Teck Resources Ltd (TECK) 2003 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Teck Cominco Second Quarter 2003 Investor Relations Call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. This call is being recorded on Thursday, July 24th 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 thanks for attending, today, to this Teck Cominco's Second Quarter Results Investor Conference Call. On the call today are: David Thompson, Deputy Chairman and CEO; John Taylor, Senior Vice President and CFO; as well as Howard Chu, our Controller. This morning, David will review the results for the second quarter of 2003. Following his comments, we'll open the lines for your questions. Please note this call is also being webcast and can be accessed at our website, at "www.teckcominco.com." A set of slides have been prepared to accompany David's commentary, and these are available via the Internet at our website and also can be accessed by clicking on the webcast link. Before we start, I'd like to remind everyone that some of the information in this call and in the slides, which accompany the commentary, and in the press release is forward-looking information. Forward-looking information is subject to risks and uncertainties and other factors, as described in our annual information form. Please treat the information, accordingly. David.

Thank you, Tom. Good morning, ladies and gentlemen. And welcome to the Teck Cominco second quarter conference call. I'll start by looking at the highlights for the quarter, and that's shown in "Slide 3" on the Internet Presentation. As you will see, our net earnings for the quarter are $12 million, which is 6 cents per share,' versus 8 million in the second quarter of 2002, which was 4 cents a share. One of the major reasons for the -- the major reason for this increase is the change in tax calculation as a result of the change in the federal tax policy; and we, therefore, recorded a gain of 5 million for this quarter as a result of that change.

On "Slide 4," we'd give you an overview of the quarter. The most significant change in this quarter to second quarter of 2002 has been the appreciation of the Canadian dollar. The actual average for the quarter was $1.40; that's $1.40 Canadian equals of US$1. That compares with $1.55 in quarter two of 12 months ago. We calculate that the impact on our earnings -- if we'd actually had $1.55 for the quarter instead of $1.40, there would have been an additional 8 million after-tax in earnings; so our earnings would have doubled from -- a lot almost doubled from last year's level of our 8 million. They would have come to 15 million without any tax or credit.

In terms of our cash flow, our cash flow for the quarter is 10% better than 12 months ago, at 51 million against 46 million, last year. One of the major events of the quarter was a reduction in our debt. Our debt was reduced by 155 million for the quarter for those three months. A half of that comes from the appreciation of the Canadian dollar, because virtually all our borrowings are in US dollars; and the other half is due to debt reduction -- in other words, lending payments. At the time that we made the investment in the Fording acquisition in the coal partnership and in the Fording Income Trust -- as that was at the end of February, this year -- we invested, as you all remember, 275 million in that transaction. We stated that our target for the year was to reduce the indebtedness related to that transaction to 150 million by year end. So that would be150 million of our loan would still represent at year end, partly, of course, as a result of the appreciation of the Canadian dollar. This loan has now fallen until the end of June; and, even on current exchange rates, we're at around 138 million outstanding. So we have met the target for this year on our loan reduction against on the Fording transaction.

On "Slide 5," we show the Canadian dollar prices for the quarter in comparison with 12 months ago. We show that, before and after hedging gains, because about half our [f-x] is hedged, the actual rate for the quarter that we received was $1.47 against $1.40 in the [bond] markets. And this slide shows the impact of that appreciation and the reduction in the Canadian dollar prices that we've received for our products. So, before hedging gains, zinc is off 12%, copper is off 6%, and coal is off 10%. As you prorate these hedging across the products, then we're still off. The zinc was off 9%, copper off 1%, and coal off 5%; and those were the drivers of reducing our earnings this year from what they would have otherwise been.

On "Slide 6," we show the operating profits by refinery and by major mines. We have three areas, where we've had reduced earnings as compared with 2002. Those our trail where we had a net reduction of 3 million. Our coal operations -- that's comparing the co-partnership with Elkview and Bull Moose, last year, where we've had a total reduction of 9 million. And HVC is off 2 million. On the other side, the ones are that have improved. Gold is up 2 million, Cajamarquilla is up 2 million, and Red Dog is up 1 million. So we have an overall decline in the quarter from 49 million to 40 million in terms of total operating profits.

