Teck Resources Ltd (TECK) 2005 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Teck Cominco second quarter 2005 investor relations conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. This conference call is being recorded today on Tuesday, July 26, 2005. I would now like to turn the conference call over to the Director of Financial Analysis and Investor Relations, Mr. Greg Waller. Please go ahead, sir.

Thanks, Operator. Good morning, everyone, and thanks for joining us all at the Teck Cominco second quarter conference call. A set of slides has been prepared to accompany the conference call, and these are available via the Internet on our website.

Before we start, we’d like to draw your attention to Slide 2 in our presentation package. 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. 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.

Turning to Slide 3, speaking on the call today will be Don Lindsay, President and Chief Executive Officer; Mike Lipkewich, Senior Vice President, Mining; Roger Brain, Senior Vice President, Marketing and Refining; and John Taylor, Senior Vice President and CFO. Other members of the management team are also present and will be available to respond to questions if needed. Following their comments, we’ll open the lines for questions. At this point, I’d like to turn the call over to Don Lindsay.

Thanks very much, Don, and thanks very much, Greg. I want to start by saying in this presentation today, we will be having several members of the senior management team carry part of this -- in particular, Mike Lipkweich, Roger Brain, and John Taylor will be speaking to certain slides.

I want to start by saying it was a strong second quarter, particularly given the unusually low seasonal sales from the Red Dog Mine. However, it was not without its challenges, which we will address. And in particular, I would take note of the strike that we now have at Trail, which I’ll comment on a little later.

In terms of our net earnings, $225 million for the quarter, which compares to $205 million in the first quarter of ‘05, or $115 million of the equivalent quarter in 2004. That’s $1.11 earnings per share basic, and fully diluted earnings per share of $1.04, which compares to 60 cents per share in the equivalent quarter last year basic, or 54 cents per share on a fully diluted basis.

In terms of cash flow, it was $332 million, which compares to $288 million last quarter. Operating profit was an all-time record of $417 million, and that compares to $329 million last quarter. The dividend payment in the quarter of $81 million -- that reflects the doubling of the dividend that we announced at the annual meeting. And cash increased on the balance sheet by $179 million. I think it’s interesting to note that if you sum the two, the cash generated was $260 million for the quarter, which compares to $240 million last quarter.

This is as a result of the increased market prices for our core commodities. As you see on Slide 6, zinc price in US dollars was up 23% to a 58-cent average for the quarter. In Canadian dollars, of course, as a result of the Canadian dollar having increased year-over-year, the increase was limited to 14%.

In copper, our average price was $1.54, up 21%; or, in Canadian dollars, up 11%.

The coal price was a very significant advance during the second quarter because we finally started to receive the new coal price for the coal year, and that resulted in an average price for the quarter of $94, up from $51 in the equivalent quarter last year, or up 84%. In Canadian dollars, that’s up 56%.

And the gold price was $427 average for the quarter, up from $394 last year.

The other significant price I would draw the audience’s attention to is molybdenum, where our realized price in the second quarter was $33 a pound, and that compares to $15 a pound in the second quarter of 2004.

On Slide 7, in terms of operating profit, as you will have noted, the copper operations are still the strongest contributors, with an excellent performance from Highland Valley and Antamina as well. You can see that the operating profits in Q2 from Highland Valley were $145 million compared to $79 million last year; and Antamina, $83 million compared to $31 million last year.

With the new coal price starting to kick in, the coal partnership delivered $131 million compared to $39 million last year, and we look forward to an even stronger quarter in the third quarter when we have the new coal price for the full quarter.

In terms of the contribution to operating profits from each product, you do see a bar chart on Slide 8 which shows that copper and coal were the main contributors. Once again, I would highlight that the second quarter is traditionally the low point in terms of Red Dog because the shipping season doesn’t normally start until July -- I think it started on July 4th this year. So we would expect a stronger zinc performance in the third and fourth quarter.

Now, just before I turn it over to Mike Lipkewich, our Senior Vice President, Mining, to go through the mine operations results, I did want to comment on the strike that we have at Trail, and I wanted to say, in particular, that we do regret that we have a strike. We are very concerned about the effects on individual employees and their families and the community at large. It is in our interest; we very much want to get back to the negotiating table as soon as possible with the mediators present. And we want to ensure that Trail is in a position to remain competitive in what is a rather volatile global marketplace such that the citizens have a stable, prosperous community for a long, long time to come. And with that, I’d like to turn it over to Mike Lipkewich.

