Teck Resources Ltd (TECK) 2003 Q4 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, all participants are in listen mode only. Later we will conduct a question-and-answer session. This conference call is being recorded on Wednesday, February 4th, 2004. 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 to everyone for your attendance today at the Teck Cominco 2003 fourth quarter and year-end investor conference call. On the call today are David Thompson, Deputy Chairman and CEO; John Taylor, Senior Vice President and CFO; Howard Chu our Controller; Mike Lipkewich, Senior Vice President of Mining; and Roger Brain, Senior Vice President Marketing and Refining.

This morning, David will review the results for the fourth 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 David's commentary today 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, 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 statements.

And now I will turn the call over to David Thompson, Deputy Chairman and Chief Executive Officer.

Thanks, Tom. Good morning, ladies and gentlemen and welcome to the Teck Cominco fourth quarter conference call. I will start the presentation on slide 3A, the number is on the bottom left-hand side of the slide. This is the fourth quarter highlights. In this slide you'll see that our reported earnings, including the Los Filos gain is $107 million versus $15 million for 2002 fourth quarter. That's an earnings per share of 57 cents against 8 cents last year.

Slide 3B shows the numbers again excluding the Los Filos gain and there we have net earnings of $56 million for the fourth quarter against $15 million last year, earnings per share being 35 cents against 8 cents last year. Slide 4 shows an overview of the quarter. This is, in fact a record quarter for us, certainly since the merger of Teck and Cominco of earnings of $107 million. Just as important, our cash flow for the quarter of $153 million is the third best that we've ever recorded, the previous two were influenced, of course by the high-power sales in 2001.

Net debt this quarter has been reduced by $238 million. $51 million of that is due to the depreciation of the Canadian dollar but the rest, the $180 million is due to debt repayment and cash increases. The major event of the quarter is in fact the turnaround, the operating turn-around at Red Dog. Red Dog 12 months ago had a loss of $10 million in this quarter. It had an operating profit of $51 million.

Slide 5 shows our commodity prices, for this quarter. These are in fact L&E prices for zinc and copper and the London gold price of gold. So those three products don't have hedges in them. So we're just comparing on the left-hand side what the appreciation has been in the price of the commodities in U.S. dollars. And on the right-hand side we're showing the equivalent Canadian dollar price. You can see, for example, the zinc and gold are up 20% U.S. dollars, copper up 33%, whereas in Canadian dollars that's for our Canadian operations, we've had only really copper has been the only one that's really appreciated, with a 11% increase over fourth quarter of last year. Zinc and gold are up just 2% and coal -- and this includes our hedges, is down 18% from the fourth quarter of 2002 in Canadian-dollar terms. So our Canadian operations haven't really benefited very much from the impact of the metal prices in the fourth quarter.

Slide 6 shows the operating profit by mine and refinery. Our operating profits have increased from $60 million in fourth quarter 2002 to $143 million in this quarter. That's an $83 million increase. The principal mines contributing to this are Antamina which, of course wasn't included in the fourth quarter last year with $19 million, Red Dog, with a $61 million improvement, and Highland Valley with a $18 million improvement. On the negative side, the main one is Trail, Trail's earnings fell by $9 million from $13 million to $4 million.

Going on through the detail, which is on Slide 7, we show here that Trail's earnings are $4 million for the quarter against $13 million last year. Power, because of higher prices and higher volumes increased slightly appreciation of the Canadian dollar from $3 million to $5 million. And our metal operations declined from $10 million to a loss of $1 million. Now, as I said in previous quarters, Trail is under pressure from the Canadian dollar and from the severe decline in treatment charges, which penalizes Trail and of course benefits Red Dog. But in this quarter we've had several extraneous items affect the quarter, which we believe affect the quarter by about $4 to $5 million.

What we planned to do was to take down the pressure leach plant for its annual maintenance in December, run the tank out at 75% of capacity and sell power to mitigate that cost of the maintenance shutdown and that's what we did. However, our main acid plant had a major problem in its absorber column in the middle of December, which meant that we had to take the acid plant offline and hold it down for 17 days. This meant that we had to -- because sulfur is a key control on the smelter, we had to turn down our roasters, produce fertilizer instead of sulfuric acid, cut back our zinc production and therefore our zinc production, as you can see, fell from 75,000 tons last year for this quarter to 68,000 tons in the present quarter.

