  Quebrada Blanca

                       

Heap leach (2)

     13,800        0.09              13,800        0.09        90.0        10  

Dump leach ore (2)

 

    

 

10,300

 

 

 

    

 

0.31

 

 

 

                      

 

10,300

 

 

 

    

 

0.31

 

 

 

    

 

90.0

 

 

 

    

 

20

 

 

 

Total

     24,100        0.18              24,100        0.18        90.0        30  

  Quebrada Blanca - Mill

     476,300        0.51        923,800        0.47        1,400,000        0.48        90.0        5,540  

  Andacollo - Heap leach (2)

     800        0.24        4,300        0.13        5,100        0.15        90.0        3  

  Andacollo - Mill

     100,100        0.34        216,300        0.32        316,400        0.33        90.0        810  

  NuevaUnion

                       

Relincho

     552,200        0.34        899,800        0.36        1,452,100        0.35        50.0        2,250  

La Fortuna

 

    

 

333,600

 

 

 

    

 

0.58

 

 

 

    

 

243,200

 

 

 

    

 

0.45

 

 

 

    

 

576,700

 

 

 

    

 

0.53

 

 

 

    

 

50.0

 

 

 

    

 

1,310

 

 

 

Total

     885,800        0.43        1,143,000        0.38        2,028,800        0.40        50.0        3,560  

Molybdenum

                       

  Highland Valley Copper

     363,000        0.006        172,500        0.009        535,500        0.007        100.0        20  

  Antamina

                       

Copper only ore OP

     153,800        0.038        125,600        0.034        279,500        0.036        22.5        10  

  Quebrada Blanca

                       

Quebrada Blanca - Mill

     476,300        0.018        923,800        0.019        1,400,000        0.018        90.0        170  

  NuevaUnion

                       

Relincho

     552,200        0.014        899,800        0.017        1,452,100        0.016        50.0        60  

 

 

 

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MINERAL RESERVES as at 31 December 2018 (1)

 

 

    

Proven

 

    

Probable

 

    

Total

 

     Teck
Interest
(%)
    

Recoverable
Metal

(000 t) (7)

 
    

Tonnes
(000’s)

 

    

Grade
(%)

 

    

Tonnes
(000’s)

 

    

Grade
(%)

 

    

Tonnes
(000’s)

 

    

Grade
(%)

 

 

Zinc

                       

  Antamina

                       

Copper-zinc ore OP

     81,000        2.0        128,600        2.0        209,600        2.0        22.5        750  

  Red Dog

                       

Mine

           56,000        13.1        56,000        13.1        100.0        5,910  

  Pend Oreille

           400        6.1        400        6.1        100.0        20  

Lead

                       

  Red Dog

                       

Mine

           56,000        3.8        56,000        3.8        100.0        1,070  

  Pend Oreille

           400        1.1        400        1.1        100.0        2  
                                                                         

 

    

Proven

 

    

Probable

 

    

Total

 

    

Teck

Interest
(%)

    

Recoverable
Metal

(000 oz) (7)

    

Tonnes
(000’s)

 

    

Grade
(g/t) (4)

 

    

Tonnes
( 000’s)

 

    

Grade
(g/t) (4)

 

    

Tonnes
(000’s)

 

  

Grade
(g/t) (4)

 

 

Gold

                       

  Andacollo - Mill (6)

     100,100        0.11        216,300        0.10      316,400      0.11        90.0      660

  NuevaUnion

                       

La Fortuna

     333,600        0.55        243,200        0.38      576,700      0.48        50.0      2,960

Silver

                       

  Antamina

Copper only ore OP

     153,800        7.2        125,600        8.0      279,500      7.6        22.5      12,260

Copper-zinc ore OP

    

 

81,000

 

 

 

    

 

16.6

 

 

 

    

 

128,600

 

 

 

    

 

13.1

 

 

 

   209,600

 

    

 

14.5

 

 

 

    

 

22.5

 

 

 

   13,950

 

    Total

     234,900        10.5        254,200        10.6      489,100      10.5        22.5      26,210

  Quebrada Blanca

Quebrada Blanca-Mill

     476,300        1.4        923,800        1.3      1,400,000      1.3        90.0      36,680

  Red Dog

    Mine

           56,000        70.5      56,000      70.5        100.0      76,060
                                                                 

 

 

 

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MINERAL RESERVES as at 31 December 2018 (1)

 

      

Proven

 

      

Probable

 

      

Total

 

      

Teck
Interest
(%)

 

      

Clean
Coal

(000 t)

 

 
      

Tonnes
(000’s)

 

      

Tonnes
(000’s)

 

      

Tonnes
(000’s)

 

 

Metallurgical Coal (3)

                        

Fording River

       166,400          221,500          387,900          100.0          387,900  

Elkview

       6,800          258,300          265,100          95.0          251,800  

Greenhills

       9,700          155,300          165,100          80.0          132,100  

Line Creek

       2,400          57,800          60,200          100.0          60,200  

Cardinal River

       2,300          12,300          14,600          100.0          14,600  

Quintette (Mt Babcock)

       700          35,400          36,000          100.0          36,000  

PCI Coal (3)

                        

Cardinal River

       0          400          400          100.0          400  

Thermal Coal (3)

                        

Line Creek

       400          10,100          10,600          100.0          10,600  

Quintette (Mt Babcock)

 

      

 

0

 

 

 

      

 

900

 

 

 

      

 

900

 

 

 

      

 

100.0

 

 

 

      

 

900

 

 

 

 

Project

Satellite

  

Proven

 

    

Probable

 

    

Total        

 

 
     Tonnes
(000’s)
     Grade
(%)
     Tonnes
(000’s)
     Grade
(%)
     Tonnes
(000’s)
     Grade
(%)
    

