Teck Resources Ltd (TECK) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Teck Cominco fourth quarter 2003 investor relations call. At this time participants are in a listen-only mode. Later we will conduct a question-and-answer session. This call is being recorded on Tuesday, April 22, 2003. I would now like to turn the conference call over to the director of investor relations, Mr. Tom Merinsky. Please go ahead, sir.

Thanks, Operator. Good morning, everyone, and thank you all for your attendance today at the Teck Cominco first quarter investor conference call. With me today are Norm Keevil, chairman of Teck Cominco; David Thompson, deputy chairman and CEO; John Taylor, senior vice president and CFO; Howard Chu, our controller; Doug Horswill, senior vice president, Environment and Corporate Affairs; Mike Lipkewich, senior vice president, Mining; and Roger Brain, senior vice president, Marketing and Refining. Other members of the management team are also present and will be available to respond to questions as needed.

On the call this morning David Thompson will review the results for the first quarter of 2003. Following his comments we'll open the line for questions. Please note the call is also being webcast and can be accessed at our website at www.teckcominco.com. A set of slides has been prepared to accompany our commentary today, and these are available via the Internet at our website. The slides can be accessed by clicking on the webcast link.

Before we start I'd like to remind everyone that some of the information in the slides which accompany our commentary and in the press release is forward-looking information. This forward-looking information is subject to risks, uncertainties, and other factors as described in our annual information form under the caption "Cautionary Statements Concerning Forward-Looking Information." Please treat this information with caution, as many factors might change, which may cause future events to unfold differently than originally anticipated. Teck Cominco does not assume the obligation to update any forward-looking statement.

At this point I'd like to turn the call over to David Thompson, deputy chairman and chief executive officer.

Good morning, ladies and gentlemen, and welcome to the Teck Cominco first quarter conference call. I'll be starting on Slide 3 of the Internet presentation, which is the first-quarter highlights. As you will see, our net earnings for the quarter are 11m versus 2m in the first quarter of 2002, and our earnings per share are 6 cents against 1 cent this quarter last year. These earnings are after a foreign exchange loss of just over 6m pretax, or 4m after tax as a result of the write-down of our U.S. receivables.

Turning to Slide 4, it gives an overview of the quarter. The main driver to the improved results was the operating profit, which were up by 50% from 34m to 52m for the quarter. Each product group has increased its earnings for the year for the period. I think operating earnings went up from 11m -- from 8m to 11m; copper from 4m to 9m; gold from a loss of 1m to 6m; and coal from 22m to 26m.

In terms of our cash flow, that's up 31% from 39m to 51m for the quarter. The most important even of the quarter was across the formation of the new co-partnership in which Teck Cominco has a 35% interest. That came into operation on the 1st of March, 2003.

It also coincided with the closure of our Bullmoose mine, which has been a very profitable operation for us. It was our introduction to coal. It opened in 1983, so it's closing now after 20 years of great service to the company.

In terms of our net debt position, our net debt position is up 212m from the quarter -- that's taking us to our net debt range plus equity ratio is 30%. That's after a 275m investment in the coal partnership in the Fording Canadian Coal Trust. Of course, it is helped by the Canadian dollar, the [inaudible] of the Canadian dollar has reduced our debt in Canadian dollar terms by 77m for the quarter.

Going on to Slide 5, that shows the operating profits by major activity. Virtually all our operations were higher except for Red Dog, which was lower. It made a loss of 6m for the quarter against 3m in the first quarter of 2002. The two major drivers were the improvement at Trail by 8m and the increase in gold by 7m improvement in the quarter, so it's 15m of the 18m is accounted for by those two operations.

Slide 6 shows you the Trail results for the quarter. Trail's operating profits were 12m against 4m last year. If you split those between power and metal, power is 7m for the quarter against 2m last year, and metal is 5m for the quarter against 2m last year. The increase in power profits is largely due to the increase in price. We had an actual average for the quarter of U.S.$38 to megawatt hour against U.S.$23 last year. We also sold slightly more power which we produced ourselves, and we also sold -- repurchased power that is power that we bought at low prices, and we sort of high-priced our higher prices, which accounted for about, maybe, 1m of the increase in profit.

In terms of Trail on the metal side, the improvement from 2m to 5m is in spite of a reduction in treatment charges. We are now being -- Trail and Cajamarquilla are both being affected by the decline in treatment charges that have occurred in the zinc market. They were offset, however, by a cost reduction for Trail. Operating costs at trail for the quarter was about 5% below the period last year, and that's really driven by our headcount reductions. We have cut headcount as a result of the early retirement programs by over 100 people last year, which is about 7% of our workforce, and that is a continuation of a three-year program to take our workforce down by about 20%.