We think the cost of repairing the acid plant was in excess of $1.5 million, so if we add up the unbudgeted repair to the acid plant, the budgeted repair to the pressure leach and the loss of product over that quarter, we think the net result is about $4 to $5 million lower than we would have otherwise come in on. But, as I have said in previous quarters, Trail is not going to make a great deal of profits with treatment charges this tough.

Moving on to Cajamarquilla. Cajamarquilla, which is much less affected currency-wise than the Canadian dollar, having a very good quarter. Production again a record of 33,000 tons, that's 10% over desired capacity. Sales at a record of 35,000 tons, operating profit up from $5 million to $7 million for the fourth quarter.

Slide 9 we show Red Dog. Red Dog has benefited, of course, by the fact that it is a U.S.-based mine, it's getting the full benefit of the 8 cent increase in the zinc price from 35 cents to 43 cents between the two periods and a 7 cent increase in the lead price. The lead price went up from 20 cents to 27 cents. These had a dramatic impact on the profitability of the mine. Sales were also high, zinc was up from 194 to 204,000 in comparison with 2002 fourth quarter and lead was up even more, 58 to 77,000.

We've had a change in the distribution of our lead as a result of the closures of the acid smelters in Europe. We have diverted quite a large quantity of lead away from Europe and into Asia, particularly China, where we benefit from lower treatment charges, lower distribution costs and also the cost of pay. And so we calculate that lead probably accounted for just over 20% of our gross contribution this quarter, whereas in previous quarters the contribution of lead has been really negligible. In addition, of course, zinc and lead have benefited from lower treatment charges with the new shipping fees and costs have continued to decline at Red Dog, although they don't make an appreciable difference to this quarter.

Moving on to slide 10, which shows the Highland Valley copper. Highland Valley copper sales and production were actually the same as they were in the fourth quarter of 2002, so the operating profit increase is an $18 million increase from $12 million to $30 million. It's really coming from the price -- from the improvement in the Canadian dollar price. And also from the Molly sales, the Molly price has gone up from $3.40 to $6.30 and our volumes went up from 1.5 million to 2 million pounds per quarter. Slide 11 shows Antamina. Antamina came in with an operating profit of $19 million. As I said, it wasn't included in the fourth-quarter 2002 because we were equity accounting at that point, but the comparison is with the third quarter 2003 where our profits were only $7 million. Now, part of that $19 million is due to quite a significant pickup in sediment adjustments, that is price incoming from a previous quarter. The final pricing is higher than the provisional price and therefore you get a gain on a prior quarter's sales of zinc or copper.

Because we are removing sediments from the bottom of the pit, we are still confined to high zinc, low copper ores, and you can see that our zinc production was 94,000 tons for the quarter against 54,000 tons last year. And conversely, copper was down from 81,000 to 63,000. We anticipate that that will continue certainly into the first half of 2004, although we're hopeful that in the second half we will swing very much back to copper and be able to have a significant decline in our zinc production.

Slide 12 shows Hemlo. Hemlo is numbers, although we've come in with an operating profit of $10 million, which is the same as the third quarter, it's less than the fourth quarter 2002. This is particularly due to grade. In this quarter we were taking more tonnage from the open pit and less from the underground. Of course, that grade is much lower in the open pit. And the result of the lower production, production's down to 130,000 ounces in this quarter, catch costs rose as a result of -- in U.S. dollars from $2.20 in the third quarter to $2.53 in this quarter and compared with $180 in the fourth quarter of 2002.

Slide 13 shows the Elk Valley Coal Partnership. We had our high sales in the fourth quarter due to high demand for metallurgical coal. But that hasn't really benefited a great deal in terms of operating profit. Our operating profit is actually down from $25 million in the third quarter to $22 million this quarter. One reason for that is that we've increased our depreciation almost a year-end adjustment by $3 million for this quarter, but the principal reason is the decline in the average price, because we only have so much hedging available to us and the additional sales that are being made in this quarter have not been hedged, therefore we are getting the current exchange rates. And as a result the average price fell from $53 in third quarter 2003 to $59 in this quarter.