Teck
Interest

(%)

    

Recoverable
Metal

(000 t) (7)

 

Copper

     

  Zafranal

   408,800        0.39        32,000        0.21        440,700        0.38        80.0        1,150  
    

Proven

 

    

Probable

 

    

Total

 

 
     Tonnes
(000’s)
     Grade
(g/t) (4)
     Tonnes
(000’s)
     Grade
(g/t) (4)
     Tonnes
(000’s)
     Grade
(g/t) (4)
     Teck
Interest
(%)
    

Recoverable
Metal

(000 oz) (7)

 

Gold

     

  Zafranal

     408,800        0.07        32,000        0.05        440,700        0.07        80.0        440  

 

 

 

  Teck Resources Limited

  

 

Page 56  


2018 Annual Information Form

 

 

 

MINERAL RESOURCES as at 31 December 2018 (1)

 

      

Measured

 

      

Indicated

 

      

Inferred

 

           
       Tonnes
(000’s)
       Grade
(%)
       Tonnes
(000’s)
       Grade
(%)
       Tonnes
(000’s)
       Grade
(%)
      

Teck
Interest
(%)

 

 

Copper

                                  

Highland Valley Copper

       499,400          0.30          671,800          0.24          166,000          0.21          100.0  

Antamina

                                  

Copper only ore OP

       88,000          0.62          315,500          0.79          528,000          0.76          22.5  

Copper-zinc ore OP

       24,000          0.92          137,500          1.02          238,000          0.97          22.5  

Copper only ore UG

                           296,200          1.28          22.5  

    Copper Zinc ore UG

                                                  

 

174,200

 

 

 

      

 

1.26

 

 

 

      

 

22.5

 

 

 

    Total

       111,900          0.68          453,000          0.86          1,236,400          0.99          22.5  

  Quebrada Blanca

                                  

  Quebrada Blanca - Mill

       36,200          0.42          1,558,000          0.40          3,125,200          0.38          90.0  

  Andacollo - Heap leach(2)

       8,600          0.39          26,700          0.15                    90.0  

  Andacollo - Mill

       36,600          0.29          256,100          0.26          47,400          0.26          90.0  

  NuevaUnion

                                  

Relincho

       132,400          0.23          329,200          0.31          589,800          0.37          50.0  

    La Fortuna

      

 

400

 

 

 

      

 

0.56

 

 

 

      

 

52,800

 

 

 

      

 

0.67

 

 

 

      

 

 

377,000

 

 

 

 

 

      

 

0.51

 

 

 

      

 

50.0

 

 

 

    Total

       132,800          0.24          382,100          0.36          966,900          0.42          50.0  

Molybdenum

                                  

  Highland Valley Copper

       499,400          0.008          671,800          0.009          166,000          0.007          100.0  

  Antamina

                                  

Copper only ore OP

       88,000          0.018          315,500          0.023          528,000          0.028          22.5  

    Copper only ore UG

                                                  

 

296,200

 

 

 

      

 

0.020

 

 

 

      

 

22.5

 

 

 

    Total

       88,000          0.018          315,500          0.023          824,200          0.025          22.5  

  Quebrada Blanca

                                  

Quebrada Blanca - Mill

       36,200          0.014          1,558,000          0.016          3,125,200          0.018          90.0  

  NuevaUnion

                                  

Relincho

       132,400          0.007          329,200          0.011          589,800          0.013          50.0  

 

 

 

  Teck Resources Limited

  

 

Page 57  


2018 Annual Information Form

 

 

 

MINERAL RESOURCES as at 31 December 2018 (1)

 

    

Measured

 

    

Indicated

 

    

Inferred

 

    

Teck
Interest
(%)

 

 
    

Tonnes
(000’s)

 

    

Grade
(%)

 

    

Tonnes
(000’s)

 

    

Grade
(%)

 

    

Tonnes
(000’s)

 

    

Grade
(%)

 

 

Zinc

                    

  Antamina

                    

Copper-zinc ore OP

     24,000        1.4        137,500        1.6        238,000        1.6        22.5  

Copper zinc ore UG

                                        

 

174,200

 

 

 

    

 

1.4

 

 

 

    

 

22.5

 

 

 

Total

     24,000        1.4        137,500        1.6        412,200        1.5        22.5  

  Red Dog

                    

Red Dog Mine

           12,900        8.7        8,100        11.3        100.0  

Red Dog District

                 19,400        14.4        100.0  

  Pend Oreille

           400        4.4        2,300        6.4        100.0  

Lead

                    

  Red Dog

                    

Red Dog Mine

           12,900        2.9        8,100        4.3        100.0  

Red Dog District

                 19,400        4.2        100.0  

  Pend Oreille

          

 

400

 

 

 

    

 

0.9

 

 

 

    

 

2,300

 

 

 

    

 

1.3

 

 

 

    

 

100.0

 

 

 

    

Measured

 

    

Indicated

 

    

Inferred

 

    

Teck
Interest

(%)

 

 
    

Tonnes
(000’s)

 

    

Grade
(g/t) (4)

 

    

Tonnes
(000’s)

 

    

Grade
(g/t) (4)

 

    

Tonnes
(000’s)

 

    

Grade
(g/t) (4)

 

 

Gold

                    

  Andacollo - Mill (6)

     36,600        0.11        256,100        0.10        47,400        0.08        90.0  

  NuevaUnion

                    

La Fortuna

     400        0.47        52,800        0.85        377,000        0.55        50.0  

Silver

                    

  Antamina

                    

Copper only ore OP

     88,000        6.9        315,500        9.0        528,000        7.7        22.5  

Copper-zinc ore OP

     24,000        16.4        137,500        18.2        238,000        14.9        22.5  