As we go to each of the individual operations, starting with Trail, which is shown on "Slide 7," you can see that, our operating profits for the quarter is 6 million versus 9 million last year. Now, there has, however, been quite a change in the composition of these earnings. Our Trail operations have been quite seriously affected by the exchange rates. Our metal earnings, this year, are -- we have a loss of 2 million for our metal earnings. That's against a 9 million profit last year. So it's 11 million swing against us. On the other hand, power, which contributed virtually nothing last year as a result of very low prices and [indiscernible], we took a maintenance shutdown in June last year on [one or two of our] generators.

Our earnings for power this year are 8 million. So, in total, we have 6 million overall positions at Trail. If you look at the metal profit, the three major contributors for this negative result are -- firstly, foreign exchange we counted at off 5 million; treatment charges with these bills and [indiscernible] are off 2 million from last year -- in quarter two, last year. And thirdly our fertilizers earnings are, however, disappointing. Last year, we made an operating profit of 1 million for the quarter. And this being the peak season for selling fertilizer, this year, we've lost 2 million on fertilizer; and it's primarily a result of high ammonia costs. We sell ammonium sulphate to -- really to get rid of sulphur. Ammonium prices are up [inaudible] are natural gas prices, and that's not been followed through in the fertilizer markets due to weak demands so that we have had a squeeze on our cost position in fertilizer. So those three give us 11 million -- it gives -- give us the 11 million of the reduction. That is the reduction of 11 million for metal.

In terms of power, our power earnings are up this year. This is just selling our own surplus power from 165 gigawatt to 267 for the quarter, prices is up $15 to $31. And this gave us the 8 million profit; and that 8 million profit also includes trading profits, where we are buying and reselling power, of about 1.3 million. Although these total profits are adversely affected by the FX rate, because we don't hedge our power position until we -- our power profits are about 1 million lower than they would have been at the higher exchange rate.

Moving on to Cajamarquilla. Cajamarquilla had quite a good quarter considering that treatment charges are continuing to be squeezed. That's shown on "Slide 8," 3 million for the quarter, good production, good sales against 1 million last year; although, of course, the last year was affected by the three months shutdown of Cajamarquilla, of which the first month was in June of last year.

Therefore, moving on to the mines. They're showed from "Slide 9" onwards. The coal partnership is summarized on "Slide 9." Our earnings from the coal partnership for this quarter are 22 million. Last year, Elkview itself produced a profit of 27 million. And, of course, Bullmoose produced a profit of 4 million, last year; and it's shut down this year. If you look at the comparison of the coal partnership to Elkview, the reasons for the decline in profitability is, of course, partly due to Canadian dollar price. Canadian dollar price last year was $65; now, this year is $62, so we're $3 up there. The other reason being cost of sales -- the average cost for the coal partnership was $51 last year; Elkview, which was coming through a long period of stiffening at that point was at $49. So we've really had a reduction of margins from $16 last year to $11 this year. In terms of the coal partnership itself, we think, it's going really quite well. Well, we're quite hopeful that we will see, particularly, next year, quite significant improvements and profitability coming from the partnership.

Moving on to the next slide, which is "Slide 10," which shows Red Dog. Red Dog -- a slight improvement this quarter, but it is selling out. It's still selling out 2002 shipments. So its cost structure is very set on 2002; and, therefore, we'd expect to have pretty similar results from what we've had in 2001 in the first quarter of this year. It would be very similar in average margin. In terms of -- we benefited from the pattern. We didn't have much in the way of negative price adjustment in this quarter, but we have some positive price adjustment in the quarter. And we also sold a portion of the lead that has been unsold for in the first quarter of this year. Looking ahead, the shipping season at Red Dog has now opened. It's been quite windy though at Red Dog sellers -- so we’re a little bit behind on our shipping season; although, we think, we can still, kind of, catch up. We think with good weather. Three ships have, so far, been loaded at Red Dog out of the 25 for the season; and our fourth shipment -- our coal shipments, which have been held because of bad wind conditions, was loading again last night.