In terms of the zinc, zinc prices, although they were the same in solid terms, were 6% lower for the quarter in Canadian dollar terms. So we are also affected by the foreign exchange position at Trail. Nevertheless, despite that, metal earnings were up from 2m to 5m for the three-month period.

Moving on to Slide 7, which is Cajamarquilla, Cajarmarquilla came in with an operating profit of 5m. Again, Cajamarquilla is being adversely impacted by treatment charges. Nevertheless, because of its high sales rate, it sold 32,000 tons for the quarter against 27,000 tons last year. It came in with higher earnings for the year for the three-month period.

Moving on to Slide 8, which is Red Dog, Red Dog's operating loss increased from 3m to 6m. Sales were about the same at 83m against 82m last year. This year we have not sold any lead for this period, so as a result we have about 6m more as a result of no lead sales. This is because two of our principal customers for lead in Europe have both either closed or went into receivership. That lead will now be sold to other customers in Quarter 2.

Red Dog did benefit from treatment charges. In Canadian dollars that was a 3m benefit from treatment charges. That was really offset by a 3m increase in depreciation as a result of the RP [ph] now being amortized. Another difficult -- slightly lower zinc price, but also, there were, in this quarter, negative settlement adjustments against positive settlement adjustment last year, and that accounts for about 3m difference. So the net addition is that Red Dog still stays. We will expect that Red Dog will continue, unless prices rise, will continue to have losses in the second or third quarters, but will swing into a profit in the fourth quarter as further treatment charge -- reductions -- come through.

Moving on to coal, Slide 9 shows Elkview. This is Elkview for the two-months. We consolidated Elkview for two months, and then we switch over in the third month in March to the partnership. So this is a two-month analysis. Operating profits for the two-month were 14m against 17m for the three-month last year. This good result is really the result of higher sales for the period. Sales were at 957,000 tons against production of 824, and we drew down inventory before we went into the partnership and, as a result, our operating profits were good at Elkview.

Slide 10 shows you the co-partnership -- one month of the coal partnership, which is for March. Production or sales were about the same at 1.9m each. Our revenues were 43m and our share of the operating profit after depreciation was 8m.

I won't be commenting in detail on any cash forecasts or profit predictions for the coal partnership for the rest of the year. That will be handled by the Fording Income Trust, which will report its earnings and will detail its analysis of the remainder of the year tomorrow. So its press release will be out tomorrow. In future, Fording will report before us, and we will then report after Fording. That's the normal relationship that we had when Teck was always behind Cominco, or Southbridge was behind [inaudible] and Miranda [ph]. We'll do that in future, but I can say that the coal partnership is doing very well. We've already made several major decisions on the future of the partnership. These involve the Line Creek mine, where we have decided to reduce production substantially this year to under 2 million tons, the way budget of 3.5 million tons, and to go ahead with the closure of the Cardinal River [sp] mine by early next year. This is resulting in, unfortunately, a very substantial reduction in headcount -- 15% of the total labor force taken over on March 1 is being terminated as a result of those decisions, so a number of -- 460 employees will be leaving us in May and June.

The position at Line Creek is that we believe that the strip ratio must be reduced if the mine is to become competitive. The long-term plan for Line Creed was a strip ratio of 11:12 -- that is far too high for a mine to competitive in the Elk Valley, and therefore we believe that the decisions we are taking, and the strip that has to be done this year, will put that mine in a better situation and will be profitable from 2004 onward.

We've also made a decision to not to go ahead with the Cheviot mine in Alberta. We believe we have adequate capacity in the Elk Valley from our existing mines to handle increases in coal demand, at least in the immediate next few years and, therefore, we have deferred any decision on Cheviot. So decisions are being made and have been made in the opening weeks of the partnership, which we believe will then lead to a strengthening of the position of the operation.

Moving on to Hemlo, which is on Slide 9 -- sorry, it's Slide 11. Hemlo, as profits improve for the quarter, operating profit of 6m against a loss of 1m last year when, as you recall, we had problems to get Williams on ground conditions, to a lesser extent at David Bell, production of gold was up to 137,000 ounces. The grade at Williams was 4.8 grams per ton for the quarter. That compares with 3.9 this time last year, but it lowers on the 5.5 that we had in the fourth quarter of 2002. Also, our costs were somewhat higher at Williams. We were affected by energy costs and by high maintenance expenditures at that mine as our cash costs were at 231 for the quarter, which is the better of by 23 than it was this time last year, but it's about the results we had in the fourth quarter of 2002.