Thanks, John. I’ll start out with Red Dog. Zinc production during the second quarter was 4% below that achieved last year, mainly because of the lower head grade. The head grade last year was 21.6% zinc, and last year it was 22.3, which equates to about a 3% decrease in production. Red Dog produced 270,000 metric tons of zinc in the first half of the year, and we expect production to be on the order of 290,000 in the second half, for a total of 560,000, compared to 554,000 tons last year. So roughly, just a little -- slightly better than production last year.

Antimina is continuing to achieve its production targets. The forecast for Q3 is 85,000 metric tons of copper and 45,000 of zinc, which is less than that achieved in the first or second quarter, and that’s because we’re planning to take a 5- or 6-day shutdown in order to change out the sag mill liners. Also, the ratio of M-1 [ph] ore, which is copper-only ore, will decrease during the third quarter from 65% in the second quarter to 55%. And the zinc production will be slightly lower because of the lower head grade. At the end of the day, if we look at production for the year, we still expect Antamina to produce about 180,000 tons of zinc metal and 395,000 tons of copper.

A note is moly recovery. Moly recovery in 2004 was under 40%; in June, it was up to 51%. And it should increase to about 55% by the end of the year when additional floatation capacity is added to the [inaudible] circuit.

Highland Valley Copper. Production in the first half totaled 81,000 metric tons. In the second half, we’re looking at about 88,000, for a total of 170,000, which is essentially the same as in 2004.

Moly production, however, will be lower this year, as indicated in the previous meeting. In the first half, we produced 3.7 million pounds; in the second half, we think it will be something in the order of about 2.6, for a total of somewhere about 6.3 million, compared to 10.7 last year. And the big different is head grade. The head grade last year was 0.16% MO. In the first half, it was 011; in the second half, we’re looking at 008, for an average for the year of about 095. So we’ll be at about 60% of production last year, and it’s because of the head grade variance.

Hemlo. Gold production in Q2 was lower by 13% compared to Q2 last year mainly because of a lower head grade. The expected grade during the second half will, again, be in the 4.3 gram per tonne level, and so gold production during the next two quarters should be in the 115 to 120,000 ounce range per quarter. The lower gold production explains about 50% of the operating cost variance if you compare Q2 ’04 to Q2 ’05 -- the difference is about 20%. The balance of the cost variance is the result of higher commodity prices, and also changes in the mining method used in some areas of the mine, particularly at Widows [ph]. The cost in the second half should be slightly lower, probably in the $375 to $380 range.

Elk Valley Coal. Sale during the first half of this year were 12.1 million tons, and are expected to increase to 15 million in the second half, for a total of around 27.7.1 [ph] million tons. The slower sales during the first 6 months were mainly the result of lower-than-expected rail performance combined with the need to increase poor inventory to achieve handling efficiencies and control the Murrays Cross Laporte [ph] inventory at the end of June stood at 1 million tons and we had another 1/2 million tons of coal available -- clean coal -- available at the mine sites. We believe that the rail will be able to move what’s at the mine site, and we think that with a slight improvement in rail performance, we should be able to get 15 million tons out in the second half.

With regard to expansions, Elk Valley Coal is on schedule to increase production to 28 million tons by the end of 2005 and 30 million by the end of 2007. The ramp-up of production at Cheviot is going a little slower than expected. We’d hoped to achieve a rate of 2.8 million tons on an annual basis by the end of the third quarter; we now will achieve this in the fourth quarter. And that’s mainly the result of slow equipment deliveries combined with extremely wet weather in June that made a significant dent in production. And also, we have encountered slightly higher stripping ratios in the first phase of mining than we expected.

And that’s about it.

Okay, thanks very much, Mike. I’d like to turn it over to Roger Brain now.

Thanks, Don. The table on Slide 16, lists Trails operating and financial performance for Q2 2005 compared to the previous periods. Zinc and lead production in Q2 of this year are similar to the other periods. However, production last year was a record for most products. Sales in Q2 were slightly below production because port problems reduced export sales. Power sales in Q2 were lower due to the timing of sales. Power availability for 2004 and 2005 are about the same. Metals operating profit of $31 million is down from Q2 2004, where we received a $7 million business interruption insurance payment. Earnings this year were positively impacted by improved prices for most products offset by a stronger Canadian dollar. Indium [ph] continues to be a good contributor for Trail, adding an additional $5 million in operating profit versus last year.

The next four charts are to review the markets for copper and zinc. The graph on Slide 17 shows the zinc price in red plotted against LME [ph] stocks in blue from 2003. LME stocks have been on a steady decline since September 2004, falling from 740,000 tons in September to 520,000 tons in June 2005. Unfortunately, there was another so-called hidden stock delivery in June of this year, about 100,000 tons net. However, since then, stocks have been falling again, down another 35,000 tons. The year-to-date average price is 58 cents per pound, 11 cents a pound above last year’s average, and peaked at 65 cents per pound earlier in the year as compared to today’s price of 54 cents per pound. The market is in deficit as a result of an extremely tight concentrate market and positive demand worldwide, especially in China.

