Teck Resources Ltd (TECK) 2004 Q2 法說會逐字稿

(OPERATOR INSTRUCTIONS) Welcome to the Teck Cominco second quarter 2004 investor relations conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. This is a reminder this conference call is being recorded on Tuesday, July 27th, 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 thank you for joining us today at our second quarter 2004 investor conference call. With us on the call today are Norman Keevil, Chairman of Teck Cominco; David Thompson, Deputy Chairman and Chief Executive Officer; John Taylor, Senior Vice President and Chief Financial Officer; Howard Chu, our Controller; Doug Horswill, Senior Vice President of Environment and Corporate Affairs; Mike Lipkewich, Senior Vice President, Mining; and Roger Brain, Senior Vice President, Marketing and Refining.

This morning, David will review the results for the second quarter of 2004. Following his comments, we'll open the lines for questions.

Please note, the call is also being web cast and can be accessed at our website at www.teckcominco.com. And an archive of the web cast will be available there as well. 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 web cast link.

Before we start, I'd like to remind everyone that some of the information in this call, and 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. Thanks.

At this point I'll turn the call over to David Thompson, Deputy Chairman and Chief Executive Officer.

Thank you, Tom. Good morning, ladies and gentlemen, and welcome to our second quarter conference call. I'll start the slide presentation on slide 3. And the slide numbers are shown in the bottom left hand corner of your screen. Slide 3 shows the highlights for the quarter, which is our net earnings of 116 million or 60 cents per share, as compared with 9 million or 40 cents per share in the second quarter of 2003.

Slide 4 shows the second quarter overview. Our earnings have increased progressively over the last few quarters. We are 20 million ahead over quarter 1 of this year. We are 160 million against 96 million in that quarter. That is after the higher tax charge.

So our tax rate rose from 34 percent in Q1 to 39 percent in Q2. And that accounts for an additional 10 million. That's because the proportion of our income from Canada rose in the second quarter, and was conversely reduced out of the United States from Peru. That accounts for that increase in that tax rate.

The cash-flow for the quarter was 246 million, which is a record. That enabled us to reduce our net debt by 123 million for the quarter and our net debt ratio -- that's net debt-to-debt plus equity -- has declined from 25 percent in March to 21 percent at the end of June. The most important event of the quarter was the (indiscernible) of our direct ownership in the Elk Valley Coal partnership as a result of the ability to achieve synergy.

Our position in the Elk Valley Coal partnership will increase from 35 percent from April 1, 2004 to 38 percent. 8 months later from now we will get a further 1 percent to take us from 38 to 39 percent. And 12 months later, we will receive a further 1 percent to take us to 40 percent.

This is the result of the synergies that were outlined to be targeted at the time that the partnership was formed. And it's a credit to the management of the coal partnership -- to Jim Gardner, when he was CEO until his retirement in February; to Jim Popowich, who is presently CEO; and to all the management and employees of the partnership; and also, to Mike Lipkewich, our Senior VP of Mining, who has played a very strong influential role in achieving the synergies.

I would like to move on now to slide 5. In this presentation, we thought it would be more meaningful to compare quarter 2 against quarter 1, because prices are much closer between those two quarters, rather than to do a normal comparison of one year to the next.

In terms of this slide, the LME prices for zinc and copper in U.S. dollars are showing on the left-hand side of the slide and the equivalent in Canadian dollars is shown on the right-hand column, the gold price of the Lemon (ph) gold fix and the actual coal price that we've received here during this quarter. But only in coal do we allow for hedging things.

As you can see, the Canadian dollar actually weakened 3 percent during the quarter. And therefore, the impact of the results of the zinc price, which actually fell 4 percent in U.S. dollars, was only 2 percent in Canadian dollars. So, we have benefited from some Canadian dollar weakness. Copper, in Canadian dollars, rose by 6 percent and coal was up 14 percent for the quarter against 2000 and for first quarter.

Moving on to slide 6, this shows our operating profit by the refinery and by mine. Operating profits were up 46 million from 183 million in Q1 to 229 million in Q2. This is after taking account of several (ph) adjustments. This occurs in the sale of concentrate when ownership has transferred before the end of the quarter.