Slide 12 shows you the Highland Valley mine. Operating profits rose there from 5m to 8m. This is despite the sales of copper being lower. They were only 31,000 for the quarter against 36,000 last year, and the improvement is due to prices -- both copper price and molybdenum price have improved from 2002 first quarter and, as a result, our earnings were up by 3m.

Antamina is shown in Slide 13. Antamina -- we are still accounting for Antamina on an equity basis, so these equity earnings are after interest, after tax. Our share of equity earnings were 6m for the quarter against 4m last year. Even though our sales were lower, our sales of copper were lower, and they were considerably lower in terms of zinc. This is simply due to shipments -- the pricing of shipments, and we will catch up later during the year. The higher copper prices in the first quarter played a major role in that improvement.

Slide 14 shows you the cash flow in the capex -- a comparison of 2003 first quarter against 2002 first quarter. Cash flow is up, as I said, to 51m. Capital expenditure is down to 29m from 40m last year. So we have a positive cash flow after capital expenditure, which is always our intention. Our estimate for the rest of the year is a capital expenditure of 160m for the remaining three quarters, and we would expect that would be covered by our cash flows as they have been in previous years.

Finally, on Slide 15, we show our liquidity position -- working capital at end of March was 624m. Partially, this is a result of the consolidation of the partnership. The partnership involves us, really, the seeding 1.4m of inventory, giving 300,000 of inventory in from Elkview and receiving 4.4m in inventory back from our share of the profits. So that increases our product inventories. As you can see, they rose during the quarter. And our net debt position, as I said at the beginning, is at 30% against 26% this time last year and at the year-end.

We are targeting a ratio of not more than 35% by the end of the year, and that would be after the consolidation of the debt, which would go non-recourse after at Antamina. Once we bring that into the balance sheet, which we expect in the second half of the year, we still believe that our debt reduction programs are in place, and we would not exceed 35 by year-end. So that's all I have to say for the first quarter, and I'll be pleased to take questions.

Thank you. This is the conference operator. The question-and-answer session will now begin. If you wish to ask a question, be sure you are not on a speakerphone, then press the number 1 on your touchtone phone. If you wish to leave the question queue, please press the pound sign. If you have any questions, please press the number 1 now. It will be one moment for the first question.

David Gagliano, Credit Suisse First Boston, your question please.

Hi. Just a couple of quick questions here -- first of all, after the first quarter results, I just want to confirm -- are the full-year production forecasts that were presented in the annual report -- are they still intact for the full year?

Yes, they are intact. There may be some changes in the coal position of Elkview but basically they are intact.

Okay, and just a quick question on Antamina -- the zinc rates at Antamina increased rather significantly during the quarter -- I think it was 1.54%. I know it's relatively lumpy, but I was just curious -- what sort of grade should we be expecting to see -- zinc grade -- should we be expecting to see from Antamina in the coming quarters?

We think that the zinc production under the next three quarters will be considerably higher than it was in the first quarter. We produced about 160 million pounds of zinc. We would expect the number to average somewhere closer to 190.

Great, and the last question -- I think I may have just misunderstood the comment -- in terms of Antamina, when it actually comes onto the books, is that still scheduled for second quarter, is that right?

Yes, we believe that we will meet the completion tests and get our completion certification in the second quarter.

Great. Thanks very much.

Michael Fowler of Desjardins Securities, your question please.

I've got three quick questions -- two on coal. David, you mentioned coal price is slightly full -- two bucks a ton -- that is U.S. Is that an approximation or is that more or less a hard number or what?

That's our best estimate. It is around two bucks, and when we talk about two bucks, we're really talking about the focal benchmark prices. That is in Japan. So prices in Japan have fallen about $2 this year against last year, and that was led by Australia.

In terms of when you look at individual mines, that varies. So when you look at the coal partnership, it will not necessarily be $2, because some of the coal didn't enjoy any increases last year, for example, [audio fade]. And that will be reported on more fully by Fording tomorrow.

What about your cost per ton on the metallurgical coal -- 53 bucks is what you mention. Where do you aim to be?

Well, that includes all costs. What we had attempted to do is to bring that down. We think that in future years that will come down several dollars so, at the moment, we have quite a spread of costs between the lowest-cost mines in the consortium and the highest-cost mines, and we obviously have to bring that average down.

Where would you feel comfortable?

I don't think I'd like to give a number at this point.

Okay, just moving on a little bit to Red Dog -- the distance between production and sales, is it because the lead sales weren't in this -- so that you've got a big difference between production and sales?