The graph on Slide 18 shows benchmark, or annual, treatment charges for zinc in red plotted against spot treatment charges in blue since 2000. Spot treatment charges are currently at historic lows -- $40 a ton or lower -- although there is little or no spot material available. This year’s benchmark is about $125 a ton, while the 10-year average is $166 a ton. The lack of concentrates is now reducing metal production around the world.

The graph on Slide 19 shows the LME copper price plotted against LME stocks from 2003. Since 2003, stocks have been falling and the price rising. LME stocks are now at historic lows and represent about 1/2 day of global consumption. The year-to-date average price is $1.52 per pound, 22 cents above last year’s average, and is at an historic high of nearly $1.70 per pound today. The international copper study group reports a global deficit this year in the first four months of 149,000 tons versus a 595,000 ton deficit for the similar period in 2004. With no inventory in the pipeline, any production interruptions cannot be absorbed. Spot treatment charges hit record highs earlier in the year, but have been falling recently.

I’ll finish with China, on Slide 20, which has been, and continues to be, the engine of growth for most commodities. This table lists China’s trade in copper and zinc for the first half of 2005 compared to the similar period for 2004. Zinc concentrate imports, which have been limited by availability, are down 1% this year. China’s refineries are operating substantially below capacity. China has become a growing importer of zinc metal as domestic consumption is rising at double the rate of domestic production. Imports for the first half of 57,000 tons compare to 0 in the first half of last year. China has a voracious appetite for copper in all forms. With underutilized smelting and refining capacity and surplus concentrates in the West, China has taken advantage of above-average treatment charges and increased concentrate imports to 512,000 tons in the first half, up 48% from last year. Metal imports have also increased up 9% to 661,000 tons.

I’ll now turn it over to John Taylor.

Thanks, [inaudible]. Slide 22 shows cash flow and CapEx by quarter for six quarters, and you can see there where we’ve had a very strong cash flow developing over the last six quarters. Last year you can see where it grew, really with metal prices and the seasonal shipments in the last half from Red Dog -- seasonal sales from Red Dog in the last half. This year, the trend should be similar, really, as long as sales are -- no disruption on sales and the prices stay similar. We should see a similar trend because coal will be coming stronger in the last six months with the higher prices coming in and then the seasonal sales from Red Dog.

Our capital expenditures are relatively low compared to our cash flows, and they probably, over the next two quarters, would be reasonably consistent with the experience over the previous quarters. And then, really, with Pogo complete, unless there are new projects that come on line, our capital expenditures, will actually fall, perhaps, next year.

On Slide 23, these numbers really demonstrate our very strong financial position that we have now. We have cash of over $1.3 billion. The debt figure there of $632 million at the end of June includes our current portion and that relates to a debenture which is due the first half of next year -- $150 million US. And then our debt levels would fall to close to the $400 million level because we’ll have some Antamina repayments as well that may bring it under $400 million. But we have a very strong financial position.

The other comment I would make is just on our tax rate. This quarter, we had a fairly high book [ph] tax rate -- over 41% -- which was higher than we’ve shown in previous quarters. Our tax rate does fluctuate with the relative contribution from our various revenue sources. And we think that, looking ahead over the next six months, using our model, and if things work out the way we have in the model, the tax rate should come in around plus or minus 40%. And we also think that over the next six months, the cash portion of our book taxes should be in the order of 75%.

Thanks very much, John. Just to highlight a number of corporate developments before we open up for questions, two relating to internal growth. First, related to Pogo -- it is still scheduled for completion in the first quarter of 2006 with full production starting at the end of the first half of 2006. At this stage, construction is 75% complete, although I note that the underground development is only 30% complete at this point.

At Elk Valley Coal, the expansion projects are proceeding at [inaudible] by a million tons, and that is scheduled to be completed in the third quarter of this year. And the Cheviot Pit at Cardinal River is scheduled to be completed to produce 2.8 million tons per year in the fourth quarter of this year.

And finally, we do expect to finalize the agreement with Postco [ph] and Edmont [ph] Steel that we anounced earlier for the 10-year sales contract [inaudible] and the 5% [inaudible] in this quarter.

And with that, I’d like to open it up for questions.

[Operator instructions] Your first question comes from Otto Rutton [ph] from Scotia Capital.