Copper only ore UG

                 296,200        13.0        22.5  

Copper Zinc ore UG

                                        

 

174,200

 

 

 

    

 

 

17.2

 

 

 

 

 

    

 

22.5

 

 

 

Total

     111,900        8.9        453,000        11.8        1,236,400        11.7        22.5  

  Quebrada Blanca

                    

Quebrada Blanca - Mill

     36,200        1.2        1,558,000        1.1        3,125,200        1.1        90.0  

  Red Dog

                    

Red Dog Mine

           12,900        53.5        8,100        81.6        100.0  

Red Dog District

                 19,400        73.4        100.0  
                    

 

 

 

  Teck Resources Limited

  

 

Page 58  


2018 Annual Information Form

 

 

 

MINERAL RESOURCES as at 31 December 2018 (1)

 

 

      

Measured

 

      

Indicated

 

      

Inferred

 

       Teck
Interest
(%)
 
       Tonnes
(000’s)
       Tonnes
(000’s)
       Tonnes
(000’s)
 

Metallurgical Coal (5)

                                           

Fording River

       407,600          925,500          775,600          100.00  

Elkview

       223,000          156,700          205,600          95.00  

Greenhills

       162,200          247,200          177,100          80.00  

Line Creek

       312,200          406,500          372,800          100.00  

Cardinal River

       13,400          2,200          500          100.00  

Quintette (Mt Babcock)

       31,800          92,000          114,400          100.00  

Mt Duke

       24,300          102,400          122,600          92.68  

Elco

       25,100          115,300          112,300          75.00  

CMO Phase II (Martin Wheeler)

       102,200          71,700          7,900          100.00  

PCI Coal (5)

                   

Cardinal River

       500          200          50          100.00  

Coal Mountain

       56,800          22,900          4,800          100.00  

Thermal Coal (5)

                   

Line Creek

       1,700          1,900          1,800          100.00  

Quintette (Mt Babcock)

       30          200          200          100.00  

Mt Duke

       200          700          1,300          92.68  

Elco

       700          6,100          6,000          75.00  

CMO Phase II (Martin Wheeler)

       2,800          3,700          900          100.00  
                   

 

 

 

  Teck Resources Limited

  

 

Page 59  


2018 Annual Information Form

 

 

 

MINERAL RESOURCES as at 31 December 2018 (1)

 

 

      

Measured

 

      

Indicated

 

      

Inferred

 

          

Project

Satellite

    

Tonnes
(000’s)

 

      

Grade
(%)

 

      

Tonnes
(000’s)

 

      

Grade
(%)

 

      

Tonnes
(000’s)

 

      

Grade
(%)

 

      

Teck
Interest
(%)

 

 

Copper

                                  

Galore Creek

       256,800          0.72          846,700          0.39          198,100          0.27          50.0  

Schaft Creek

       166,000          0.32          1,127,200          0.25          316,700          0.19          75.0  

Mesaba

       244,100          0.47          1,334,100          0.42          1,462,000          0.35          100.0  

Zafranal

       5,100          0.19          2,300          0.21          62,800          0.24          80.0  

San Nicolas

       32,400          1.27          76,500          1.12          4,700          1.25          100.0  

Molybdenum

                                  

Schaft Creek

       166,000          0.021          1,127,200          0.016          316,700          0.019          75.0  

Zinc

                                  

San Nicolas

       32,400          1.9          76,500          1.5          4,700          0.8          100.0  

Nickel

                                  

Mesaba

       244,100          0.11          1,334,100          0.10          1,462,000          0.09          100.0  

Cobalt

                                  

Mesaba

 

      

 

244,100

 

 

 

      

 

0.009

 

 

 

      

 

1,334,100

 

 

 

      

 

0.007

 

 

 

      

 

1,462,000

 

 

 

      

 

0.006

 

 

 

      

 

100.0

 

 

 

       

Measured

 

      

Indicated

 

      

Inferred

 

           
      

Tonnes
(000’s)

 

      

Grade
(g/t) (4)

 

      

Tonnes
(000’s)

 

      

Grade
(g/t) (4)

 

      

Tonnes
(000’s)

 

      

Grade
(g/t) (4)

 

      

Teck
Interest
(%)

 

 

Gold

                                                                            

Galore Creek

       256,800          0.36          846,700          0.23          198,100          0.21          50.0  

Schaft Creek

       166,000          0.20          1,127,200          0.15          316,700          0.14          75.0  

Mesaba

       244,100          0.03          1,334,100          0.03          1,462,000          0.03          100.0  

Zafranal(8)

       5,100          0.04          2,300          0.05          62,800          0.10          80.0  

San Nicolas

       32,400          0.46          76,500          0.42          4,700          0.23          100.0  

Silver

                                  

Galore Creek

       256,800          5.8          846,700          3.7          198,100          2.7          50.0  

Schaft Creek

       166,000          1.5          1,127,200          1.2          316,700          1.1          75.0  

Mesaba

       244,100          1.2          1,334,100          1.0          1,462,000          0.7          100.0  

San Nicolas

       32,400          26.0          76,500          23.8          4,700          14.2          100.0  

Platinum

                                  

Mesaba

       244,100          0.04          1,334,100          0.03          1,462,000          0.04          100.0  

Palladium

                                  

Mesaba

       244,100          0.12          1,334,100          0.09          1,462,000          0.13          100.0  

 

 

 

  Teck Resources Limited

  

 

Page 60  


2018 Annual Information Form

 

 

 

Notes:

 

  (1)

Mineral reserves and resources are mine and property totals and are not limited to our proportionate interests.

  (2)

For heap leach and dump leach operations, copper grade are reported as % soluble copper rather than % total copper. Soluble copper is defined by an analytical methodology which uses acid and cyanide reagents to approximate the portion of copper recoverable in the heap and dump leach processes.