Yes, we didn't sell any lead in this quarter against revenues of 6m Canadian last year for lead. Not that lead is a great profit contributor, but it does have some effect. The reason for that is that we -- as you know, we ship out all the product in the summer. So this is product we're selling now, which was shipped out of Red Dog in the last summer season, and then that is priced during the -- that is taken and priced during the year by customers. So in lead, because two major customers in Europe have now closed, they didn't purchase the lead that we had allocated to them, and we have now arranged for that to be sold to other customers.

Many thanks.

You're welcome.

Ray Goldie, Salomon Partners, your question please.

Good morning. I was looking for an update on your view of zinc markets. I recall at the last update, you were looking for a slight excess of supply over demand in the Western world this year, and wondered if that had changed and if you're able to give any percentage numbers. And part of the subtext of this question goes to a conference call last week with Inca [ph], where they said they had some concerns about the effect of SARS on the Chinese economy. They'd looked hard and hadn't found any sign of it in their order books. What has your experience been?

Well, to comment on the zinc market, basically we've had a pretty flat zinc market in the States in the first quarter, so the States are showing quite a lot of hesitation. There's probably some inventory restocking going on. So we don't see much strength in the States right at the moment. Similarly with Europe, the difference of course, is in Asia, and it's largely different by China, as is all these records are these days. China has had a very strong growth this period, and it's affecting countries like Korea, Taiwan, and Japan, who are all shipping galvanized product into China. So their demand for zinc has been quite strong in this period against even 12 months ago.

So you have a fairly uneven picture in the Western world at the present time. Our forecast for this year was about 2% growth rate for Western world. It wasn't at that rate in the first quarter, so we are hopeful that we will get some pickup in Western Europe and the United States in the second half of the year.

In terms of the surplus position, we think that we're still in surplus. We're forecasting about 100,000 tons surplus in Western world this year against 300,000 to 400,000 that we had in the last two years. So we think the surplus is coming down. The two refineries are now down in Europe, and it's about 200,000 taken off there; another refinery of about 70,000 or 80,000 tons goes off in September in Australia, and we think there will be further closures or partial closures or short-term closures in the refining industry just because of the treatment charge position -- treatment charges and the shortage of concentrate.

And any effect on the Chinese demand, that you've seen, from SARS?

No, I think it's too early to say that there's been an impact at this point. I don't think from our order book we would notice anything yet.

Fair enough, thanks very much.

You're welcome.

Terence Ortslan for Sun Associates, your question please.

Thank you, just a followup on Ray's question -- how do you see the balance evolving, you or Roger, for next year between Collins [ph] and the metal on the zinc side?

To answer that, we think that the -- unless there's more shutdowns in the refining industry, the Con will stay short, because there are a number of permanent closures occurring in the industry, which really still could have their impact. For example, Polaris and Nanisivik closed last year, but they shipped out about 85% of normal for the year. This summer, they'll be gone, so there will be another 160,000, 170,000 ton that won't be there this summer. Reocin goes down in June in Spain -- it's a 90,000 ton -- are going down -- Goldensville [ph] is going down in midyear at 60,000 ton; Selbake [ph] goes down the end of the year next year -- so it goes on. So you see a continual outage of public shutdowns going on in the mining side of the business. So I think it has to bring more refining capacity down.

Well, with the terms as they are, then the next question is will the Chinese be competitive again next year? What's your view of the Chinese smelting, which makes all difference between consumption and production of the Chinese zinc smelter refining? Do you think they're going to be able to sustain their production, number one; and, number two, are they going to be able to pay the Con [sp] terms?

Well, you probably saw the Big Four in China have said that they don't want to buy anymore Con because they can't afford it at these treatment charges. However, Con is still being purchased by China because, of course, you've got a number of other smaller and growing refineries there. So, so far, we haven't really noticed yet any reduction in Chinese demand, although that could well happen. If it does happen, we would expect it would also have an impact on their exports of metal to the West. So as long as Chinese demand stays as strong as it is, i.e., internal to modern China stays strong -- if they do reduce their Con purchases, then we think there will be a corresponding drop in exports to the West, and you are seeing some slow, steady drop in exports. We've seen this in the first three months this year. Exports are trending down slowly.

Is the -- just to finish on the zinc market, is the forecast for Chinese exports this year less than 400,000 tons?

I think, Roger, we're ---

Chinese exports were down 100,000 tons last year to approximately 400,000 tons, and we think they'll come down another 100,000 tons this year. So probably end up around 300,000 tons for the year.

That's a good number. With respect to the 25% at the year-end or near year-end, your debt equity number that you have targeted for the year -- that's net debt plus equity, right?

That's right, net debt.