Moving on to our cash flow and Capex, which is showing on Slide 14, that shows the fourth quarter, $153 million cash flow for the quarter, $26 million was coming from Antamina, which wasn't in the previous year. And it compares with $70 million in the fourth quarter of 2002. Capex is relatively the same at $49 million versus $46 million for the quarter last year.

Slide 15 shows the 12-month position. Again, $338 million for the 12 months against $201 million last year. Of that $338 million, $36 million comes from Antamina. In this year, our Capex expenditures actually declined, they're down from $187 million to $162 million, so we had free cash flow generation of about $175 million this year and that's really one of the reasons why our debt has been coming down quite quickly in the last half of the year.

The slide 16 shows our working capital and our net debt to debt plus equity ratios. As you can see, working capital has been declining during this year. It does decline seasonally in the fourth quarter at any rate due to Red Dog's sales, but we have also had the reductions at the -- of course at Elk Valley and at Trail on working capital. Our net debt to debt transequity is at 29% in September, that's down five points from September. In September we included Antamina for the first time. We took in a net debt of 311 in September. Antamina is 283 now, net debt at the end of December.

We've also paid back during this year fully the debt that we took on to purchase our position in the floating transaction at the end of February last year, so the $255 million that we borrowed for that has now been repaid. So our net debt position is now looking quite healthy and with very strong cash flows that we see ahead of us, we will continue to see these numbers come down.

On copper developments, which is shown on Slide 17, we are now in the start up of Pend Oreille, we have produced final concentrate there now. That will be shipped to Trail for testing in the next two or three days. And once we get clearance, we will start to ramp up Pend Oreille.

On Pogo, all Pogo but one are now in. We are waiting for the final permit from the EPA, that is promised for us this quarter. We are in virtually a weekly or two-weekly contact with them on this permit and we are hopeful that that will clear. We have put a nice road in to Pogo. The road is now complete I understand so that we will start to ship the materials into the Pogo site during February and during March.

On Highland Valley, as you have seen, we've had a labor settlement there after four months of negotiating with the Unions, the contract actually expired on the 30th of September last year. It is a generous settlement, I think it's a very fair settlement, considering that the Union hasn't had an increase for six years. We have given them five, three, three wage increases for the next three years, three-year contract. And, also, a significant increase in their pension provision. We have also announced this week that we intend to acquire the 33.6% of Highland Valley from VHP under our first refusal, that will cost $73 million, but we see this as a low-risk way of increasing our exposure to copper at what looks like a very strong, start of a very strong cycle for copper.

I would just like to add one further thing, and that is, as you saw from our press release and from a statement that we made yesterday, we did have an explosion on Monday evening at our KIVCET facility at Trail. Fortunately, nobody was injured, but it has done, obviously, damage. The KIVCET is now being cooled down. We will not be able to access the reaction shock, which is where the explosion occurred, probably until tomorrow morning. And at that time, we will start to see what damage has been done. We believe that there will be damage in the boiler system, which is the top of the reaction shock, because that's where the explosion would have exited, but at this time we really can't say what the extent of the damage is or how long the KIVCET will be down.

What we are able to say is that the zinc production will not be affected and we believe that we can run both our femurs, which send zinc back from the slags to the zinc partly, we believe they both can be run. That means that we can also still produce speciality metals like geranium [ph] or indium. However, it will affect our production of zinc -- sorry not of zinc but of lead and it will affect our production of precious metals. Those two will be affected by this incident.

And that's all I have to say and now I welcome your questions. Thank you.

Operator we'll go to the question-and-answer session.

Thank you. This is the conference operator. The question-and-answer session will now begin. If you wish to ask a question, please ensure you are not on speaker phone, then press the number one on your touch-tone phone. If you wish to leave the question queue, press the number sign. If you have any questions, please press one now.

Operator?

David Charles, GMP, go ahead, please.

Yes, good morning, David. Pretty spectacular performance from Red Dog, of course offsetting a lot of the problems that you face with treatment charges at Trail. I'm just wondering, given the performance, you typically have strong performance in the fourth quarter for Red Dog, how should we -- what type of guidance are you willing to give going forward? I mean, can Red Dog do something like $200 million in operating profits a year at current zinc prices or higher or lower?