So we believe that although shipments are going to be slightly late, at least for July, we should be able to catch up during the remainder of the shipping season. In terms of our forecast shipment, we have spoken to you on 1 million tons of zinc this year after early October. [In] [inaudible], the shipping season starts in early October, which is about the same as last year. With lead slightly higher, the shipments we're expecting are about 215,000 in the lead against about 119,000, last year. So it's basically the same, but we do expect an improvement in our cost structure both in terms of our average year mining costs, which are about 0.5 cent down all this year, and the treatment charges. So they should start to show up, hopefully, in the third quarter and, certainly, in the fourth quarter of this year.

Moving on to Hemlo, which is showed on "Slide 11." Hemlo's grade was somewhat similar, 4.7. This is the average weighted grade of Williams and David Bell -- 4.7 grams a ton this quarter against 4.6, last year, of course, last year, we were suffering from the rough instability of the mine in Williams. That is largely over. We have, however, a new [phase] back [door] plant now being brought into production; and we think that will help matters. But our costs, mainly expressed in US dollars, have risen. They are up from 245 last year to 255 this year, again, this is due to appreciation of the - 10% appreciation in the Canadian dollar.

Moving on to the copper mines. Highland Valley, which is shown in "Slide 12" having a good quarter. Grade is -- down slightly lower as expected, because of heavy use of the Lornex pits in 2003. We have not sold out either our full production of quarter one or quarter two this year, so we expect an additional 20,000 tonnes of copper containing concentrate to be sold in the second half of this year, which could be helpful to our results. Our operating profit is 7 million for the quarter; down from 9 million last year, although, of course, last year we had heavier sales of 46,000 tons of metal, against 33,000 in this quarter.

And finally, on the base metal side, Antamina is shown on "Slide 13." Antamina having a switching in this period, much more to zinc and to copper, so our -- we have a equity earning of 4 million for the quarter, against the 5 million last year. High production of zinc, 100,000 tonnes of the whole mine, that's our share, that’s 100% of the mine, 100,000 versus 47,000 last year and comp of the copper dropped from 94,000 last year to 65,000 this year. We expect that zinc will still be the predominant metal for this year. Although, in the second half of the year, we are doing what we can to - we are doing what we can to increase production of copper, because that at the current prices is certainly the more profitable to commodities to produce.

In terms of our completion tests, lease will now be fully met; we delivered the order certificate to them - to the bank on July 1. We would plan to consolidate Antamina from July 1, all things being equal, so that we would report in the third quarter, a full quarter of line by line consolidation of Antamina and our balance sheet will reflect Antamina debt -- our share of Antamina debt in the 30th September balance sheet. Slide 14 shows cash flow and CAPEX, both for last year of second quarter and the present quarter. As you can see, CAPEX has fallen to, I think, only 27 million for this quarter and cash flow is risen to 51 million. So we‘re heavily covered here.

The same picture is shown in "Slide 15," where we've showed the six months. Again, last year cash flow and CAPEX were very close together, for the six months at 85 million and 81 million respectively. Here in the six months of 2003, we have a 102 million of cash flow, against 56 of CAPEX.

In terms of CAPEX going forward, as we reported, we expect about a 105 million for the remainder of the year. That means that our forecast now for 2003 actually come down by 30 million, since the last quarter, because we're now estimating a 160 million for the year that were 190 million for the year. And looking further ahead, we think that we -- for next year we [technical difficulty] and that’s even with Pogo being built, now we're assuming in Canadian dollars about a 70 million expenditure on Pogo next year, assuming we get the permits by end of this year. But even despite Pogo, on the completion of Ponderay, we're hoping to hold that CAPEX down to 150 for next year.