Okay, and, I'm sorry, what is the Antamina debt will come in -- what's the rough number that will come into the books?

The Antamina debt will come in at around 380 Canadian.

Okay.

However, it will also bring cash in. You'll have cash on the balance sheet coming in as well. As you know, it has to -- under its completion, it always has to have one principal payment in trust and building in the next one up. So it has to have -- for the whole of Antamina, 70m U.S. has to always be in trust and it has to be building monthly the next 70 million. So it always will be in -- that's a gross number John gave, not a net number.

That number you treat as cash or --

That will be -- when we go to net debt we deduct the cash from the debt.

So 70m in trust will be regarded as cash?

70m U.S. in trust, which is just for the next payment of the principal. Under the completion test, you always have to have 70m currently there to pay the next principal, and the principal payment is 70m for a half-year. And at the same time you have to build the one after. So the banks are pretty well covered in their completion test.

Just -- you've shown the Canadian dollar, you're disclosing your item number five, your hedge position, but given the Canadian dollar is going, David and John, and given the exposure in the coal side, what is your view -- would you be increasing your hedges here or would you ride the market?

Well, we have increased our hedges quite a bit this quarter. The purchase in the coal partnership increased our FX position significantly. So I don't think we've ever had such a high FX core position as we have now, and we have been increasing our own position this quarter for our own, i.e., non-coal products.

In the second quarter, you mean?

Yes, we've got -- that's right, we've continued.

Okay, and, I'm sorry, what limit would you go to on the Canadian dollar the way it's going in terms of exposure?

Well, we have -- on our board limit 50% of any year -- of the first year -- is to be hedged, and then it drops down over four years.

Okay, and it sounds like Wallya [ph], you wrote it down not to the market value to somewhat [background noise]. So essentially above the market value. Can you tell us how do you make that calculation, please?

That was based on our estimates for tantalum prices and gold prices. So we came to a value of about $4 a share.

Okay, and, finally, the gold assets -- the producing assets -- the bottom lines are obviously better than last year's first quarter but still not up to speed. How much room is there to improve the, let's say, return on net assets or, in fact, on the operating profits? Because it looks like those mines are getting quite tired and there seems to be no turnaround here.

Well, I think -- you have to see this in the context of the zinc market. The zinc market has -- when a mine like Red Dog is unable to make a profit, this shows you that it's really an unsuspendable situation. So although we're not relying on price, as I said, we expect Red Dog to be profitable on a full-cost basis at 34, 35 cents by the end of this year. So we've got internal cost reductions going on in the mine itself, although when you're producing at 9 cents, there's not an awful lot to go, and we expect treatment charges to go as well. So that will give us another $10 reduction gives us another 11m U.S. to the bottom line there.

I was referring to the gold assets at Williams and David Bell.

Oh, sorry. Mike, are you up for that question? You're saying what's the outlook for gold?

The outlook for asset -- these mines are having difficulty -- there not better than last year's first quarter, but return on net assets, EBITDAs, are nowhere near your competitors.

Well, the operating costs per ounce in the first quarter this year were somewhat better than it was last year. We can't really compare it to the fourth quarter of last year, because that was an unusual quarter, it wasn't normal, because rates were so high, as David mentioned. The grade was about 5.5 ounces. But I think they both still have 10 years of reserves, and I believe it will operate profitability for the next 10 years. Certainly, this last quarter we were hit pretty heavily with the higher costs, particularly in energy. I think energy added $7 an ounce, just the higher energy cost -- the element -- the increase from last year.

That's for both mines -- $7 an ounce?

Seven dollars an ounce was at Williams -- just on the energy increase -- energy cost increase.

The management question here is that is there a better market value for the gold [background noise] our outside of Cominco, given the circumstances?

Well, we're always open to offers.

I missed that, I'm sorry.

I said we're always open to offers. Is that really the case?

All right. Thanks.

David Brooks, American Metal Market, your question please.

Hello, David -- a couple of questions. Firstly, you mentioned that an increase in energy costs relating to your gold assets -- have you seen any impact on your zinc and lead assets with the increased energy costs?

Not at Red Dog at the moment, because, as you know, Red Dog brings in all the fuel supply to the summer months. So right now we're still using fuel that was brought into the summer of 2002, but I would expect, with the current prices being what they are, we'll probably see an increase in the price of fuel for 2003 relative to 2002.

Okay, and the second question relates to your treatment charges. What percentage of your CCD [ph] has been completed now for this year?

They're almost all done. So we have one or two left, but basically all finished.

Okay, and has the 147 level held up?

Plus or minus.

Okay, thank you very much.

Catherine Skerritt, Scotia Capital, your question please.