Yet the final pricing is determined in the next quarter. So in quarter 1, when prices were rising strongly, total positive settlement for (indiscernible) was about $25 million, whereas in quarter 2, as a result of the price decline in April and May, we had a negative adjustment of $18 million. But, despite that, we were 46 million ahead for the quarter.

The three main contributors to the improvement are Trail for 32 million better; the coal partnership, which was 24 million better; and Highland Valley, which had a 14 million improvement.

The offset was at Red Dog, where profit declined by 28 million for the quarter. And that was due to the much lower sales that we always get in the second quarter, as our inventories from the previous summers' shipping season are largely depleted.

Moving on, slide 7 shows you the Trail results for the quarter -- 47 million against 15 million in quarter 1. Pass (ph) improved about that amount by 3 million, from 9 million to 12 million. That was despite the seasonal decline you usually get in the power price. Power price went down from $42 per megawatt to $39 per megawatt in the second quarter. But our volumes increased from 234 gigawatts in Q1 to 314 in Q2.

The main change, of course, is in metal operations. That increased from 6 million to 35 million. Now, the 35 million does include 7 million, which is really attributable to the first quarter, because we obtained part of our final settlement on our business interruption insurance as a result of the explosion in quarter 1 and received 7 million in this quarter. So if you adjust for that, metal operations profits were 28 million for the quarter.

Certainly, if you adjust quarter 1 for the impact of the explosion, that 6 million would affect the 9 million it would cost us to rectify the damage, and the 7 million of business interruption insurance. So we would have a number of 22 million for quarter 1, and against 28 million for quarter 2. And that is, I think, a more true estimate of how Trail is doing now. We're seeing to typically produce 25 million per quarter, at least at these current prices.

In terms of the difference of the 28 to the 22, the largest single difference is in specialty metals where we have a 3 million improvement. We also improved in fertilizer profits, which increased by 1 million. And of course, our precious metals were higher in this quarter than they were in quarter 1.

It's worthy of note that although Trail is the third-largest zinc refinery in the world, zinc revenues this quarter were only 44 percent of the metal operations revenues, i.e. excluding power. Even excluding it, zinc was only 44 percent. The other 56 percent comes from precious metals at 25 percent, fertilizer and chemicals 10 percent, lead 10 percent and so forth. In other words, the diversification of Trail is working. And we are getting a much more consistent stream, hopefully, in our profitability as a result of it.

Moving on to -- slide 8 shows Cajamarquilla. Cajamarquilla operating profits doubled from 4 million to 8 million between the two quarters. And for the first quarter, we had trouble with a roaster. We had a roaster that was out for 11 days. And a result of that -- sales and production in the second quarter are higher, as the plant was running normally. The sales were up 3000 tonnes. And also, we had higher sales of acid and silver from Cajamarquilla. So those accounted for the improvement at Cajamarquilla.

Slide 9 shows you Red Dog. Red Dog down, as I said, from 38 million to 10 million for the quarter. Here again, the several adjustments play a part in the first quarter of this year. We had a 10 million positive gain in the 38, whereas in the second quarter we had a negative 4 million. So you are really comparing 28 against 14. And that's really as a result of the lower sales of zinc down from 132 to 96,000.

Looking ahead for Red Dog, we have opened the shipping season slightly early this year. We have the first ship away on the Fourth of July. We were then held up for about 9 days by weather. But since the middle of July, we are having a very good shipping rate. We are on our 7th vessel out of 24 for this quarter for this shipping season. And things can vary a lot at Red Dog due to weather, but it has opened considerably better than last year.

Last year we sold 320,000 for the half-year, the second half of the year. Of zinc, we've sold 130,000 in the third quarter, 190,000 in the fourth quarter. We think that if this shipping season holds, our rate will be slightly higher than that in the -- for the second half of the year, although it's too early to determine quite how the numbers will break between the two quarters.