Thanks, David. As you know, we don't normally forecast, but I think I would answer your question by just saying that at the end of December, our inventory available for pricing this year is about 247,000 tons contained zinc. That compares with about the 200,000 that we sold in the fourth quarter. And that's about the same as we had last year. We had about 245,000 tons available. So we still have got the same quantity available for this shipping season left to price and that pricing normally occurs in the first -- mainly in the first six months of the year. There is a bit of a carry-over because Trail is still using it in the third quarter but other third parties are all purchased by the end of June. And our lead position is that we have only about 3,000 tons left out of the shipping season against 12,000 this time last year. So that gives you an idea of what we have to price. And then if you select your own price, you can do your own calculation, David.

Just maybe another question. Just two quick questions, then. On Highland Valley Copper, I mean you had again an excellent fourth quarter as you said, you benefited from an excellent increase in the copper price. Going forward, this looks in fact like an excellent acquisition. Can you maybe explain other than the fact that you were just adding on to something you already owned? I mean, do you believe copper prices are going to stay here or go higher or is it really driven by the fact that you think treatment charges are really going lower or going to stay as low as they are?

I think we calculate that the price at $73 million was probably based on prices of our own 90-odd cents [inaudible] plus an FX of around 75 cents. So that's what we think we're buying on. We think at this stage of the cycle that's quite a sound purchase. So if you run the payback on it, if you were hedging today and forward on it, you'd probably get a pretty fast payback on this investment.

And maybe just one question, a lot of investors ask me -- I mean you've gone through some of your -- the things the strategic things that you want to do this year, corporate developments, I mean from a strategic perspective, what do you think you could happen in the next 12 months? As you know, I've always maintained that you might sell your gold assets given that you're basically 10% of your business now, is that still a possibility? I mean, Kaminko are looking to do something with theirs and I'm wondering what your view is.

As you know, we regard the gold business as very much of an exploration business for us. And if we get a first-class quality deposit like Pogo, then obviously we hold it. And under our agreement with [inaudible] we have to develop that mine. So that's not available for sale at any rate. But on other deposits that we have, we're always to people talking to us about them. On the other hand, we're spending quite a lot of money on gold exploration. So about a third of our budget goes -- of our exploration budget goes into gold and our success rate in gold is quite high.

Okay. Thank you very much.

You're welcome.

Ernie Nutter from RBC Capital Markets. Go ahead, please.

Good morning, gentlemen. Just a quick question. Looking at how Teck Cominco's changing Antamina in now, Red Dog and Cajamarquilla are really U.S. dollar cost base, Pondera coming on, Pogo. Is there any pressures or thought to Ala Noranda and Falcom, I guess switching to U.S.-dollar reporting.

Well, Ernie, we have looked at that in the past. I don't think we've looked at it for about a year now. And for various reasons at that time we decided that what we didn't see a great advantage in going that way. We had been consider -- we did at Cominco before the merger we seriously considered that because we thought we were disproportionately weighted to U.S. dollar sourced assets. At the moment, with the Elk Valley swinging us more into Canada again, I'm not sure there's an overwhelming reason to move.

Okay. Thank you.

Terence Ortsland from TSO & Associates, go ahead, please.

Good morning, David. Just to complete David's question on the Highland Valley Copper, you used 90 cents [ph] copper, that affects about 75 cents, what do you see is the assumed for the long run.

This is not our assumption, this is our calculation of how you get to that $73 million price. I think we started at 45 or four, something like that for this year and then we build it up. So we didn't actually assume that the treatment charges would stay low. We took them up. Even though I think internally, we don't see that happening in the short run. Obviously these pendulums swing back eventually, but right now looking at the next year or two it looks pretty tight.

Okay. That's fine. Actually, what is the book value of HBC in your books.

We'll have to review that for you.

While you look at that, actually, could you go back to [inaudible] and assume that the top of the border is gone, engineering-wise how long would it take before you can -- how long before you get the permit or whatever for inspectors to look at it?

Well, I'm not an engineer so I can't answer that, Terence, but there was an incident at Port [inaudible] some years ago which had a KIVCET and we don't know if we have a similar situation or not, and that was an explosion in their boiler and they took about six weeks to come on. But that's just what happened there. So today we really can't give any indication.