  (3)

Coal reserves are reported as tonnes of clean coal.

  (4)

g/t = grams per tonne.

  (5)

Coal resources are reported as tonnes of raw coal.

  (6)

In 2015, an interest in future gold production from the Andacollo mine was sold. Compañia Minera Teck Carmen de Andacollo has agreed to sell and deliver to the purchaser an amount of gold equal to 100% of the payable gold produced from the Carmen de Andacollo mine until 900,000 ounces have been delivered, and 50% thereafter. Reserves and resources are stated without accounting for this production interest.

  (7)

Recoverable Metal refers to the amount of metal contained in concentrate or cathode copper.

  (8)

At Zafranal, gold in oxide material is considered to be non-recoverable.

Definitions for Mineral Reserves and Mineral Resources

Mineral Reserves and Mineral Resources: “Proven” and “probable” mineral reserves and “Measured”, “Indicated” and “Inferred” mineral resources are estimated in accordance with the definitions of these terms adopted by the Canadian Institute of Mining, Metallurgy and Petroleum in November, 2010 updated in May 2014 and incorporated in National Instrument 43-101, Standards of Disclosure for Mineral Projects, by Canadian securities regulatory authorities.

Mineral resources are reported separately from, and do not include, that portion of the mineral resources classified as mineral reserves.

Metallurgical coal: means the various grades of coal that are used to produce coke, which is used in the steel making process.

PCI coal: means coal that is pulverized and injected into a blast furnace. Those grades of coal used in the PCI process are generally non-coking. PCI grade coal is used primarily as a heat source in the steel making process in partial replacement for high quality coking coals which are typically more expensive.

Thermal coal: means coal that is used primarily for its heating value. Thermal coals tend not to have the carbonization properties possessed by metallurgical coals. Most thermal coal is used to produce electricity in thermal power plants.

The Canadian Institute of Mining, Metallurgy and Petroleum definitions for mineral resources and mineral reserves are as follows:

A “mineral resource” is a concentration or occurrence of solid material of economic interest in or on the Earth’s crust in such form, grade or quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade or quality, continuity and other geological characteristics of a mineral resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling.

An “inferred mineral resource” is that part of a mineral resource for which quantity and grade or quality are estimated on the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade or quality continuity. An inferred

 

 

 

  Teck Resources Limited

  

 

Page 61  


2018 Annual Information Form

 

 

 

mineral resource has a lower level of confidence than that applying to an indicated mineral resource and must not be converted to a mineral reserve. It is reasonably expected that the majority of inferred mineral resources could be upgraded to indicated mineral resources with continued exploration. An inferred mineral resource is based on limited information and sampling gathered through appropriate sampling techniques from locations such as outcrops, trenches, pits, workings and drillholes. Inferred mineral resources must not be included in the economic analysis, production schedules, or estimated mine life in publicly disclosed prefeasibility or feasibility studies, or in the life of mine plans and cash flow models of developed mines. Inferred mineral resources can only be used in economic studies as provided under National Instrument 43-101.

An “indicated mineral resource” is that part of a mineral resource for which quantity, grade or quality, densities, shape and physical characteristics are estimated with sufficient confidence to allow the application of modifying factors in sufficient detail to support mine planning and evaluation of the economic viability of the deposit. Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing and is sufficient to assume geological and grade or quality continuity between points of observation. An indicated mineral resource has a lower level of confidence than that applying to a measured mineral resource and may only be converted to a probable mineral reserve. Mineralization may be classified as an indicated mineral resource by the qualified person when the nature, quality, quantity and distribution of data are such as to allow confident interpretation of the geological framework and to reasonably assume the continuity of mineralization. An indicated mineral resource estimate is of sufficient quality to support a prefeasibility study which can serve as the basis for major development decisions.

A “measured mineral resource” is that part of a mineral resource for which quantity, grade or quality, densities, shape, and physical characteristics are estimated with confidence sufficient to allow the application of modifying factors to support detailed mine planning and final evaluation of the economic viability of the deposit. Geological evidence is derived from detailed and reliable exploration, sampling and testing and is sufficient to confirm geological and grade or quality continuity between points of observation. A measured mineral resource has a higher level of confidence than that applying to either an indicated mineral resource or an inferred mineral resource. It may be converted to a proven mineral reserve or to a probable mineral reserve. Mineralization or other natural material of economic interest may be classified as a measured mineral resource when the nature, quality, quantity and distribution of data are such that the tonnage and grade or quality of the mineralization can be estimated to within close limits and that variation from the estimate would not significantly affect potential economic viability of the deposit. This category requires a high level of confidence in, and understanding of, the geology and controls of the mineral deposit.

A “mineral reserve” is the economically mineable part of a measured and/or indicated mineral resource. It includes diluting materials and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at prefeasibility or feasibility level as appropriate that include application of modifying factors. These studies demonstrate that, at the time of reporting, extraction could reasonably be justified.

 

 

 

  Teck Resources Limited

  

 

Page 62  


2018 Annual Information Form

 

 

 

A “probable mineral reserve” is the economically mineable part of an indicated, and in some circumstances, a measured mineral resource. The confidence in the modifying factors applying to a probable mineral reserve is lower than that applying to a proven mineral reserve.

A “proven mineral reserve” is the economically mineable part of a measured mineral resource. A proven mineral reserve implies a high degree of confidence in the modifying factors.

Methodologies and Assumptions

Mineral reserve and mineral resource estimates are based on various assumptions relating to operating matters, including with respect to production costs, mining and processing recoveries, mining dilution, cut-off values or grades, as well as assumptions relating to long-term commodity prices and, in some cases, exchange rates. Cost estimates are based on feasibility study estimates or operating history.