Yes, I wanted to see whether or not you could clarify for me the management responsibilities in the coal partnership between yourselves and the management team at Fording Trust? What the different things that you're focused on?

Well, we have the management responsibility for the coal partnership. So that means that we have hire or fire authority on management at the partnership. It means that we -- what we are really doing is really setting the policy with management. We're overviewing these major decisions we went through on these mines, and we're making sure an effective business plan is in place and that it gets implemented. So the day-to-day operation of the coal partnership is with Jim Gardner, the CEO of the partnership, and his team. So our primary drive is to meet these objectives that we're setting on this partnership in terms of synergy and profitability, but the actual implementation of that plan is being done by management.

Okay, thank you very much. That helps.

You're welcome.

Steven Kipsey for Bimcor, your question please.

Hello, gentlemen. For this year, if I understand correctly, cash flow from operations will cover all this year's capex. So this doesn't leave any room for debt reduction this year, but what are the expectations for capex in '04 and '05 and how much debt reduction can we expect in each of these years if we were using pretty well current metal prices?

Well, we think there will be debt reduction this year because we have some long-term receivables coming in; we have 35m from Org [ph] -- U.S. is coming in from Org at the end of the year; we have inventories that which are -- we have well over a million ton of the [background noise] which will run off this year, in the next six months. So we see quite a significant cash flow coming out of our working capital and out of our other assets. We have a portfolio of equity investments of about 100m, which we could realize on, which are non-core to us. So we have a number of ways of reducing debt at any rate, and we do think that cash flows for this year will be won in excess of our capex management.

Going ahead to next year, the next major capital expenditure will be on the Pogo deposit, where we expect to spend about 100m U.S. over two years. That's 2004-2005. So we see capital expenditures next year being probably about the same as they are this year. This year we are completing the Pend Oreille mine. So we don't see any reason why our capital expenditures will rise significantly from the present level in 2004-2005.

Thank you very much.

You're welcome.

Bob Lyon, CI Mutual Funds, your question please.

Oh, thanks, just a question about your outlook for power prices in the West. I see you have a little bit hedged, maybe about 40% of this year's rough output. Can you just give us your outlook there and how the expansions are going at your hydro stations out there?

Right. Well, we completed our second new generator at the end of December, so that's been on since then, and we have two more to replace. One we're planning to replace late this year, and the fourth one, the final one, at the moment is planned for August 2004. In terms of the power costs this year, we've seen quite a good -- I mean, relatively good -- market for power through the winter, driven, of course, partly by the cold winter in the East and the high gas prices. So gas is the marginal supply into the Western market. So as gas prices rise, then hydro prices rise in tandem.

At the moment, I think nobody's too sure about what the summer will bring. If we do see a hot summer in California, then I think we should see relatively firm prices. Last year was quite a cool summer in California, and we actually had some of the worst prices of the year in the early summer last year. So I don't think I'm too good at forecasting prices for power.

I think what we've done is really to sell forward evenly across the year because of the month-by-month swing. So traditionally some of the worst times are in the May/June when you have runoff and, again, in the early fall, that's traditionally bad, although there's always exceptions.

The forwards for August are about $25, $50 at the moment, so that's where the forwards are. We see a better year for power than we had last year, right away through the year, but we don't think it will return to the ending levels that we saw in 2000 and 2001.

Okay, thanks, and as a quick followup, if I may -- once the expansions are complete, I think you were talking about 825, I think, sort of surplus gigawatt hours per year that you can sell into the market. Is that assuming full production at Trail and whatnot?

Yes.

It is, okay.

Yes, when capex is up, we always assume that trail is running right now.

Thank you.

Alberto Arias, Goldman Sachs, your question please.

Yes, good morning, gentlemen, a couple of questions. On the Antamina quarter production, it was down around 5,000 metric tons on a year-over-year basis, but when you look at the ore grades and corporate recovery, they were both higher. In the press release you mentioned the impact of fuel concentrates, but could you please elaborate and explain why the filtering has an impact on the production rates of Antamina?

What was the question again?

If you look at the corporate production of Antamina, it was down on a year-over-year basis by 5,000 metric tons.

Yes, copper was down by 5,000.

Yes, you look at the corporate grade, and it actually increased to 1.32% from 1.30 last year, and the corporate recovery was actually higher by 5 percentage points. So even though you had higher grades and higher corporate recovery, your production was down. If you could elaborate what's behind it -- to explain that.