Good morning, everyone, and good morning, Don. A quick question about the oil sands statement that you made in early June. You indicated at that point in time that within the next two to three months, you would be assessing your interests in that space. Could you maybe give us an update on your current thinking and the extent [inaudible]?

We couldn’t hear the final part of the question. If you could just repeat that, please?

Apologies. The second part of the question was whether you [unintelligible]for your interests in oil sands?

Okay. I think-- I guess starting more with the first part of the question, we continue to carefully examine a number of alternatives for deploying the cash that we are generating. And as I did mention at the conference in June, we have been approached by a number of parties both large and small as to whether we would be interested in partnering with them in an oil sands project, including projects that are currently running. And we looked at that opportunity, I guess, from the following points of view.

There were a number of things that were appealing in that it was right next door in Alberta, as opposed to many projects that we review that are thousands of miles away. We think Alberta’s a terrific place to do business. It’s a jurisdiction that encourages business. We operate there and have just developed the Cheviot Pit at Cardinal River. It’s very close for all sorts of employees we have in BC.

And from the commodity point of view, the oil price-- Well, we wouldn’t get into the oil business from an exploration and drilling for oil point of view, but these are mining projects where the mine operating costs are about 45% of the overall costs of running these projects, so there’s a good fit for us. It’s large, open-pit mining shallow truck operations, and this is something that we have good skills in. So from all those points of view, it makes sense.

And also, there are long-life 40 or 50-year projects and we could finance them using 30-year bonds, where after-tax cost of capital would be 4% or less. So there were a number of things that were appealing in looking at it. It also would be a natural hedge against the energy that we consume elsewhere.

However, it would be a new business for us. And, as I’ve also said, whether we were talking about oil pans or anything else, I mentioned that we like to look at commodities where you negotiate a margin with your customer rather than commodities that fluctuate such as LME metals and at the bottom of the cycle go down and cost of production will stay there for a long time. And so, whether it be further investments in coal or iron ore or-- it could be diamonds, industrial minerals, a number of different categories that would fit in that, and that would add to the stability in our earnings, and oil doesn’t necessarily fit into that category.

As well, if we were getting into a new business, what I’ve said is that, whatever we do, we want to do it really well. And that suggests that we should have a certain materiality in getting into that business, because we’d be forming a new division and you want the people that you would be putting into that new business to know that it’s a very important business to the company overall. And for the players in the industry in that sector to know that we are fully committed. And this creates a bit of a virtue cycle where you then attract the best people and the best people bring with them the best opportunities, and this helps to insure long-term success in any new business.

So what I did say is that we wouldn’t get into a new business unless we thought we could do it really well. And to date, we just haven’t been able to get a position in oil sands that would do that. And I couldn’t comment on whether it’s likely or not. We’ve been looking at other opportunities during the season, so we’ll continue to do that.

So ultimately, you would look at a direct equity stake and operational control to some degree of any project?

That’s correct. We were approached in some of the conversations to be a contract miner, and we’ve decided that that wouldn’t make sense for us at this stage. As you know, the people side of the mining business, the whole skill side, has quite a constraint in it worldwide right now. We’re very fortunate to have a tremendous group here, and if we are going to deploy that, we want to make sure we get a maximum return and leverage from it. And so, we didn’t think being a contract miner made sense for us right now.

Okay, thank you for elaboration. One quick question, on the $1 billion shelf [ph] that you need to refile. You had a $500 million shelf in 2002. Should I view the implementation of this shelf as a renewal of that older shelf in a slightly larger size, or is it in addition?

No, it’s-- you can think of it as a replacement.

Okay, thank you.

Your next question comes from Terry Ortslan from TSO and Associates.

Thanks; good morning. Just a question on the Trail labor situation. If you settle, how long will it take you to ramp up to full production again?

Yeah, we have about up to a 1-month inventory in the pipeline, which we’re delivering right now. So assuming that the strike lasts longer than a month, when we start up, we’ll have to refill the pipeline. So the first month after we start up will be rather thin from a sales standpoint.

If you forget the pipeline, how long will it take you to ramp up to full production?

Oh, that won’t take us very long; less than a week.

Don, just coming back to the earlier question, obviously it is a good [inaudible] cash and a great balance sheet [inaudible] industry, so rush into making investments very quickly, you can count on the cash balance sheet for a longer period of time and wait for opportunities. But, what have you ruled out that you’re not going to invest in, rather than looking into what you’re going to invest in?

What have we ruled out? I can tell you we’re all looking at each other right now to determine what we have ruled out. I mean, there are a number of things that-- I wouldn’t call that we’ve ruled out, but that we aren’t spending much time on. And I’m not sure if it’s appropriate for us to name different opportunities that have been shown to us that we’ve decided just aren’t going to be a good fit for us. So I’d probably answer it that way.