Methodologies used in reserve and resource estimates vary from property to property depending on the style of mineralization, geology and other factors. Geostatistical methods, appropriate to the style of mineralization, have been used in the estimation of reserves at Teck’s material base metal properties.

Assumed metal prices vary from property to property for a number of reasons. Teck has interests in a number of joint ventures for which assumed metal prices are a joint venture decision. In certain cases, assumed metal prices are historical assumptions made at the time of the relevant reserve and resource estimates. For operations with short remaining lives, assumed metal prices may reflect shorter-term commodity price forecasts.

Comments on Individual Operations

Highland Valley Copper

Reserve and resource estimates were prepared assuming long-term metal prices of US$3.00/lb copper, US$9.40/lb molybdenum, US$20.00/oz silver and US$1,250/oz gold and an exchange rate of CAD$1.20 per US$1.00. Resources and reserves are reported at a 0.11% copper equivalent cut-off and a 1.7 molybdenum factor. A 0.11% copper equivalent cut-off equals a net smelter return (NSR) of US$5.51 per tonne.

There was a net decrease of 54 million tonnes of Proven and Probable reserves in 2018 mostly as a result of normal mining activity. The overall reduction is partially offset by updates to the resource model and changes in mine design. Resources significantly decreased by 356 million tonnes when compared to 2017, primarily because of higher assumed long-term operating costs. The resource estimate at Highland Valley is extremely sensitive to changes in these assumptions.

Antamina

Open pit reserve estimates were prepared assuming long-term metal prices of US$2.94/lb copper, US$1.05/lb zinc, US$7.96/lb molybdenum and US$19.54/oz. silver. Open pit and underground resource estimates were prepared assuming long-term metal prices of: US$3.30/lb copper, US$1.23/lb zinc, US$9.50/lb molybdenum and US$20.70/oz silver.

 

 

 

  Teck Resources Limited

  

 

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Cut-off grades at Antamina are based on the net value before taxes that the relevant material is expected to generate per hour of concentrator operation at assumed prices, and varies by year in an effort to maximize the net present value of the pit.

Antamina engaged a third party to conduct an evaluation of the reasonable prospects for eventual economic extraction for both copper-only and copper-zinc ores to be mined by a more selective underground method than considered in 2017. The mineralized material located below the 2018 mineral resource pit shell was targeted and reported at a conceptual level in sufficient detail to declare Inferred mineral resources.

The total, open pit and underground, resources reported in 2018 are 565 million tonnes of Measured and Indicated and over 1.2 billion tonnes of Inferred. These figures are reduced from those reported in 2017 mostly due to the change in conceptual underground mine design method that reduces tonnes, partially offset by a positive impact in grade, and updates to the resource model.

Quebrada Blanca

Supergene reserves have been fully depleted in 2018. The Quebrada Blanca (hypogene) reserve and resource estimates were prepared assuming a long-term copper price of US$3.00/lb and a long-term molybdenum price of US$9.40/lb.

The hypogene mineral reserves show an increase of 141 million tonnes due to optimization of tailings storage capacity. A more robust resource estimate with higher confidence, updated with over 23,000 m of drilling and revised geological models, supports reporting an additional 270 million tonnes of Measured and Indicated and 985 million tonnes of Inferred resources compared to 2017 reported figures.

Carmen de Andacollo

The Carmen de Andacollo operation includes a heap leach copper operation and a copper-gold hypogene concentrator. The year-end 2018 reserves and reserves are based on the same models that supported 2017 figures; however, different economic assumptions were used to optimize the reserves and resources pit shells.    

The hypogene reserves and resources are estimated using a mine plan that considers hourly throughput rates in the optimization model. This variable estimates the processing plant hourly performance based on the ore hardness. Hypogene reserve estimates assume long-term metal prices of US$3.00/lb copper and US$1,250/oz gold. Mineral reserves show some reduction from 2017 by depletion from normal mining activities. Hypogene resources have increased by 120 million tonnes due mostly to favourable operating costs that enabled a reduction of the cut-off for reporting resources.

NuevaUnión

Teck has a 50% interest in NuevaUnión. At the end of the first quarter of 2018, a prefeasibility study (PFS) on the NuevaUnión project was completed which incorporates key design changes to improve project economics and respond to community and Indigenous peoples input. Reserves and resources for two deposits, Relincho and La Fortuna have been updated based on this study.

 

 

 

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Reserves at Relincho and La Fortuna deposits consider a bulk open-pit mining operation that will be developed in three production phases that will alternate mining operations between the two deposits.

Relincho mineral reserves and mineral resources are reported using an average NSR cut-off of US$ 8.50/t, which assumes metal prices of US$ 3.00/lb copper and US$ 7.50/lb molybdenum.

La Fortuna mineral reserves and open pit mineral resources are reported using an average NSR cut-off of US$ 10.0/t, which assumes metal prices of US$ 3.00/lb copper and US$ 1,250/oz gold. Mineral resources outside of the mineral reserve pit are defined using a conceptual underground mining envelope. This approach assumes the same recoveries, metal prices, processing and general & administration costs as used for the open pits but with mining costs and dilution assumptions that are more appropriate to bulk underground mining.

Red Dog

Teck reports reserves and resources for Red Dog divided into two reporting groups based on the spatial proximity and the land ownership associated with the deposits in and around Red Dog. The names assigned to these groups are “Mine” and “District”.

In the “Mine” group, Teck is currently operating two deposits accessible by open pit mining: Aqqaluk, and Qanaiyaq. The Aqqaluk deposit, with first ore milled in August 2010; is scheduled to be mined through 2031. Mining of the Qanaiyaq deposit started with first ore milled in January 2017 and is planned to have a life span through 2028. The Red Dog Mine area also contains the undeveloped Paalaaq deposit, which is currently only defined to a resource level of confidence.