Moving on to slide 10, Highland Valley copper. Highland Valley copper has been the largest single contributor again this quarter with an operating profit of 79 million, against 65 million in the first quarter. Again, several adjustments -- 6 million negative in this quarter against 10 million positive in the first quarter. So you are really comparing 85 against 55.

In terms of the Highland Valley cost of this quarter, we consolidated 3 months of the 34 percent interest that we purchased from BHP. And that accounts for 26 million of our 79 million earnings for this quarter, whereas in the first quarter we only consolidated 1 month. And that was a 10 million contribution for that month in March of the first quarter.

The big difference, really, in Highland Valley this quarter is the impact of moly. Moly sales were higher than the first quarter at 2.5 million pounds against 1.9 for the first quarter. The price is up from just over 8 dollars in the first quarter to $15 in this quarter. So our revenues from moly jumped from 16 million to 50 million and that is the single strongest difference between the two quarters.

Slide 11 shows you Antamina again affected by revenue adjustments. The revenue adjustments for Antamina was a negative 8 million for this quarter. And it was positive 5 million for quarter 1. So you are already comparing 39 against 30. That is reflective of the higher sales rate. Sales rate for copper was up from 52,000 to 81,000 on a 100 percent basis. And zinc was also up, from 50 to 70,000.

Going on to Hemlo, which is shown on slide 12 -- had a good quarter. Production up from, on a 100 percent basis -- from 122,000 to 133,000; up largely as a result of the improvement of grade 4.7 to 5. Operating profit up from 8 to 10 million as a result of that, and cash costs in US dollars down as a result of that higher production -- from 285 to 239 US dollars per ounce.

Slide 13 shows the coal partnership. Coal partnership's up from 15 to 39 million for the quarter. Of that, 3 million is due to the increase in our percentage ownership of the coal partnership -- direct interest in the coal partnership from 35 percent to 38 percent. 3 million of that 39 million is due to the change in ownership.

The big change, of course, is the improvement in the price by 14 percent in Canadian dollars, and by the higher sales rate. Sales rate was constrained in the first quarter because of rail problems and the inability to get the products to the coast. So we only sold 5.6 million in the first quarter. In quarter 2 we sold 6.8 million and so the combination of bottom line price means a significant improvement in profitability, despite providing for additional transportation costs in this quarter.

Slide 11 shows us cash flow and CapEx for the last 5 quarters. The 246 million cash-flow for working capital change is 440 percent higher than Q2 of '03. And I think a feature of our cash-flow is that, whereas we are benefiting certainly by high prices for copper, we are benefiting less so from our other two major metals, which is met coal and zinc.

If you look in Canadian dollars at each of those three, metals and materials, if you compare our current price in this quarter against the 10-year average, in copper we are 33 percent above the 10-year average. In met coal, we are about 10 percent above. In zinc, in Canadian dollars again, we're actually 5 percent below. So, we're not actually enjoying, at least in two of our major metals, much of a cyclical peak here.

In terms of our capital expenditures, they remained relatively steady -- 50 million for the quarter. The largest single one of that is Pogo at 15 million. Elk Valley was 12 million and Pend Oreille was 5 million, including 2 million of capitalized operating loss. We see CapEx for the rest of the year at about that rate and was a 105 million we're projecting for the next 6 months. The largest single component of that would be Pogo at 50 million and Elk Valley at about 20 million and the remainder would be spread over Red Dog, Trail and Highland Valley.

Moving on to the final slide which is -- sorry, the announcement slide, which is slide 15, which shows liquidity. Working capital -- up 258 million from December, largely due to a buildup of cash balances. The cash balance rose 230 million. Net debt was down 266 million, again as a result of that cash down of 741 million. And net debt is now declining 8 points from the December from 29 percent to 21 percent.

Lastly, on copper, developments are shown on slide 16. The Pend Oreille mine has had a slow start up, but is showing significant improvement. We have -- we've been able to solve the problem for underground with the ore passes and the chutes.