How about--

One thing I would want to say is that-- and I’ve said this earlier -- is that all of the opportunities that we look at are compared to a return of capital to shareholders. And in this past quarter, we paid $81 million in dividends out of $260 million generated, so a reasonably healthy ratio. And that’s a good long-term way of providing a good return to shareholders. And so, if we don’t, over the course of the year, find other investment alternatives that make sense for us, that would be a very viable option.

But let’s say within a few years [inaudible] looking to the question geographically, Teck Cominco would not be interested in Russia, Africa-- I mean, if you want to address issues. And commodity-wise, which you are not interested in?

I’m not sure that there are really specific countries that we would want to name that we’re not interested in because in almost all these countries, whether we would make a large investment in it or not, we’re still interested in what’s going on in the countries. And certainly in Africa and in Russia, too, there are tremendous mineral resources that play a significant role in the industry and the players associated with them. So we pay attention to all of that. So we’re interested in it, but there hasn’t been an opportunity yet that came in that we would invest large dollars in. And in some areas, we don’t expect that will happen in the near term.

But I would point out that certainly over the course of my career, we’ve seen some countries that previously were thought of as not countries that you would like to go invest in that turned out to evolve in their political process such that they became very, very good places to invest in. Now many of the global mining companies have large operations there. So I’m not sure it’s worth kind of eliminating any country at this point.

A question to Mike. Mike, could you give us an insight about next year’s upcoming production profile, please?

We’re just in the process of putting together next year’s budget. And I would like to wait till the next conference call to give you more specific numbers. By and large, it shouldn’t be materially different from this year.

Including moly?

Moly should be about the same as well, mainly because of the improving numbers.

Okay. Thank you very much, gentlemen.

Your next question comes from Haytham Hodaly from Salman Partners.

Good morning, gentlemen. Good results. A couple of quick questions -- just a housekeeping issue. When you were quoting on Antamina and Highland Valley your full-year numbers, was that all metal in concentrate, or payable metal?

That’s correct.

Sorry -- all metal in con?

Yes.

Okay, just clarifying that. A quick question -- you announced that you’ve purchased new trucks for Highland Valley and they will arrive in the first quarter of 2006. When did you actually order those trucks?

We ordered 5 trucks a year ago for delivery very late this year, early next year. And we ordered another 5 within the last month.

And in terms of availability of the last 5 you ordered, when do they expect those? Are those also expected in the first quarter of ’06?

They should be here in the latter half of ’06.

Latter half of ’06 -- okay. Are you still looking at a 12-month delay in getting equipment there?

A little better than 12 months on this last batch.

Okay. What about tires?

Continues to be a problem. It’s very important to make sure that we maximize our tire life. We don’t see running short of tires this year; we’re more concerned about the latter half of next year.

Okay. Now, with the expansion or the potential push-back of the valley pit at HVC, what’s involved in terms of making a decision to actually get to that point? And obviously, the fact that you’ve purchased these trucks could give us an idea that you’re looking at potentially going ahead with that.

I think that’s correct. We’re fairly bullish on proceeding with the push-back on the valley pit. We have a geotechnical report now that confirms the feasibility of doing that; we just have some questions on that report that we want to explore with the consultants before we make the final decision.

How much in terms of-- given current production levels, how many more years would that add, roughly -- 5 years?

We’re looking at adding approximately 200 million tons of ore in the valley and lower next [ph] pit.

At roughly similar grades to what we’re seeing today?

Very similar.

Okay. Next question, I guess you talked about a significant improvement in your quarterly [ph] and moly recovery at Antamina from last quarter-- or, Q2 ’04 versus Q2 ’05. What was your recovery actually at, your moly recovery, for Antamina this last quarter?

The recovery in June was 51%. That’s the best to date.

51%; okay.

Yeah. The recovery last year, I believe, was around 38% overall -- that’s total. Remember, there are two phases to it. Only about 60% of the moly retorts into the copper concentrate to form copper concentrate, and then we remove the moly from the bulk concentrate. So you have primary recovery and secondary recovery to contend with.

Okay. Last question -- can you give me an idea of how much power that was actually destined for Trail could be sold in the third and fourth quarters assuming, let’s say, worst case scenario, all the power that was destined for Trail -- not the surplus power, but all the power that was actually destined for Trail -- gets sold in the latter half of this year?

Trail uses about 150 gigawatt hours a month. To keep the plant running now is about 25 gigawatts a month. So that means we’ll have an additional surplus of about 125 gigawatts a month.