There's a difference in reporting between reporting at the mine site and reporting at the port, and production is reported by the mine at the port. Between the mine site and the port you have a 302-kilometer pipeline, and in addition to that you have five large storage tanks immediately adjacent to the pump facility at the mine site. So there is a considerable inventory of concentrate between the mine and the port. The filters are at the port and so the mine reports production after the concentrate is filtered. In any particular period of time, mine production can therefore be greater than or less than if reported at the port than what actually happens at the mine site. So it's a change in inventory in the tanks and in the pipeline that affects these numbers. Over a longer period of time you'll see that it will correct out.

Sure, okay. Second question -- with regards to DCRCs, you mentioned that Red Dog will start to see some of the benefits of lower DCRCs soon. What about Antamina? Is there any difference with regards to how DCRC is working Antamina versus Red Dog? Or should we expect DCRCs improving the performance at Antamina later this year?

They should improve as well. They're all on a current market basis.

Okay, and the final question -- with regards to your tax rate, you look at the first quarter numbers tax rate effective seem to be like 44%, and we were trying to figure out if this is the impact across the proportion of consolidation of your coal business or is this a tax rate that is not represented the rest of the year. If you could give us some guidance about the effective tax rate we should be using for Teck Cominco?

I think, on a going-forward basis, that it's better to use a rate that's closer to 40%. In short periods, you do get swings when you do the tax rate, particularly when you have the variety of operations we have and also the different jurisdictions that we're operating in. But I think a rate of closer to 40 on an annual basis is more accurate.

All right, thank you.

John Hughes, Scotia Capital, your question please.

Thanks, Operator. Just three quick questions -- one, Highland Valley copper -- can you just give us an idea on what you expect this year in terms of either your formica? Either your throughput number or your copper and Con number for the year as a whole?

I haven't got the figure. Howard, do you have a figure for the year? Go ahead. Here we are -- you want a projection or a forecast for 2003?

I think it's about 160,000 tons contained copper for Highland Valley for this year.

Sorry -- 150,000?

160.

160,000 -- and that compares to, like, 180 for last year?

That's right. It's just a bit lower because the grade is lower. We're operating more in the Lornex pit now than we were last year.

Okay. The second question -- Hemlo -- similar along the same lines, either throughput. We know the grade probably is going to hit the 5.5 grams a ton we saw in the fourth quarter. What kind of grade should we expect for the rest of the year?

The gold production figures that we receive during this last quarter are fairly indicative of what we should get for the next three quarters -- on a quarterly basis.

Does that include the throughput of the Melfeed [ph] number as well? In other words we'll hold the grade constant somewhere around 4.8, 4.9?

As an average, yes.

Okay, and last question -- Pogo -- any developments there? Can we say any new news? Can you bring us up to date, sort of, where the project is?

We're currently in public hearings on the permitting, and that should probably be completed by the end of May. We're still expecting the key permits late this year.

Okay. So if you get the key permits end of the year, where do we go from that point?

I say late this year. That will probably be November/December, and if that occurs the next step would be to permit and possibly put in a road so that we could bring in materials and supplies for construction to begin at the site in the spring of 2004.

All right. Thank you, gentlemen.

[Hasum Hodali], Salomon Partners, your question, please.

Good morning, gentlemen, I guess it's a question more related to the Fording Coal Trust, but it's a question from your perspective. One of the problems that Fording had encountered was in the quality of the coal sent not meeting customers' expectations. Can you give us an idea of who is in charge of actually marketing the coal, and for the blending of the coal, what have you done differently since the consolidation? And the second question would be is there any more regularity with respect to coal shipments expected?

I'm not aware of the particular issue that you have just raised with regard to blends. We do have a technical group that is now working with the marketing group to make sure that coal specifications meet the requirements of the customers. In that regard, we have gone through all of the brands that were produced by the various mines last year. In total there were nine different brands. These have now been consolidated, and specifications of kind are now in a common brand. So the nine brands that were used by all of the mines last year will be reduced to four brands this year.

How has that affected pricing? I mean, are you able to get premium prices because of the blend you're doing?

Well, certainly, Elkview has a premium product -- the best quality coal that Elkview gets at the highest price. We sell brands of coal to the customers. The customer decides what specifications the customer would like for their specific blast furnace based on coal that they purchase from other sources, and we provide the blend that they want, and the price is directly related to the specifications.

And is the technical team in charge of that? Is that made up of people from both Teck Cominco, Fording, Lusgar, the works?

Yes, the senior person, the manager of the technical group, is a former Teck Cominco employee.

And are you seeing any more regularity with regards to shipments in a note? In other words, some shipping issues -- boats not arriving or arriving late and et cetera in the past. Are we seeing a little bit more consistency these days?