The “District” group consists entirely of Inferred resources from the Anarraaq deposit which lies approximately 11 km northwest of the current Red Dog operations. Resources for this deposit are unchanged, at 19.4 million tonnes, from 2017 statement.

All reserves and resources were estimated using long-term metal prices: US$1.10/lb for zinc, US$0.90/lb for lead and US$20.00/oz for silver. Red Dog Mine reserve tonnage has reduced by only 1.5 million tonnes. Gains due to higher metal price assumptions and lower costs and updated mine designs partially offset production depletion of 4.2 million tonnes. Red Dog Mine resources increased by 8.6 million tonnes, primarily due to reporting low-grade possibly reactive material as a resource for the first time.

Pend Oreille

Production in 2018 accounted for 380 kt depletion from reserves, and additional 152 kt from resources. Pend Oreille continued to develop and revise its mine plan with the inclusion of new mining shapes and adjustment of existing mining shapes based on new geologic interpretation. In 2018 the models for the different mine areas were continuously updated as infill drilling progressed.

The reserves and resources for the East Mine (Washington Rock and West Yellowhead resources estimates remain unchanged) are estimated using a 4.5% zinc cut-off. Recovery is 88% for zinc and 61% for lead. The reserves and resource for the MX area of Pend Oreille are

 

 

 

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estimated using a 4.5% zinc equivalent cut-off. All resources and reserves are estimated using US$1.10/lb zinc and US$0.90/lb for lead.

San Nicolás

Based on the results of the ongoing drilling program, mineral resources have been updated in 2018. NSR calculations include metal price assumptions as US$3.00/lb copper, US$1.10/lb zinc, US$1,250/oz gold and US$20/oz silver and scaled costs from previous studies.

The 2018 resource estimate assumes different NSR cut-offs for different geometallurgical domains from US$9.20/t to US$12.00/t based on an estimate of the marginal cost of production for the relevant ore.

Galore Creek

Teck has a 50% interest in Galore Creek. The year-end 2018 resource statement presents a conceptual change to the project. Only mineral resources are reported in 2018 and are estimated based on commodity prices of US$3.00/lb copper, US$1,200/oz gold and US$20/oz silver.

Schaft Creek

Schaft Creek resources are based on a 2018 Resource Model Update. Open pit mineral resources are reported at an NSR cut-off of US$4.31/t and constrained by a conceptual open pit shape. The resource estimate categorizes 10% of the mineral resources as Measured, 70% as Indicated and 20% as Inferred.

Mesaba

Mineral resources are reported at a cut-off of 0.2% copper, equivalent to a NSR cut-off of US$5.24/ton, and consider the estimates of copper, nickel, silver, cobalt, gold, platinum and palladium.

Zafranal

End-of-year 2018 resource and reserves are supported by a feasibility study being prepared for Compañia Minera Zafranal S.A.C. (CMZ). The resource model is built with updated geological interpretations and assay results from 404 drill holes totaling 120,300 metres. There has been approximately 22,359 metres of new core drilling since the completion of the prefeasibility study in 2016.

Resource and reserves estimates at Zafranal are prepared using price assumptions of US$3.00/lb copper and US$1,200/oz gold. Mining and processing costs, as with other important input parameters, were updated from the prefeasibility study. The total contained metal used in the reserves table are based on variable metallurgical recoveries of up to 89.5% for copper and up to 56% for gold. Open pit mineral reserves are reported using a variable NSR cut-off of US$6.10 to $6.35/t averaging US$6.11/t.

Fording River

The reserve economics assume a long-term selling price at the Port of Vancouver of US$130/tonne for metallurgical coal at an exchange rate of CAD$1.20 per US$1.00.

 

 

 

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Elkview

Teck has a 95% interest in the Elkview mine. The reserve economics assume a long-term selling price at the Port of Vancouver of US$130/tonne for metallurgical coal at an exchange rate of CAD$1.20 per US$1.00.

Greenhills

Teck is an 80% member of the Greenhills Joint Venture. The reserve economics assume a long term selling price at the Port of Vancouver of US$130/tonne for metallurgical coal at an exchange rate of CAD$1.20 per US$1.00.

Line Creek

The reserve economics assume a long term selling price at the Port of Vancouver of US$130/tonne for metallurgical coal and US$75/tonne for oxide coal at an exchange rate of CAD$1.20 per US$1.00.

Cardinal River

The reserve economics assume a long term selling price of US$130/tonne for metallurgical coal and US$100/tonne for PCI coal at an exchange rate of CAD$1.20 per US$1.00.

Quintette (Mt Babcock)

The reserve economics assume a long-term selling price of US$130/tonne for metallurgical coal and US$75 for oxide coal at an exchange rate of CAD$1.20 per US$1.00.

Risks and Uncertainties

Mineral reserves and mineral resources are estimates of the size and grade of the deposits based on the assumptions and parameters currently available. These assumptions and parameters are subject to a number of risks and uncertainties, including, but not limited to, future changes in metals prices and/or production costs, differences in size, grade, continuity, geometry or location of mineralization from that predicted by geological modeling, recovery rates being less than those expected and changes in project parameters due to changes in production plans. Except as expressly described elsewhere in this Annual Information Form, there are no known environmental, permitting, legal, title, taxation, sociopolitical, marketing or other issues that are currently expected to materially affect the mineral reserves or resources. Certain operations will require further permits over the course of their operating lives in order to continue operating. Where management expects such permits to be issued in the ordinary course, material that may only be mined after such permits are issued is included in Proven and Probable reserves. Specific current permitting issues are described in the narrative concerning the relevant operation under the headings “Description of the Business” and “Health and Safety and Environmental Protection” and under the heading “Risk Factors — We face risks associated with the issuance and renewal of environmental permits.”