Okay. That’s good for now; thank you.

Your next question comes from Steven Bonnyman from CIBC World Markets.

Good morning, and thank you. Most of my questions have been answered. But following up on the Trail power site, are the last of the upgrades complete at the Weneta [ph] Dam, and is there any chance for expansion there on the power front?

We are in the midst of working on the last of the fourth upgrade, which will not be complete till the end of 2006. So our power availability won’t go up until 2007, and that’s the final upgrade.

Fair enough. And on the tax side, the guidance of 40% for the year. What is that implying for Red Dog taxes? That number just seems high to me.

In Red Dog, for the balance of the year, I think we’re about 20% -- 21%?

If I work the math, given that you’re in fact going to have much better contributions out of Red Dog for the rest of the year at a 21% rate, how do we get a total corporate rate of 40% given the stat on most of the rest of businesses is only in the low 40s?

Well, when you include the mining taxes on coal and in Highland Valley, those individual rates are over 46%.

Fair enough. I’ll follow up with you off line on this.

Yeah. So when you add it all up, it comes in around 40%.

Thank you very much.

Your next question comes from Bob Lyon [ph] from CI Fund Management, Inc.

Hi, good morning. Most of my issues have been addressed, but can I just ask to be reminded here, if the Highland Valley copper expansion goes ahead, what’s the projected, or estimated, CapEx on that?

Excluding the trucks that have already been committed to -- and the last 5 trucks are approximately $15 million -- probably around $45, $50 million.

Thank you very much.

Your next question comes from Greg Barnes from Canaccord Capital.

Yeah, thank you. John, are we looking, then, at a 40% tax rate for 2006 as well?

I wouldn’t like to comment on that yet. I just haven’t looked at that.

Okay. On Antamina, the realized molybdenum price is $26 a pound. I think you addressed this last quarter, why it was lower than Highland Valley and lower than the market price, but I don’t remember what the differential was.

It has to do with the concentrate quality.

So just poor quality concentrate, you get a lower price?

It’s a lower quality concentrate than Highland Valley produces.

Okay. Thanks very much.

Your next question comes from Cary Smith from Haywood Securities.

Thanks, Operator. Mike, can you remind me when the collective agreement expires at Highland Valley?

It expires next fall; I believe it’s in October.

Okay. And just-- can you say anything more about the contracts that you have to renew this year? You did say something in the text, but not very much, with Line [ph] Creek and Elk Valley? Anything going on there? Anything that we should be aware of?

We’ve completed negotiations at Coal Mountain that were successfully concluded. We are currently negotiating at Line Creek. We’re essentially through the non-monetary and I think we’ll be discussing monetary issues this coming week. Generally, the negotiations have gone quite well. And of course, the Elk-- the contract will be coming up in October of this year.

Okay. So you’ll be talking dollars with Line Creek in the next month or so, then? So you’ll have a better feel of where you sit?

That’s correct.

Okay, thanks.

[Instructions] Your next question comes from Steven Bonnyman from CIBC World Markets.

Yeah, thank you for a second pass. Going back to the moly and the price realizations coming off of the different streams. What has happened to roasting charges for moly in the last sort of year and the last quarter, and what could we expect going forward? And what actual price realization differences do we look at between the secondary and the primary moly coming out of Antamina?

Well, I think it’s fair to say that with increasing mine production of moly -- and what we have now is a kind of roasting bottleneck -- that spot charges have moved up significantly with everyone looking for roasting capacity. If you look at something like Highland Valley, a lot of the contracts are annual contracts which were put in last year at relatively low numbers. Antamina might have a higher percentage of spot charges in there. So I think until we see an increase in roasting capacity, I think we’ll continue to see relatively high spot charges.

So for Highland Valley, when do those roasting contracts get renegotiated? When will we click over to potentially higher prices?

Later on this year for the 2006 calendar year.

So it is calendar years?

Correct.

And at Antamina, is there a material difference between the actual realized price net of roasting charges for the secondary versus the more bulk, or primary, moly cons?

Not that I know of.

Okay. So if production shifts between the two, it doesn’t really make a different to your realization.

That’s my understanding.

Very well. Thank you very much.

You next question comes from David Charles from GMP Security.

Yes. I apologize, but I came late to the call. I was just wondering if you mentioned what your moly forecast might be out into 2006. I mean, I think I heard you say earlier that basically from Antamina would pretty much be the same. I’m just wondering, would it be the same from Highland Valley, or different?

I would like to answer that at the next session and give you something more specific. I think it would be down slightly.