We have installed a new crusher in the mill. Unfortunately, the new liner had to -- was the wrong size and had to be replaced. So we didn't really get that crusher until June. Since June, we're running at about 70 percent of capacity. The other crusher is still giving us trouble. And so we may need to replace that, too. But she will be in commercial production from July 1.

The Cheviot Coal Project is making good progress. We expect to finish the road next month. We are online to bring this coal project into production before the end of the year, and to be mining coal there late in the fourth quarter.

At Pogo, there was a successful resolution under the guidance of the Governor of Alaska, Governor Murkowski. And we were able to reach a compromise with the environmental group. We put in 2 new water monitoring wells and agreed to have a committee -- a local committee which we could discuss environmental matters with.

Pogo Project was again slightly delayed by fires in the area during June -- brushfires in the area, which probably cost us about a week. But we're still on target to complete this project in March 2006. That's all I have to say. Now, I would be pleased answer questions. Thank you.

Operator, if we can go to the Q&A part of a call now please?

(Operator Instructions). Alberta Arias, Goldman Sachs.

Good afternoon gentlemen. If you could please provide an update on the zinc markets and the cooking coal markets for the rest of the year, and perhaps for next year?

Certainly. Let's start with the zinc market. In zinc market is very similar to the situation we discussed in the last call. That is, if you take them by region, Europe's still pretty flat, although -- improvements in Eastern Europe and Russia in terms of uptick. United States is strong. It continues to be strong. Premiums have stayed -- and have gone up in the spring and have stayed up. So we seem nearly no change in the U.S. market at the present time.

Asia is generally strong. That means Taiwan, Korea, and particularly Japan. Japan is having a very strong year. Of course, China -- as far as we can see, China's demand stays strong. And all the evidence we have on China is that unlike some of the other metals where there has been de-stocking going on, there is a certain speculation and closing of positions out in China -- zinc hasn't been very much affected.

In other words, the price of zinc in the local market has stayed well over the LME exports pertaining to the West. But they are buying large quantities, particularly from Kazakhstan, so that they are flat for the 6 months in terms of their import of metal. Their imports have matched their import of metal. And they are still buying pretty steadily on the concentrate market.

We can't see any real change in the zinc position. Roger Brain has been there very recently. And he is reporting that everybody internally in China that we're talking to is predicting a continuing strong market for both -- for virtually all products, including zinc, copper, and coal.

Turning to the coal market -- the coal market obviously has been through a very, very strong period. We believe it continues to be strong. There's not much stock coal around. So it's pretty difficult to see where the stock market is for met coal at the present time.

But, everybody is -- inventories are low everywhere. We're shipping everything out as fast as we get it. The ships -- customers are selling ships in as soon as we have coal available. So we see a continuation of every strong met coal market. We look at the thermal coal market, which were not in, but which is a somewhat of a prophecy at times for the met coal market. We've seen thermal prices actually go up in this quarter. So as far as we can see, there is a strong market ahead of us. Thank you.

All right. Thanks.

David Charles, GNP securities.

May be just two questions. I know you disclosed Lake Roosevelt in the quarterly report. But I'm just wondering if you could chat a little bit about it now, and exactly where you are vis-a-vis the most recent filing by the tribal members in the U.S. on Lake Roosevelt.

And I suppose the other question I have is that -- this is a painful one I know. Given the enormous success you have had in the last couple of quarters, I mean 3 record quarters in a row -- I suppose looking ahead, one of the issues that TECK is faced with is that, David, at some point you may have to step aside. I'm just wondering, where are you on the succession search?

Well, thank you David. Firstly, on Lake Roosevelt -- I will hand that over to Doug in a second. But I think on Lake Roosevelt, our status there is that there has been a suit that is being filed by the local Colville tribe on the basis of the EPA requirement for us to abide by surplus.

In that -- in the press conference that they gave, they said that one of their problem slots was the offer we had made previously to produce -- or to fund the study. The 13 million that we have offered the EPA would not be up to the quality of the EPA's normal standard.

That is a complete red herring. We have had extensive negotiations with the EPA on the science of this project. And never once has anybody ever questioning the scientists who are -- world-renowned scientists were using, and who frequently work with the EPA.