Finally, "Slide 16" shows our overall liquidity. Our working capital, as you can see has dropped in this quarter from March of this year and from December. Of course, now, we -- in this quarter, we don't have - we don't have Polaris any longer. Actually, we'd have done a year ago. We also are reducing our inventories of Bullmoose, irrespective of inventory leftover from Bullmoose. That is the -- that has being -- was being cleared this quarter. We have about -- to those prior accounts, of course, we've had 61% of Bullmoose, we've got another 400,000 tonnes of Bullmoose to sell off there. It's all being -- a contractor in place for it and we expect it to be delivered principally in the third quarter. And in turn last year, we had bought in quite considerable product for resale of zinc to protect us from the Trail Cajamarquilla shut down -- temporary shut down. This year we are holding -- we're even holding the way to resale product. So working capital is down; our debt is down, our net debt -- total debt less cash down at 924 million. That was about 60 million higher on the start the year. And that net debt to debt plus equity is at 28% down from 30% in March and up 2% from the year end. We now estimate that if we count -- if we brought in Antamina, at this point, we would add about 5.5 points to that, so we would be about 33.5 in that total area in terms of the total net debt against debt plus equity. So that's all I have to say and now I'll be pleased to take questions. Thank you very much.

Operator, we'll go to the question and answers now.

Thank you; just a moment. This is your conference operator. The question and answer session will now begin. If you wish to ask a question, please ensure that you're not on speakerphone, then press the number "1" on your touchtone phone. If you wish to leave the question queue, please press the "#" sign. If you have any questions, please press "1" now.

Terence Ortslan, TSO & Associates. Please go ahead with your question.

Thanks for [indiscernible] me. David, can you talk about the state of the union address on the zinc markets and what you're seeing there with respect to the cons and metal?

Morning, Terry. Yes. The zinc market, firstly in terms of the demand for zinc, in United States still is disappointing. We're seeing no growth in the US at the present time. In fact, I’m pretty sure that US market was off from this time last year. Europe is also pretty flat as well. So the bulk of traditional major markets are not really showing any increase at the present time. Asia is different. China is still extremely strong; and that is having an impact really on the surrounding countries, because the countries like Japan are selling high quantities of galvanized products into China. Therefore, their demand for zinc is actually quite good; and despite a flat domestic market, similarly, Korea, Taiwan. So, through Asia, generally, we have a kind of bit better market. We see that the -- we see this market moving towards a balance slowly, but steadily, really from the supply side because what we've seen there in the last six months is a continuation of the reduction of the impact of China's exports on the west. Not only are their gross exports of metal is off by about 20%, but they also have been buying quite a large quantities of metal in from Kazakhstan from the old CIS countries; and if you take that into account, we think that in the first six months of this year China, on an annualized rate, is down 200,000 tons.

In other words, they are exporting less -- their net exports, running at a annualized rate of 200,000 tons less than they were at this time last year, when you take their exports and their imports into account. In terms of concentrates, their imports are very similar to their levels last year. So there's not been much change, but they are now, on our numbers at least, a net importer of zinc units. So they are now -- as they need, they buy from the west zinc rather than sell on a net basis, if you take account of their concentrate purchases. In terms of the concentrate market, they have tried to beat the major four -- the top four refiners. As I've probably restated that they feel the treatment charges are too tight; and they're on a buyers strike as they put it -- at least, the media reported it that way -- because they feel that 130 -- that the prices below 130 are too low for them to make any money on at all. And I think there has been, it seems to me, somewhat of a slowdown in the spot market. Certainly, it's not got any worse in terms of price in the last couple of months; but it is still -- stock prices are still below contractual terms. So the contact with the contractual terms this year were 147, typically, as far as, it's probably in the mid-130s. So it's still below. So the pressure is still on the refineries. And, with that pressure on, we think that there'll be further supply cuts. We've seen two refineries come off already in Europe, permanently, Albemarle and [indiscernible]. Cockle Creek goes down in September. And so we see the industry straightening itself out from the supply side; and, hopefully, that demand side will pick up next year.

One more marketing question, David. I know you think about it a lot too. But I think it's becoming more and more evident that the Chinese will revalue their currency; and we've been playing a different scenario. I'd like to see your input on this. If they do, obviously, it's going to make an impact on their trade pattern and far more than what we see now with the cons versus the metal. What do you think will that mean for a metal state that they will have?