Okay. Just moving on from that, then, Hemlo has continued to experience cost problems, some of which are due to grade, etc. Can you just maybe give me an update as to what you see Hemlo looking like going forward? Is it pretty much as is? Is it pretty much steady state now, or can we get a little bit better?

I think you’re right in the first comment; it’s pretty well steady state now. Early in the year, you’ll have slightly higher cost in the first half; slightly lower costs in the second half. I think we have a cost of about $395 in the first half. We think it’ll be closer to $375, $380 in the second half. And that pattern is for the next year or so -- that should be roughly the same cost structure.

Meaning, it should stay at around $375, $380 going forward?

No, it’ll have higher costs in the first half of the year again next year -- probably in the $390 range again -- and then drop to $375, $380 in the second half.

You mentioned in your press release that although your production is ramping up from Elk Valley on the coal side, there are issues, obviously, with equipment, with transportation, and with the ports. I’m just wondering-- the fact that you actually mentioned it in the earnings report, are you actually worried that you’ll have some difficulty with your sales in the second half due to these bottlenecks?

I don’t think we’re too concerned about this year. The concern is more down the road and it has to deal with CP’s ability to handle additional volume.

So basically, you don’t have-- I mean, in the last agreement that you signed with CP, they haven’t basically confirmed to you that they’ll be able to ship everything you supply to them?

They have indicated to us that in an ongoing forward basis, not only will they be able to meet our requirements this year, they are going to upgrade the line between Golden and Kandaloos [ph], and they are going to change out the cars from steel and aluminum. And the combination of that should allow us to ship an additional 2 million tons out of Elk Valley within two years.

Okay. So all you’re really saying is the fact that they haven’t done it yet means that there is some risk that it may not happen?

Yeah, the risk is there, but I’m comfortable with CP’s commitment.

Okay. And finally, given your-- you said you also noted that you’re in negotiations with West Shore on the terminal. Could you just maybe discuss exactly what that means and what it might mean on the cost side of the operation?

I’m afraid I can’t give you any specifics. We have looked at the agreement, they have looked at the agreement -- there is some question on interpretation of the agreement. But beyond that, I really can’t volunteer anything else.

Okay. Can you maybe explain to me what is the key issue? Is it just that they want to have an increase and you don’t? I mean, is that really what it boils down to?

Yeah. We’d like to see a lower rate, but we are paying the going rate.

And what is the risk? Again, like with the CP, you can give no guidance as to what the outcome might be further down the line in terms of costs?

Let me see if Peter wants to volunteer something. Peter?

No, I think that it’s best that we don’t comment on that issue.

Okay, thank you very much. Maybe just one final question, if I could. You probably went through a little bit on the zinc market. Do you have any comment maybe to make on the deliveries of hidden inventory? I do understand, obviously, by using the term “hidden inventories,” there’s not a lot you can say about them. But previously, you’ve made a stab as to how much might be out there and how much might be delivered into the market. I’m just wondering where your thoughts are on that now. [Inaudible] crystal ball.

Well, there’s always inventory, whether it’s with zinc or copper or lead. What normally happens in a deficit market like we have now, it ends up going to customers rather than on to the LME. I guess our hope, or belief, is that we’ve seen the most of it. But there still are inventories out there, and if for whatever financing or market reasons there is always the possibility that additional material could end up in the LME. But I think the important thing is that, once it goes on, we see the stocks start to fall again. The market is in deficit. We see a rising deficit next year. So I think the fundamentals are good, and we’ll just have to wait and see whether this is over or not.

Okay. Thank you very much.

Your next question comes from Haytham Hodaly from Salman Partners.

Gentlemen, just a couple of follow-up questions. The first one with regards to the trucks. You indicate that you spent about $15 million Canadian on the trucks that you ordered a month ago. Just trying to get a perspective of how much things have increased -- what was the amount you spent on the five trucks a year ago?

Probably about $13.5.

Okay, so a little bit higher, there. And I guess with regards to the $45 to $50 million in estimated CapEx excluding the trucks, that’s all Canadian, I’m assuming. And when would you actually have to start, begin, spending that money -- if, let’s say, a decision was made before the end of this year?

We would start doing prep work for moving the crushers the next year, and the bulk of the expenditure would be undertaken in 2007.

Okay. And so the majority would be in 2007. One more question. What copper price are you using in your analysis to do this? To determine whether the expansion’s worth it or not?

We have a whole range of copper prices that we do analysis on -- anything from 85 cents to about $1.10.

Okay. And the fact that you hadn’t made these decisions in the past are probably attributable to the fact that it was still so far away, as well as the fact that copper prices were fairly low. Have you considered, let’s say potentially with copper longer-term prices, although we expect the next two or three years to stay strong, the longer-term prices potentially coming down, have you considered hedging any portion of the copper that comes out of Highland Valley?