So, this is always a red herring which has been repeating -- which is again being repeated in the state that we're not going to match the quality EPA -- that is quite wrong. I would like to now turn this over to Doug.

Thank you David. I guess the filing by the tribe -- their standing into the EPA's shoes to seek a District Court to enforce the order -- while a disappointment, was not a surprise. They had provided the notice periods and so on.

The tribes have been reluctant at best, and opposed at worst, to a negotiated solution. We still prefer that option. We're still ready to undertake the offer that we had made to the EPA, which was to study it, as David described, in a manner that would be satisfactory -- that would satisfy all of their technical requirements. And then to do clean up attributable to our operations should that be necessary.

Canada remains on track to try and develop a negotiated solution with the government of the United States. It's not with the EPA, it's with the government as a whole. We know that there have been extensive interagency meetings in Washington to respond to a Canadian proposal. We anticipate that that will occur in the near future. But what near is, we really don't know.

We will be bringing the matter to the attention of the new cabinet and continuing to work with officials to try and formulate a bilateral agreement under which this can proceed, instead of in fact proceeding under a fact situation where U.S. legislation is applied against a Canadian operation north of the border.

I hope that answers your question, David?

Yes, is there any way you could give us some idea of what your liability exposure might be on this -- at this time?

No. We're not in a position to really say that, David. But, the purpose of the study -- the 13 million pre-output was to determine whether it was a problem. This slag is 97.5 percent sand and iron. There's very little heavy metal in it. And that heavy metal is intrained in such -- in the lattice of the molecules, that it's very difficult to get it out. That's why it got through a whole furnace and didn't come out.

We don't believe -- we don't really believe that there's much of a problem with this product. It's not a hazardous substance. We sell it in the United States. We sell it in Canada for raw materials and so forth. So we would like to -- that's why we want to spend this money on this study, because we -- I don't think many of our scientists -- most of our scientists don't really believe that there is any health danger whatsoever to this.

And just to build on that point, the Washington State Department of Health has written a letter -- and did previously to the tribe, indicating their view that there was not a human health problem -- very low risk of any human health problems.

So, until we establish that, it's impossible to give any estimates about what liability might imply. The studies themselves with take 5 years if we are -- once we can get them started, our estimate is about 5 years to complete. So, it won't be until after that period that we can really establish what clean up, if any, is required.

Thank you. And maybe just on the succession?

Well David, I think we've told the market that I will retire at the end of this year or sometime next year -- early next year. So, there is a search now underway for a successor. In due course, there will be a successor appointed.

So, you can't expand on that at all?

I don't plan to, no.

Okay thank you.

Terence Ortslan, TSO & Associates.

Could you remind us that in fact your capital requirements for next year -- there isn't much left except Pogo, I guess? And just rehash the numbers for a second, (indiscernible) here David you went through it a bit fast, in the distribution of Pogo versus the other ones.

Well, sorry I went a bit fast. For this year -- the second half of this year, we are estimating 105 million, of which 50 million will be Pogo, 20 million will be Elk Valley and then the rest is really broken up with the normal largest ones, and then our Red Dog and trail and so forth from then on.

In terms of next year, the projects will be Pogo and Elk Valley -- particularly if we're doing the stage 2 of Cheviot. If we do stage 2 of Cheviot, our contribution there will be about $28 million for stage 2 of Cheviot.

At Pogo, our budget for next year, from memory, was about 100 million for Pogo. Beyond those two next year, we would have just sustaining capital. And sustaining capital would probably be in the 70 million range for the rest of the sites. So, you would be looking at around -- a sum of about just over 200 million, I think, for next year.

So you're not -- like (indiscernible) your competitors (indiscernible) big projects because the cycle has changed?

No. We're not pursuing big projects. That's not because we don't want to pursue them. But really, the ones we have in our book at the moment are not that capital intensive. They are high return projects.

And the Cajamarquilla expansion, anything on the back -- on the consideration on that?