Actually, we've had very good success at Westshore, notwithstanding that Westshore had an incident earlier this year where they lost their load out to -- one of their load out structures. Having said that, the demur [ph] charges at the ports this last quarter are lower than they have been historically.

Okay, thank you very much.

And just a reminder, if there are any questions, to please press 1 on your touchtone phone. Steve Bonneyman, CIBC World Market, your question please.

Yeah, good morning, gentlemen. Back onto the gold business -- you'd indicated that you expected grades to be fairly similar for the rest of the year but in a prior conference call you were targeting getting costs down by about $25 a ton -- sorry -- $25 an ounce this year over last year. Is that still the target for the year or what sort of cost structure can we look like for the rest of the year?

Well, we certainly have to pick up higher fuel and supply costs in the first quarter. Having said that, the cost for this first quarter is, in fact, about $20 below the cost that we achieved in the first quarter last year. I think it's 231 versus 254.

Sure, but you had costs falling quite considerably through the latter half of last year. On average, will we be again $25 below the average of last year?

I can't remember what the average for last year was.

Rough numbers would be about 222, 225.

Well, we picked up $7 on fuel at Williams, and we pick up $10 an ounce on fuel at David Bell. I would venture to say that the costs would probably be something very similar to what we achieved last year -- probably a little lower, but not $20 lower.

Okay, thanks.

Victor Lazarovici from BMO Nesbitt Burns, your question, please.

Yes, a question on the Fording deal. In the quarter did you incur any unusual or nonrecurring costs foreclosing that deal and, if so, how did you account for them?

Well, we had expenses as a result of the deal, but that was offset by payment to us from Fording to cover our expenses and efforts. That payment didn't affect our income statement. It reduced the investment in -- it netted against the investment we were making in the coal partnership and trust.

I see, thank you.

Tony Lesiak, HSBC, your question, please.

Good morning, just a couple of quick ones -- on the power trading side, how big of an exposure would you be willing to take? Are these more day-to-day type transactions?

These are day-to-day transactions really using our storage capability so we can buy in -- and then express wasn't that good during this quarter. So the express between low and high were not that great, but traditionally you can buy it overnight and send it out the next morning.

Okay, and so you could foresee having a similar type profit on a quarterly basis, going forward, just based on, I guess, your position as a provider?

Yeah, it depends on what our utilization was -- storage position is. So it's -- this training, I think, will come and go a little bit. It's really where the opportunity is, and if we've got capacity, then we can use it, and if the expenses are good enough, we can lock both in at the same time, then we'll take it.

The second question pertains to the timing of getting back some of the shortfall on the sales side you had versus production. You had about, what, 10,000 tons versus -- sorry -- 10,000 tons of copper at Highland Valley and about 18,000 on the zinc at Antamina, I guess, that were not sold. Are all those going to be coming through in the second quarter or is some going to be, I guess, [audio fade]?

There is a fair degree of fluctuation from one quarter to another in sales. I wouldn't like to say which quarter they're going to come in, but, overall, over the year, we usually sell out what we produce.

Okay, but just particularly with the Highland Valley, that was notably --

Yeah, well, we had a very high quarter, you know. The fourth quarter was very high, and we had a low quarter this year -- this first quarter -- I would assume that the second quarter will be better, but I haven't seen the shipping schedules.

Okay, so some of that was basically just building the inventory.

Yeah, just rebuilding it again, yeah.

Okay, thanks very much.

There are currently no further questions. If you have a question, you could please press 1 on your touchtone phone. It will be just one moment, please.

Okay, Jay Turner from BMO Nesbitt Burns, your question, please.

Yes, good morning, everyone. I just had a quick question or a clarification to something that David said earlier about the $2 reduction, the approximate $2 reduction relating to the Japanese benchmark for Australian pricing, and the implication was that for coals that were priced lower than that benchmark, that they may not take as much as the $2 reduction. Was that correct?

Well, I think when Fording comes out with their press release, they'll go into their own position as to how they see the price this year against last year. The $2 is basically the reduction that's occurring in the major hot coal brands in the Japanese market, and that's being carried through into other markets. So if you take the standard outview brand, that's down $2 or so.

I see. And there's just one last point -- when you were talking about the working capital adjustments that were made in the closing of the deal, you mentioned 300,000 and 1.4m, and were those tons of coal going in and out of inventory?

That's right, yes.

I see. Okay, thank you very much.

You're welcome.

There are currently no further questions in the question queue.

Well, thank you very much, ladies and gentlemen, and we look forward to speaking to you again in our second quarter conference call. Thank you. Goodbye.

Thank you from Telus. This concludes the Teck Cominco Conference call.