Okay. And David while you're looking at also the HBC, what's the Capex number for 2004 and the major components?

About $175 million for 2004. Largest single component will be Pogo, so in Canadian dollars we're about $55 million for Pogo. We have about $25 million for Trail, we have about $20 million for Red Dog, and we have I think $14 million for our share of Elk Valley coal.

I'm sorry, share of what?

Our share for Elk Valley coal.

Elk Valley coal, all right. And my other question is on Antamina. Could you go a bit more in detail about the 2004 grades and tonnages we expect. I think there's a lot of cryptic remarks in the tax, maybe we should go more direct to this issue about production figures for 2004 in terms of the grades. And maybe you can make some remarks on the recoveries as well.

Well, our numbers for Antamina are quite repetitive because it really depends on how fast these sediments are cleared, the target is to clear it by June. If it's slower, then we'll have more zinc. If it's quicker, presumably we'll have a bit more copper. These numbers are very much subject to change, but we know where we would want to be mining once those sediments are clear and that would be high copper, virtually very little zinc. That would be our preference in this market. And we would have the ability to access that. So what we've indicated there that we think that copper will be up on that basis, clearance by June about 40%, but zinc will be declined probably by 50%. But these numbers are very much -- I emphasis subject to change.

Sure, sure. But assume because your [inaudible] doesn't matter. Once you get the sediments cleared, what would be your copper grades, whatever that is, it doesn't matter.

Can you answer that question?

Can I give it to you sometime by e-mail or whatever because I'd have to verify those numbers.

Sure. Sure, sure.

I think what David is saying is that we expect a significant shift in tonnage from copper zinc ore to copper ore and this last year we've been running probably around 65% copper zinc ore and the balance is copper. We'll probably be somewhere's around 55 to 60% copper ore with the balance zinc, that's why there's a significant shift. It's not so much grade as the tonnage of the copper ore that will be going through the mill. The grade is certainly a factor.

Okay. And what were the [inaudible] grades in 2003 for zinc and copper.

Zinc is probably around 50, 54, 55 and copper would be around 27, 28.

I'll give my e-mail to Tom later and also the HBC whenever you have a chance.

The HBC number, are tearing [ph] value for the plant and equipment and this is before, before the acquisition is about $150 million.

Canadian?

Canadian.

Okay. Thanks, John. Thanks, David.

Thank you.

Haythan Hodaly from Salman Partners. Go ahead, please.

Good morning, David. Let's start with Red Dog a few questions. The first one is, is the Red Dog zinc grades and recoveries look like they improved significantly in the fourth quarter. Do you expect that to be maintained or better yet, can you give us an idea of what your budget grades, tonnage and maybe even recoveries look like for 2004?

The grade changes from quarter to quarter, so the fourth quarter is not an indicator, the grade for next year is roughly the same as it was for this last year.

About 22% was it, 21.5?

Just a little under that.

21.

21, yeah.

And what type of tonnage are you thinking of putting through in terms of throughput.

About the same as this year.

Okay. And, although the treatment charges and the refining charges have decreased over the last year, transport charges have increased, can you give us an idea of what your transport costs are either per ton of ore or per ton of payable zinc, David?

Well, we do have contracts for a large percentage of our shipping, so these are long-term contracts which have escalated in them. But we're not at the moment subject to the spot-to-spot market to the extent that you would expect. In terms of ton distribution costs, and I don't have them in front of me, but my memory is that they're about 6 cents per pound.

Okay. And is that a blended rate? Because obviously some goes to Trail and the other goes to -- 30% if I recall, go goes to Trail and about 70% goes to Asia and Europe, so is that the blended rate you're giving.

That's the blended rate, yeah.

So realistically the material going to Europe and Asia is probably 7.5 to 10 cents a pound, in that range?

No, I don't think it's that's the right number.

Okay. Okay. Fair enough for now. Could you give us an idea of what your tonnage and grades are for each of David Bell and Williams going forward, just trying to figure out how many tonnage is coming from each given the difference in grades.

I know what the grade is at David Bell because they are mining at average grade, which is about 10 grams but I'd have to look at the details to give you the tonnage figures for each property.

And Williams, is that above -- ?