 

 

 

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Qualified Persons

Estimates of mineral reserves and resources for our material base metal properties have been prepared under the general supervision of Rodrigo Marinho, P.Geo., who is an employee of Teck Resources Limited. Mineral reserve and resource estimates for Antamina have been prepared under the supervision of Luis Mamani and Lucio Canchis, who are both SME Registered Members and employees of Compañía Minera Antamina S.A. Messrs. Marinho, Canchis and Mamani are the Qualified Persons for the purposes of National Instrument 43-101. Reserve and resource estimates for coal properties were prepared under the general supervision of Don Mills P.Geo. and Robin Gold P.Eng., employees of Teck Coal Limited, who are the Qualified Persons for the purposes of National Instrument 43–101.

Oil and Gas Reserves

The reserves information set out below for the Fort Hills mine is based upon evaluations conducted by GLJ, an independent qualified reserves evaluator.

The effective date of the reserves data and other oil and gas information below for Fort Hills is December 31, 2018. Estimates of reserves and projections of production were prepared by GLJ using information provided up to December 31, 2018. The reserves information set out below for Fort Hills is taken from a report prepared by GLJ on January 28, 2019. All reserves information in this section is based on Teck’s 21.3% interest in Fort Hills.

Classifications of oil and gas reserves as Proved or Probable are only attempts to define the degree of certainty associated with the estimates. There are numerous uncertainties inherent in estimating quantities of oil reserves. It should not be assumed that the estimates of future net revenues presented in the tables below represent the fair market value of the reserves. There is no assurance that the forecast price and cost assumptions will be attained and variances could be material. The reserves estimates provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater or less than the estimates disclosed.

Reserve Categories and Resources

Reserves

For oil and gas, reserves are estimated remaining quantities of oil and natural gas and related substances anticipated to be recoverable from known accumulations, as of a given date, based on analysis of drilling, geological, geophysical and engineering data; the use of established technology; and specified economic conditions that are generally accepted as being reasonable. Reserves are classified into Proved or Probable according to the degree of certainty associated with the estimates.

Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated Proved reserves.

 

 

 

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Probable reserves are those additional reserves that are less certain to be recovered than Proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated Proved plus Probable reserves.

Each of the Proved and Probable reserves categories may be divided into developed and undeveloped categories. All of Teck’s reserves are currently categorized as developed reserves since Fort Hills is now in operation. Undeveloped reserves are those reserves expected to be recovered from known accumulations where a significant expenditure (e.g., construction of a primary extraction facility) is required and the necessary equipment is not yet installed to render them capable of production.

Fort Hills Mine

The reserves data presented below summarizes our Proved and Probable reserves and the net present values of future net revenue for these reserves. The reserves data uses forecast prices and costs prior to provision for, and therefore do not take into account, interest, general and administrative expenses or the impact of any hedging activities. In addition, provisions for the abandonment and reclamation of the mines and associated facilities to which reserves have been assigned have been included; all other abandonment and reclamation costs have not been included. These forecasts and other assumptions are taken from the GLJ evaluation report with an effective date of December 31, 2018. Future net revenues have been presented on a before and after tax basis in accordance with National Instrument 51-101.

The future net revenue, development and operating cost, exchange rate, price and other assumptions set out in this “Description of the Business — Oil and Gas Reserves and Resources — Fort Hills Mine” section of this AIF are the estimates or assumptions of GLJ, our independent reserves evaluator. In order to estimate reserves and future net revenues, GLJ makes a number of assumptions, including assumptions regarding inflation rates, currency exchange rates, and prices for oil and other products. For planning, project economics, forecasts, accounting and other purposes, our management makes assumptions regarding those same factors and our assumptions generally differ from those of GLJ. Different assumptions would lead to different present value and net revenue figures, and could affect reserve estimates.

GLJ estimates capital and operating costs associated with Fort Hills are based on Suncor’s estimates, as operator, with consideration to those achieved by other oil sands mining projects. These GLJ-estimated costs differ somewhat from those that the Fort Hills partners use for planning and decision-making for the project, which are based on detailed engineering studies. See “Description of the Business — Energy — Fort Hills Mine” for a further description of the project operator estimates regarding costs.

 

 

 

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All of our reserves are associated with Fort Hills. Bitumen is the only product type associated with our reserves. Reserves are presented on a gross and net basis. “Gross in relation to Teck’s interest in reserves means Teck’s working interest as at December 31, 2018 (21.3%) share before deduction of royalties. “Net” in relation to Teck’s interest in reserves means Teck’s working interest as at December 31, 2018 (21.3%) share after deduction of royalties.

Summary of Oil and Gas Reserves

at December 31, 2018

(forecast prices and costs)

 

(in millions of barrels)    Reserves
   
Reserves Category   

Bitumen

 

  

 

Gross

 

  

 

Net

 

     

Proved Reserves

 

         
     

Developed Producing

 

  

371  

 

  

343  

 

     

Developed Nonproducing

 

  

0  

 

  

0  

 

     

Undeveloped

 

  

0  

 

  

0  

 

     

Total Proved Reserves

 

  

371  

 

  

343  

 

     

Probable Reserves

 

  

195  

 

  

165  

 

     

Total Proved plus Probable Reserves

 

  

566  

 

  

508  

 

 

 

 

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Summary of Net Present Value of Future Net Revenue at December 31, 2018

(forecast prices and costs)

The net present value of future net revenues below in respect of Teck’s interest in Fort Hills were computed by applying an average price forecast based on forecasts from three qualified reserves evaluators (including GLJ), GLJ’s forecast costs as described below, legislated tax rates and Teck’s tax pools. The estimates of future net revenue do not necessarily provide a reliable estimate of the expected future cash flows to be obtained from our share of the Fort Hills reserves and do not necessarily represent the fair market value of our Proved and Probable oil reserves. The independent reserves evaluator makes various assumptions, including with respect to production rates and capital and operating costs that may differ from those that the Fort Hills partners use for planning and decision-making for the project, which are based on detailed engineering studies and historical site cost data.