Well, I think, of course, they're going to resist that. They will resist just like the Japanese have always resisted regarding their currency. But, if that occurred, it would make their metal export that much less competitive and their purchase of concentrates that much more competitive. So I would say that it would -- on balance, it would be helpful to our business, because it would straighten out the supply; and it would continue to straighten out the supply side and yet make exports of metal from the China that much less competitive. So I think it would, on balance, improve the situation.

Okay. One other question on Ponderay -- how is it coming along in terms of schedule and the capital costs?

Yes. We are on budget. So we haven't used the contingency yet for Ponderay. So we expect to come in on or under budget, and our timing is still the same, in other words, to start up with the first quarter of 2004.

Okay. Thank you very much, David.

You're Welcome.

David Charles, Griffiths McBurney & Partners. Please go ahead with your question.

Yes. Good morning. Just two quick questions. The first one is looking at the numbers from the Hemlo Mines, production was better in the first quarter and in the second quarter; although, you seem to be through most of your rock stability issues. Can you explain what happened there and maybe explain what we should expect, going forward? And you've given a very excellent overview on the zinc market. Could you maybe give us your view on the coal business?

Morning, David. Yes. I think, the problem at Hemlo is really cost structure in the -- at the present time. So we are looking hard at that, and we believe that with greater stability, we should get some cost reduction. But as you see, we are expecting a cash constant in US dollars here. In US dollars with your appreciation -- if this appreciation continues then we are likely to see these costs not go that down that much in terms of US dollars. The grade is important -- I think our prediction for grade this year is along the current lines in other words the 4.6, 4.7 has been typical. So I don't think, we were going to see any great change out of Hemlo. And accept that as we get greater stability we might get better labor productivity.

And the coal market?

The coal market -- well, the coal market is actually -- it seems to be quite, quite good. I mean total world steel production is up. Demand for particularly hard coking coal seems to be quiet steady. We've seen the movement of the Chinese now stop, buying hard coking coal. We believe they started last year, and we've received orders this year. The coal partnership is self supplying for the first time. Some of the Bullmoose product that we sold is going to be [indiscernible] in China. So they are in the market and this is, really, kind of new feature for the hard coking coal market. In term of other areas the tenders that have come out are going at certainly around contract price, whereas in a weak market often some of these tenders go for quite a bit a below contract price that's not occurring this year. Or at least we can't see this occurring. So we see a fairly -- for our market intelligence, we see a fairly sold out position on hard coking coal. I don't think except for ourselves we still got some inventory, which will fall naturally this -- in the next six months. And we don't see too much spare inventory around and therefore we see this markets [more likely] to strengthen and do the opposite.

Thanks very much.

You're welcome.

Greg Barnes with Cannacord Capital. Please go ahead with your question.

Yes. Thank you. At Red Dog with a lower TCs coming in the second half of the year, I guess, in 2004. How do you see profitability at the operation moving, going forward?

We think that we have about $20 swing on treatment charges. And that is 2003 shipping season and 2002 shipping season or so at a million tonnes of [carna] about 20 million US. So we see that’s the impact on the year -- for treatment charge.

Okay. Great. Thank you.

Stephen Bonnyman, CIBC World Markets. Please go ahead with your question.

Yes. Good morning. I wanted to enquire regarding the coal partnership. How you saw the synergies going? What you might be targeting over the next year or two, and how, in fact, you're going to start to pull the costs out of that?

Yes. The synergies in the coal partnership, we think, are going quite well. We're seeing quite a lot of opportunities for synergy. Really, we've got to lay down the areas that we see them in and so far the early work is that we can achieve them. In terms of when they're going to come through, I think we see them really making an impact in 2004 and in 2005. So that is where we see the maximum impact coming in. At the present time, I don't think they've had a significant impact yet on the results of the coal partnership at all at this point. Because of the different configuration of the mines in the coal partnership and the -- for example, the difficulty of dealing with Lion Creek with its very high cost structure, very high stripping ratio, we really want to stabilize these mines if we can. Then, we'll have a better -- then we'll see these synergies starting to flow through. So we'll see them coming through, let us say, from 2004 onwards.

Within the existing cost structure, are there any costs that you think have been incurred as you're try and rationalize these that otherwise wouldn't have been incurred, and do you see any further rationalization charges arising before we actually see the gains following back into the operations?