Not at the present time. We think we are in, right at the moment, for the next couple of years -- still a tough refining market, in the sense that treatment charges are unlikely to rise. And certainly in the short to medium-term, the Chinese demand for concentrate I think is -- we don't really see diminishing. In fact, we see it increasing. And therefore we see that the concentrate markets will be still under quite severe pressure. In other words, a downward pressure on treatment charges.

A wise decision. Just coming back to the -- your capitalization in the balance sheet, terrifically you can pay your entire debt in no time. But, what is the right debt equity ratio that you want to pursue in terms of cost of capital?

Well, our bracket is 20 percent to 35 percent net debt-to-debt plus equity. So that's where we would be comfortable being in. Now, if you are in a stronger markets, that's -- obviously, the percentage will go down below that, just like it went above 35 temporarily early last year when we did the folding transactions. So, it will swing. But at this point in the cycle, we would see it going down below 20. And we would build some cash. There are some obligations that we would like to -- will have to be -- are due for repayment in the next 2 years. So that will have to be dealt with, too.

With the excess cash, David, then, what are you seeing in terms of coming through the door -- projects or acquisitions?

We still see a fair quantity of possibilities. But of course, the prices and expectations have changed. So we're still actively looking.

Okay. My last question actually on Antamina -- that's one that no matter how you look at it, it is not performing up to the Teck Cominco standards in terms of return on capital and on the equity. Given that May was a turnaround point in second quarter (indiscernible) came back, and the second half you're going to see better copper numbers, do you see Antamina ever getting any what where near -- because (indiscernible) get the cost numbers from you guys. Okay? I don't know what cost numbers are. You set aside on what else is to be done with Antamina to get to the proper bracket of returns for Teck Cominco?

I think we've been through -- Antamina has been through a difficult period because of that sediment removal. So until you really got rid of that sediment, you really didn't have the ability to go, if you like, flat-out. Now, what we hope to see in the next 12 months is, we hope to see quite a significant improvement.

Firstly, because we can access copper much more freely then we could when the settlements were there. I think the next 12 months will be quite an important indication of just how good Antamina is. In terms of cash generation, it is beginning a cost to generate as it should, with this copper price, quite strongly. So we think that we would receive, or we hope to receive in September, our first really decent payment of -- as an equity or subordinated debt holder, rather than it all going to the banks.

And what cost numbers would you be happy with on Antamina in the next 12 months, David?

Say what?

What cost figures -- operating cost figures would you be happy with?

Well, our target for cash costs was 40 cents. Actually, we are (indiscernible) for that credit -- we are already there, at least in the last numbers I saw that were just below 40 cents. That's with (indiscernible) included

That's going to get better because they are going to have more copper in the next 12 months.

Yes, it should be better.

Okay. Thank you.

Gary Smith (ph), Hayward Securities.

(inaudible)

Gary Smith, Hayward securities, please proceed with your question. There are no further questions in the question queue.

Okay, Operator. Thank you very much. Thanks to everyone for joining all -- (multiple speakers)

Sorry, sir. We do have another question.

(laughter)

Brian MacArthur, UBS. Go ahead sir. I'm sorry -- Steven Bonnyman, CIBC World Markets Corporation.

David -- question regarding Trail and the blend of inputs going into the smelter over the next, for example, 18 months. You're getting -- the feed that you purchased -- the Red Dog feed, you're getting Pend Oreille. How will the residues and the slags fit into that mix going forward, in terms of percentage of feed and possible impact on the cost structure?

Well the main difference is, of course, Pend Oreille coming in, because Pend Oreille is low iron, high germanium. So that's an important feed for Trail. At target on residue reduction -- in other words, the quality of residue we want going through the furnace chipset is to drop out, to reduce our stockpile by 15,000 tons per quarter, 5000 tons per month.

We actually did that in this last quarter, which is the first we'd done for many quarters. The reason for that was really not so much the impact of Pend Oreille, but it was more the impact of chipset running well ahead of the (indiscernible) capacity. So in this quarter, we were up to 1350 tons per day. And our design is 1208. So we had about a 12 percent improvement in chipset.