 

     

 

Net Present Value of Future Revenue

 

 
       

Reserves

Category

    

Before Income Taxes Discounted at (%/year)

($ millions)

 

 

   

After Income Taxes Discounted at (%/year)

($ millions)

 

 

   

Unit
value
($/bbl)(1)
 
 
 
     0%       5%       10%       15%       20%       0%       5%       10%       15%       20%  
                       

Proved

Reserves

                                                                                        
                       
Producing      5437        2472        1260        703        417        4648        2219        1172        671        405        3.67   
                       
Developed Nonproducing                                                                  0.00   
                       
Undeveloped                                                                  0.00   
                       
Total Proved      5437        2472        1260        703        417        4648        2219        1172        671        405        3.67   
                       
Total Probable      4424        1134        403        201        128        3111        846        325        176        118        2.44   
                       

Total Proved

plus Probable

     9860        3606        1662        904        545        7759        3065        1497        847        522        3.27   
(1)

Unit values are future net revenues, before deducting estimated cash income taxes payable, discounted at 10%, using net reserves.

 

 

 

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Total Future Net Revenue as at December 31, 2018 (undiscounted)

(forecast prices and costs)

The future net revenues below in respect of Teck’s interest in Fort Hills were computed by applying an average price forecast based on forecasts from three qualified reserves evaluators (including GLJ), GLJ’s forecast costs as described below, legislated tax rates and Teck’s tax pools. The estimates of future net revenue do not necessarily provide a reliable estimate of the expected future cash flows to be obtained from our share of the Fort Hills reserves and do not necessarily represent the fair market value of our proved and probable oil reserves. The capital and operating costs below reflect GLJ’s estimates and differ from those that the Fort Hills partners use for planning and decision-making for the project, which are based on detailed engineering studies and historical cost data. See “Description of the Business — Energy — Fort Hills Mine” for a further description of the project operator projections regarding costs.

 

(in $ millions)    

(undiscounted)    

   Revenue      Royalties      Operating
Costs
     Capital
Development
Costs
    

Abandon-
ment

and
Reclamation
Costs

     Future
net
revenue
before
income
taxes
     Income
taxes
     Future
net
revenue
after
income
taxes
 
                 

Proved

Producing

     24057        1864        14181        2065        510        5437        788        4648  
                 

Proved

Developed Nonproducing

     0        0        0        0        0        0        0        0  
                 
Proved Undeveloped      0        0        0        0        0        0        0        0  
                 
Total Proved      24057        1864        14181        2065        510        5437        788        4648  
                 
Total Probable      18973        3017        9930        1143        459        4424        1313        3111  
                 

Total Proved

Plus Probable Reserves

     43030        4880        24111        3208        970        9860        2101        7759  

Future Net Revenue by Product Type at December 31, 2018

(at forecast prices and cost)

 

Reserves Category    Production
group
  

 

Future Net Revenue Before Income Taxes(1)

 

(discounted at 10%/year)

 
   ($ millions)      ($/bbl)  
       
Proved Producing    Bitumen      1260        3.67  
       
Total Proved    Bitumen      1260        3.67  
       
Total Proved Plus Probable Reserves    Bitumen      1662        3.27  

  (1)      Unit values are based on Teck’s net reserves.

 

 

 

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Forecast Prices Used in Estimates

The determination of reserves requires assumptions of crude oil, natural gas and other important benchmark reference prices, as well as inflation and exchange rates. The forecast prices used in preparing Teck’s reserves data, including estimated future net revenues, are provided below and were used by GLJ, our independent qualified reserves evaluator.

The table below reflects a December 31, 2018 average of three qualified reserves evaluators (including GLJ), forecast reference prices, and associated inflation and exchange rates. For determining costs associated with Fort Hills, GLJ has included a 2.0% inflation rate for 2020 onwards.

The forecast reference prices, exchange rates, inflationary assumptions and other forecasts used in preparing the reserves data do not necessarily reflect the assumptions of Teck’s management or the Fort Hills partners. The forecast price and other assumptions noted below are not used in Teck’s investment or management decisions or for Teck’s accounting purposes.

 

Year   

Exchange Rate

($US/$CAD)

  

West Texas

Intermediate

Crude Oil at

Cushing Oklahoma

$US/bbl (then current

USD)

 

   WCS Crude at
Hardisty
$CAD/bbl (then
current CAD)
  

Edmonton
Pentanes Stream
Quality

$CAD/bbl(1) (then
current CAD)

         
2018(2)      0.7716      64.76      49.87      79.05  
         
2019      0.7567      58.58      51.55      70.10  
         
2020      0.7817      64.60      59.58      79.21  
         
2021      0.7967      68.20      65.89      83.33  
         
2022      0.8033      71.00      68.61      86.20  
         
2023      0.8067      72.81      70.53      88.16  
         
2024      0.8083      74.59      72.34      90.20  
         
2025      0.8083      76.42      74.31      92.43  
         
2026      0.8083      78.40      76.44      94.87  
         
2027      0.8083      79.98      78.10      96.80  
         
2028      0.8083      81.59      79.81      98.79  
         
2029+      0.8083      83.22      81.40      100.76  

 

 

  (1)