I think we did have a number of rationalization costs right at the start, and for example, although they probably haven't hit the income statements as such. For example, we’ve had a lay off now of almost 20% of the total headcount of the partnerships since February. So, yes, those cuts have been accrued or they're not necessarily hitting the income statement, but we have to believe that they've affected our cash position in the partnership. In terms of going forward, that was a long going situation we won't see anything in that scale that we've had but there will be further reduction. Otherwise I think we're largely through it.

In terms of those headcount costs and the rationalization charges associated with it, can you give us some guidance as to what kind of size that might be and how and when it might be posted in the income statement?

Well, we had a major count already and that's already been taken through. That will not go into income statement we made provision at the time the merger to deal with that, although cash might of course, cash is cash. So I wouldn't like to give any view on what the remaining impact is but the bulk of it has been taken.

Thanks very much.

Richard Howard, White Mountain Advisors. Please go ahead with your question.

Thank you. I wonder if you could tell me the cash generation before working capital changes at Antamina in the second quarter, and what's sort of a debt reduction was undertaken there?

That is not in front of me, we'll look for that. We'll look for that numbers now and come back to you. Can we take another question first, and we will turn to your question in a minute of two.

Sure

Okay.

David Brooks, American Metal Market, please go ahead with your question. I'm sorry, Alberto Arias, Goldman Sachs, please go ahead with your question.

Yes. Good morning, gentlemen. A couple of questions. First on Antamina, we have seen a decline in metallurgical recoveries for both copper and zinc. You know the copper recoveries are on 84% versus 88 last year and Zinc at 82% versus 85. Is there any metallurgical problem that you are seeing with the shifting ores, and should we anticipate any kind improvement from this levels going forward?

Alberto, I'm afraid Mike Lipkewich is not here this morning. He is out of the Valley. So he not here so I will try -- I am not too good at answering that question. As far as I know, we are not seeing any particular recovery problems. In other words, we do get a recovery variance between the types of ore we are putting through. But as far as I’m aware, we haven't seen any dramatic differences from what we expect. Certainly the ores particularly the ones containing heavy zinc, do give us less recovery of the copper and zinc than other ores. But as far as I know, I am not aware of any variances from plan on those recoveries.

Okay. May be a second question with regards to power sales outlook for the second half of this year. How do you see pricing and increased power sales for the remainder of the year?

We think that our power sales for the remainder of the year that's from our own [sources of power] would be around 320 gigawatt for the next six months. Prices - the current prices -- of stock prices are being quit firm with hot weather. The way we are seeing currently, in the Columbia, we are seeing about $52, $55 per megawatt hour right at this moment. The forward curve, it's off about -- because natural gas prices on a forward curve have come down slightly for the fourth quarter. So we're now are seeing forward prices of sort of $48, $50 for the fourth quarter in terms of the forward market at the moment.

All right. Thanks.

David Brooks, American Metal Market, please go ahead with your question.

Hello, David. Two questions, first, I was wondering if you could clarify the zinc refinery closure? You said that the lower TCs could lead to some service closure, so I was wondering if you could say when that might happen? And secondly, I was wondering if you could give us an update on the [copper conks] antitrust investigation, which is effecting Highland Valley?

All right. Trust me in terms of closures, we've seen, of course 3, 3.5 permanent closures now in cockle creek. We're also seeing some temporary closers to creek [indiscernible] is down for three months at the moment. There is an public discussion to put [indiscernible] to do a temporary closure and so general manager had stated that he doesn't expect a decision until later this year for whether they should close for some period from January next year onwards. But they, of course, are facing a very high power tariff according to the trade generals is around $60 US per megawatt hours. So it's a very high cost to run a [indiscernible] refinery on. As if [now] they are trying to obtain some help from the Italian government on that product.

So those are sort of the weak ones that you would expect to do something about. And I think also the choice of concentrate is tending to -- if you look at individual refineries there numbers are tending to come off. I wouldn't mind to point at it -- point the individual ones, but they are tending to come off because our own experience for example in Peru is that mining companies are in such trouble that they are often very slow to provide the contract -- [the contract] if they could sell from counter trader at a better price than your contract. So that sort of thing is happening in this market and people are not getting [comps] on time or very freely I think in the -- in certain area of the world.