We have considered it, and elected not to. Just to comment on hedging -- I guess because our current situation is that we have a very strong balance sheet net cash, as you’ve seen, and we have no major CapEx coming in front of us certainly relative to our cash flow. So I guess the view would be that if all of a sudden we engaged in significant hedging, whether it be copper or anything else, then essentially we’re changing the makeup of the investments that our shareholders have from one where it is an investment in a portfolio of operating mines in different commodities to one where it’s that investment plus an investment in management’s ability to call the commodity markets better than others. And just over the years as I’ve watched that situation, it often goes the wrong way. And I don’t think in this case that there’s any particular financial need to do so. If we had a very major project that we were building, we might hedge the capital costs from that point of view. But at this stage, we’re not in that situation, so we’ve elected not to hedge.

Okay, fair enough. One last question. With all the cash, a significant cash position and the cash flow that you’re generating, has a special dividend been considered?

Certainly it has been considered -- or a share buy-back. And our view on this hasn’t changed from what we’ve said over the last 3 to 6 months -- that for the moment, as we’re just building up the cash, and the coal price shift just started to hit in the middle of May -- we’re examining other investment alternatives that make the company a better, stronger company for the long term. And we think that should be a priority. But if we go through the next year or so and are unable to find suitable investments, by that stage the cash balance will be just too high, and it would be very inefficient for us to carry that capital, so we would very, very strongly be looking at a share buy-back or special dividend at that time.

Okay, wonderful. Thank you for your answers.

[Operator instructions] Your next question comes from Terry Ortslan from TSO and Associates.

Just a follow-up on Haythan’s question. You mentioned about the price ranges for copper. Like, what prices or charges do you think for TCRCs [ph] going into that [inaudible] time period?

I think, like the metal price, we use a range and look at the economics over a range of copper prices and copper treatment charges. So we do a sensitivity analysis; we don’t just use one.

What would be your range?

Well, you can pick any range you want. We need to know what the long-term average is. The long-term average in treatment charges are 80 to 90, so you-- we’ve seen them as low as 20 and we’ve seen them as high as 200. So you can pick whatever range you want and do a sensitivity around it.

A question to Roger. You talked about all the other markets, but you left out lead. Any views on that?

Yes, the lead market has come off a little recently with the increase in LME stocks. It could be partly seasonal; we have seen a little increase in mine production this year. But we’re moving into the busier time of the factory season now and I know that our US business is very strong, so I think, hopefully, lead will be able to continue around these levels.

Deficits should continue, I guess?

I think-- there was a much larger deficit last year in lead than this year. This year, I think the lead market is moving closer to balance. But we’re coming off a large deficit year and stocks, while they’ve increased a little bit, are still relatively low. So we’re estimating a slight deficit to balanced market this year.

Thanks, Roger. Okay, I’m done. Thanks.

[Instructions] Your next question comes from Cary Smith from Haywood Securities.

Thanks, Operator. John, this may have been answered and I messed it, but what is your expectation for your CapEx next year in 2006?

I didn’t give a number, but it would be certainly lower with the completion of Pogo this year. I think on an ongoing basis, our sustaining capital, we look at in the area of $140, $150 million.

Okay. And so, around that level next year, then, I guess?

Right. But we haven’t done a budget or a forecast.

I understand. And, Mike, just one last thing, if I could, on Highland Valley. Could you remind me how long the current contract is that they have been operating under? Was it a 5-year deal was well, or was it 3?

No, it was a 3-year, and it expires in October of 2006.

Okay. And then, just with regards to Coal Mountain, the new 5-year deal you signed. Can you make any comment at all in terms of what sort of an annual increase monetarily there is in the agreement or what it is over the life of the operation, life of the agreement -- the 5 years?

Coal Mountain was significantly below all the other mines, and so there was some catch-up in the first year. And therefore, the first-year rate is something in around 6%. Then it drops down to -- I think the third year is 3-3 and the fourth, 3-1/5th.

Okay. But there was some catch-up there just to getting them back to sort of parity within the valley, then?

I think that’s a good word to use. Parity’s close enough.

Okay, thank you.

[Instructions] There appear to be no more questions at this time. Please go ahead, Mr. Waller.

Well, thank you very much, all, for your interest and your questions, and we look forward to speaking to you after the third quarter, which will be the first full quarter since we receive the high coal prices. Thanks very much.

This concludes today’s Teck Cominco’s second quarter 2005 investor relations conference call. You may now disconnect.