That's going to be critical. If chipset is -- if we can keep chipset at these sort of levels, and management is pretty confident they can hold it, then we can really make quite an impact on the residues. And then obviously we will be farming those residues, because one of the key things were looking for the moment, with the specialty metal market as hot as it, is indium.

So, we want to get residues of high indium, where we know where they are to bring them through the furnace. So this is the sort of things we're doing. With Pend Oreille on, it should -- it will reduce iron on chipset, and therefore give us a greater ability to handle residues.

What we have to do is -- and we have an operation on or research program which is telling us all the time, is what should we feed in. Because as prices change, including precious metal prices, you can't swing towards a high precious metal content rather than residue. So, this is under -- were continually monitoring this try to maximize our probability. And you can see from these sort of numbers that we are succeeding.

And can you refresh for me the size of those residue stockpiles? Either in -- at existing operating rates, how many quarters they would run for, ore tonnage? When Mike.

Yes, we have 450,000 tons of revenue left residue left that'll last at our immediate target rate. Our immediate target rate is 5000 tons a month. It would last 90 months.

Fantastic. Thanks very much.

Brian MacArthur, UBS.

Was wondering if you could just elaborate on what you mean by your booked provisions for the rail transportation dispute for your account. I.e., did any of it go through the income statement this quarter? Is it sitting on the balance sheet somewhere else, or coming future quarters?

No. We have put it through the income statement. But, it's through the income statement for this second quarter.

Okay. So it's a fully costed transportation quarter, and then going forward its will just be whatever it is under the new contract?

Yeah, we've made provisions because we're conservative. So we just made full provision against that, even though we don't agree with it.

Great. Thank you.

Ian Howard, National Bank Financial.

Can you provide any guidance on the production of zinc and copper out of Antamina for the next the rest of the year?

I think our original advice for this year was about 347 or 50,000 tons of contained copper. And we think that's still in the right ballpark. In terms of zinc, I think we had forecast that we would be -- could go far down as 180,000 tons. Our present thinking is that is a bit too low. It will probably be over 200 for the year, probably -- maybe even a bit higher. To give you some idea, last -- Antamina, in the last half of last year, sold 190,000 tons of zinc contained. In this coming half-year, we think it's probably 80 to 100,000 tons.

Okay. Thank you very much.

David Muller, Maxima Investments Management.

I had two questions. The first one is on exploration. I think you've been doing a lot of work on the Morelos Norte property. And I know you are planning to give us a resource update on that. I wondered if you could elaborate more in timing, and whether it would be reasonable to anticipate that would have maybe gone from -- I think the last number I had saw was 1.5 million ounces to maybe the 4 to 6 or wherever?

And any other exploration projects? And No. 2, on the Highland Valley -- given that good copper prices and -- depending on what you see in the outlook on that, is there some stepping back to the wall and extending of the mine life that can happen there?

Firstly, on Morelos, we had a spring exploration program on parts of Morelos. And we decided to extend that program on through the summer. So we're actually -- have been still drilling there, even though we are now into the rainy season, to complete another tranche of drilling this year.

Once those results are in, which I imagine they will be in by August or September, then we would certainly produce a new geological reserve. So I would think that we would be -- in the third quarter, we would certainly have that out for Morelos. But I wouldn't like to anticipate what that number is going to be.

In terms of other exploration, we are active in Chile and Peru for copper. We're active in the Northwest with diamonds. We have a pretty full exploration program going this summer. And we'll be reporting on that, I think, at the next quarterly conference call.

In terms of Highland Valley, yes we obviously will re-look at our mining plans there. But it's quite complicated. And that's going to take some time. But given the much stronger copper markets and the possibility for stronger prices ahead, that is certainly something that we are actively working on. But it's much too early I think, at this time, to comment on it. But again, I would be hopeful of giving some news, if there is any, in our next quarterly conference call.

Thank you.

There are currently no other questions in the question queue.

Great. Thank you.

Thank you very much ladies and gentlemen. And then we look forward to welcoming you to our third quarterly conference call in October. Thank you. Goodbye.