Okay.

In terms of the company's investigation, I don't think that we can say anything other than we have -- we're cooperating fully on it, all we have been asked for is information and I believe the count is up to about a 100,000 documents that we are going to have to supply, we're due to supplying in about two weeks time, I think it is. So all we are doing it to be producing our documentation and supplying it to the authorities.

Okay. Thank you.

David Gagliano of Credit Suisse First Boston. Please go ahead with your question.

Great. Thanks. I just have -- just a quick question, if could you just step back for a second and give us your thoughts on strategically where you see the best opportunities in terms of which commodities you would like to be investing further in the near term? And also, if there are any thoughts regarding, perhaps, stepping away a little bit from some of the commodities? Just, sort of, where do the commodities rank in your universe?

Right. What are we trying to do is to get some diversification to the merge company. That was our original inductive but I think we've partly done that by the co-partnerships. So if you take our sensitivity now to the zinc, to metal plus coal or to copper plus gold, those three for the 5% move in the price of the commodity. We have roughly an equal impact on our bottom line for meet to those three commodity groups.

So that -- I think we've achieved that. In terms of where we would want to put our money really depends on the quality of the opportunity -- if we saw something even in zinc we would be prepared to do it as long it fitted overall strategic position. In gold, we are obviously not a major player in gold and therefore, we are putting up several of our marginal gold properties -- marginal non producing gold properties. Gold properties that don't put our book for sale, so that we saw one or two on the market now. So I think that where we will put our money really depends on where the opportunities come. But we are trying to pretend to end up with a diversified company but probably in three or four products. And we've got 4 at the moment. We may or may not be the same four in 3 years time, but it will depend on where the opportunities arrive. And there are quite a lot of opportunities -- quite a lot of things come through that all these things.

Okay. Great. Thanks.

Okay.

Any further questions. Please press "1" now. Michael Fowler with Desjardins Securities. Please go ahead with your question.

I have got three questions actually. For the third quarter, can you just remind us to the sort of production levels at Red Dog and at trail in particular and on the sales side?

Production and sales. I will firstly take care of [production rent will] probably have a pretty similar quarter to what is had in the second quarter in terms of production. So we -- usually a slight improvement in the summer over the winter but apart from that we see is roughly the same. In terms of sales, a bit reluctant to put a number on that because there's slow shipping at start of this season. And that can on have quite a major impact on or when ships arrive in Europe particularly and therefore when we start to get pricing on it.

So we can have quite a variation between a typical third quarter and a slow third quarter and how the shipping goes. Right know for example our first ship has just left for Europe. But it arrive in Europe until late August. So we've only got thirty days left if you like of the quarter to supply Europe with Red Dog. The pricing when it starts because of the large quantity we shipped, we -- it does spread over. There is a month though if even if you arrived in September you might be pricing September, October, November or even longer. So it's not just a simple ship but it does have an impact. So I prefer not to give a number for probably it sounds it could be really not quite sure what’s going to happen on the ship this season. And on trail -- trail would be we think it will run to normally through the three months to this quarter. We will however be taking a shut down of [Kilset] we need a shut down of Kilset in August and we'll take that.

So that could have some impact on some of our byproduct positions that like silver and gold, precious metal will can have an impact on. We'll obviously kind of try to minimize that but there is that possibility that we would have lower production therefore sales of the precious metal which can have a bit - which would have an impact on us. [We are a bit] cautious over that and I'll try to minimize that to the ship.

Okay. Thanks. And just on the exploration front, is there anything on the exploration front that’s worth talking about right now?

I think our partner Miranda put out numbers for the latest Morilas drilling in Mexico where we continue to find extensions to the Morilas prospect. So that looks quite interesting and we authorized further funding for that very recently in other words to keep drilling even through the summer. They're right when you get into quite rainy, get into quite rainy conditions. That I think it's a more promising offer of the ones at the moment.

Okay. And how much are you going to spend on explorations on the Sharerewindus?