Williams residual grade is not very close to what they're putting through. It's around four grams.

Perfect. And I guess as the grades continue to decrease as more materials source from the open pit, more lower grade material, I guess source from the open pit, what are your plans there?

We're planning to expand the open pit.

What potentially could you expand throughput to?

We're not going to expand throughput. I think throughput is about 10,000 tons a day and we'll keep it at about that level, just maybe over a little 10,000, so throughput will stay constant but over time more and more pit ore will make its way into the mill.

Now, is that ore continuing to decrease, or are you seeing some higher-grade areas?

The pit grade is about the same it doesn't change and also the grade from Williams will be about the same, somewhere's around four grams over the next three, four, five years. Because Williams is now very close to the residual grade that's left in the reserve and so is David Bell.

Okay. .

That's for the underground deposits.

The 10,000 is the [inaudible] of the whole.

Yeah.

That is that 10,000 reference for David Bell Williams and the open pit.

Perfect. That's fine. No, I understood that. A couple other questions. Could you outline what's been happening at the Lennard Shelf? I know you're looking at a redevelopment study, can you give us some idea of when that redevelopment study could come out.

Well, into the rainy season now so not an awful lot of work going on, but as soon as the rainy season has ended we will be doing some exploration and we have started a redevelopment study, which will be probably available later on in 2004.

Okay. And one last question, I guess your reserves and resources, your numbers that are expected to come out, I imagine they'll come out with the annual report. Do you anticipate any significant changes, and given the change in the commodity prices, the increases that is, are you making any adjustments to the mining plans these days?

There's been no material adjustments to the mining plants.

Perfect. I'll give somebody else an opportunity to ask questions. Thank you.

Greg Barnes from Canaccord Capital. Go ahead, please.

Yes, thank you. David, there's been a lot of forecast now of pretty substantial deficits developing in the zinc market this year, something over 300,000 tons, I was wondering what your view is in how that's developing, certainly stronger markets that we seem to be getting now.

Yes, our internal forecast for this year at present is about 300,000 ton deficit for the zinc market, so that should result in decline on the Alamede. We are seeing obviously a very strong market in Asia driven by China, because all the Asian countries and including Japan are benefiting from sales into China. So in fact Japan is actually quite strong at this point in zinc demand. In the United States we also noticed quite a strong pickup really in the last three or four months. And that's reflected in the higher premium, premiums are now rising, which have been very depressed in the U.S. because U.S. has really been the market where the surplus is being put. They have risen from I think of a low of about 2.5 cents, six to eight months ago, nine months ago, they're up to 4, 4.25 since now on the premiums. So that's a very good indicator that the market is tightening in the United States. And if that's the case, then sooner or later you will start to see releases of inventory from the warehouses on the Alamede warehouses in the United States.

The zinc at the moment is predominantly in the United States, it's much less in Europe and in Asia. It's really in the United States. So, we hope to see the inventory starting to flow out of those U.S. warehouses. It has been flowing out in Europe. I looked at the numbers before coming here, Europe Alamede warehouses peaked two years ago at about 4 million tons down to 115,000 tons now and Singapore is coming down pretty steadily. It peaked about eight months ago at 230,000 tons, down about 157 now. So we're seeing in the markets where the Alamede warehouses are located, we are seeing drawdowns except in the United States and we have to see them come quite shortly.

Thank you. I may have missed it, but have treatment charges for this year been settled yet.

No, they're not settled yet, but they're certainly going to go down.

Where do you think they're going to level out at, can you give us some kind of range.

I don't think I'd like to indicate that at this point.

Okay. Thanks very much.

Steve Bonnyman from CIBC World Markets, go ahead, please.

Yeah, good morning, gentlemen. A couple of questions on the coal business. First on the cost side. You'd reported coal costs at $51 a ton for the quarter yet Forting [ph] is reporting costs of $46.90 for the same production. I wonder if you can help me reconcile that? And as a follow-through to that, two other parts, the depreciation rate for the fourth quarter, is that a new run rate going forward or is that just a year-end adjustment. And the last part on coal would be synergies. Can you give us an idea of about what time we're going to see the reevaluation of what the synergies were, what gains were there and what affect that might have on your ownership of the coal business.