The budget is 34 million.

Okay. And just last question. You actually, when you were giving your address, the counts of CAPEX were actually, we couldn't hear it that well. Could you just quote those numbers again? And I think you were talking about Ponderay and Pogo and so forth?

Yes. What I said was that, we thought that CAPEX for 2003 would come in about 160, that's the forecast now. That's down 30 million from our forecast of the last conference call. And that partly is due to reduction of expenditure at Red Dog -- we don't think we recall now. In terms of 2004, we're targeting 150 that includes Ponderay at 50 million US or 70 million Canadian. We think that we will get reductions at other properties like Trails for example, which will have finished next year -- it's a replenishment of its electrical system. So that's what I said on cap expenditure.

Okay. That's 150 those include Pogo or does?

That does include Pogo, yes.

Thanks very much.

You're welcome.

Next caller, David Miller, Maxima Investment Management. Please go ahead with your question.

Yes. Just some further questions on the exploration joint venture with Miranda. Does that prospect for -- it make sense to tech, does it have to get to a certain size before that make sense for you and what are your other options?

Yes. We had - we have two, and we have two prospects with Miranda. Alpida is one, which we have recently put on the market. With then Miranda and Morilas just the one I just referred to, it's on the other side of the river. We think that for us to be interested in it, we need at least 2 million ounces or at least, 100,000 ounces per annum of production for us to be interested. So we’re not really at that step -- stage yet but it's come along quite well so far.

And then the second question on corporate organization. Is there any more consideration to getting rid of the two classes of shares?

Not that I am aware of -- not at this stage.

Thank you.

I've got I've now got an answer to the question on the Antamina working capital. I'll just ask John to give it.

There won't be a complete answer but I think one of the questions was the level of debt repayment in the first half for Antamina and on a 100% basis it's paying about 70 million US as debt repayment and I think the other question was the cash flow before working capital adjustments and we haven't been consolidating Antamina yet, so I don't have a good number on that but I do know the cash flow does exceed the debt repayment and also the capital expenditure requirements of Antamina. I do know that the numbers is in excess of that.

Thanks John.

Are there any more questions operator.

Terence Ortslan with TSO & Associates. Please go ahead with your question.

John, just to come back on that 70 million US that was for the first half?

Yes. Their repayments is about a 140 millions.

Right. Okay. And just I'm [thinking it out] to finish it off. What were the costs or costs perform this in this in the first half that you like to review and also the annual numbers you got to just look at the old budget and do numbers, I can simply be able to go on the production of copper and the zinc cons, what are the new numbers for the year?

The production numbers for the year?

And also the cash costs for the first half?

Just a minute -- we’ll see [about] those.

Thanks John.

Just a bit uncomfortable, giving the number I'm sorry I just -- we just don't have it here. And I wouldn't want to guess at it.

So we come right here later on that one.

Sure David and also the production numbers, later or now?

I think later. I don't have them in front of me.

Okay. And any more talk about the royalty issue in Peru which seems to be again in the forefront. And I know you got different deals but I don't know if it’s grand fathered or not. Any more political hype on that?

No, we have no intimation that they want to review us at all. So we're operating on a stability contract there and we don't -- well, we have no indication of anybody wanting to change it.

Good. Keep it that way. Thanks David.

Michael Fowler of Desjardins Securities, please go ahead with your question.

Yes. At last we got you on the run there John. Just going through equity, equity earnings at Anta mina [indiscernible] proportional to consolidation. I wouldn't think that there was going to be much change in your earnings or cash flow. Am I right in that statement?

Well, the cash flow will go up. The earnings will be the same, but our cash flows would go up.

Because you are consolidating with a 100% of the...

No, just proportionately consolidating our interest, but our cash flow from operations number would go up, because we would now be including the revenue.

Right. Got you. Okay. Thanks.

If there are any further questions, please press "1." There are no further questions in the queue.

Okay. Well, thank you very much ladies and gentlemen. We look forward to speaking to you again in our third quarter conference call in October. Thank you. Goodbye.

Thank you. This concludes the Teck Cominco's Second Quarter 2003 Investor Relations Call.