Yeah, I'll answer the last question first. We expect to see our numbers on synergy, because the synergy works to a coal year, so the coal year ends on the 31st of March and we would expect to see numbers on that probably by the end of June this year. So that would be the first indication. And, therefore we would be reporting on that probably in July. On the other numbers, John Taylor will answer you.

Steve, the main differences that we include depreciation in our cost numbers and I think the Forting number's just a cash-cost number.

And the middle question on the depreciation rate, are we establishing a higher run rate, or did we just look at a year-end adjustment with a higher DD&A in Q4.

Do you know the 9 million against six in the previous quarter?

We'll check.

I'm sorry, I missed that.

We'll come back to that.

We'll have to come back to you on that question.

Thank you very much.

Lawrence Smith from TD Newcrest, go ahead, please.

Good morning, two questions. The first, in one of the notes to the financial statement it mentioned, I think it was a $8 million adjustment due to changes in revenue recognition. Could you just explain what that is? And then also on Red Dog, you mentioned settlement adjustments at Antamina in the quarter. Was there any effect of that in Red Dog's numbers for the quarter?

I'll answer that last question first. On Red Dog, it wasn't that great. It was about $3 million for the quarter. The reason for that is that we didn't sell a great deal in the previous quarter, because that was really -- we have late shipping and really September is the only month that we really start to sell product and there wasn't much to reprice in the fourth quarter.

Thank you.

Larry, can you go by that first question again, we missed it.

There one of the notes to the financials talked about an $8 million adjustment in Q4 and I think it related to a change in revenue recognition policy? Am I reading that correctly?

That's right. What we did was we conformed the way we recognize revenue at all the operations. In the past, we had slightly different formulas for determining the timing of recognizing the revenue. They were all within GAAP, but they did vary, and some of that was because we had joint-venture partners and there were historically just different timing for recognizing the revenue. So what we've done is standardized that now so we recognize it strictly when title passes.

So that $8 million adjustment, where would that have shown up in the statements?

That would have shown up in operating profit.

So it would have gone against the cost of operations, basically, or, I guess a revenue adjustment.

It would have been a revenue.

Okay.

A revenue adjustment, yeah.

Thank you very much.

If there are any further questions, please press one on your touch-tone phone. And Michael Fowler from Desjardins Securities, please go ahead.

Yes. I don't know if you've discussed this, but Lennard Shelf, what are your plans for that project?

I did get a question on that.

I'm sorry.

That's all right. I said that we were -- it's a rainy season now so there's no work going on. After the rainy season ends, we will start exploration in that area. We are also doing a development plan, which will be available later on this year.

Okay. Thank you.

There had been a question on whether or not the depreciation adjustment which went through in the fourth quarter for Elk Valley would continue at the high rate and, it won't. That was a one-off adjustment. Really we were reconciling our purchase equation. So, about $2 million of that is just one-off.

Operator, any more questions for us?

Yes, Steve Bonnyman from CIBC World Markets.

Hi, I guess I'm back again. Two brief questions if I may, then, one on the trail side, when KIVCET down does that release excess power in any material sense for you to sell and with it down would you contemplate in fact maybe idling some zinc capacity with rates running sort of at the $43 to $46 megawatt hour?

KIVCET itself doesn't use a great deal of power. The oxygen part does, the supply to KIVCET, we'd have to look at our contract there, but KIVCET itself doesn't use much power. At $43, it doesn't really pay us to idle out any zinc. We did choose to put that pressure leach down in September because we did have some high forwards I think it went into the 50s for that. But, generally speaking, at these prices, it wouldn't pay us to switch from zinc to [inaudible].

And the last question if I may. On Antamina, your consolidating now. Has the Antamina partnership actually paid any distributions at this point and, if not, do you have any idea when those might be expected?

No, it hasn't paid any distributions yet. It's cash flows are really at the moment concentrated on the project debt. The project debt principal payments are -- 100% of Antamina are $140 million U.S. a year, so that is taking -- or has up to now, taken most of its cash.

Thanks very much.

Operator, thank you very much. We can close it down now.

All right, thank you. This concludes the Teck Cominco conference call. Thank you from TELUS.

Thank you very much indeed. We look forward to talking to you again in April. Thank you, bye bye.