Teck Resources Ltd (TECK) 2008 Q4 法說會逐字稿

Welcome to Teck's fourth quarter 2008 earnings release conference call. (Operator Instructions). I would now like to turn the conference call over to Greg Waller, Vice President of Investor Relations and Strategic Analysis. Please go ahead.

Thanks very much. Good morning and thank you for joining us today at Teck's fourth quarter 2008 investor conference call.

Before we start, I would like to draw your attention to the forward-looking information slides and our presentation package on pages two and three. This presentation contains forward-looking information regarding our business. Teck does not assume the obligation to update any forward-looking statement.

At this point I would like to turn the call over to Don Lindsay.

Thanks very much, Greg. Good morning. This morning I will do a brief overview of the financial and operating results, and then I will turn the presentation over to Ron Millos, our Senior Vice President of Finance and CFO, to address some more in-depth financial issues.

A number of other members of the management team are in the room this morning and available to answer your questions.

Turning to slide five, earnings from continuing operations in the quarter on a fully diluted basis were negative -$602 million or $1.27 per share after non-cash write-downs of $844 million. As the chart indicates, our earnings before these write-downs would have been $0.51 per share. These results compare to net earnings of $296 million or $0.67 per share in the same quarter last year. In addition to the write-downs recorded, the other very significant issue in the quarter is the loss on settlement adjustments due to declining metal prices in the quarter.

Turning to slide six, this was a relatively complicated quarter with numerous unusual items to adjust for in order to understand the fundamental earnings capacity of the business. Adjusted net earnings allowing for the nonrecurring items in the quarter, which are not part of the fundamental business, were $136 million or $0.29 per share.

It is a different story at the comparative net earnings line though, where we removed the impact of final pricing adjustments in the quarter. With the sharply reduced copper price in the quarter, we incurred significant pricing adjustments, and with the pricing adjustments removed, our fundamental earnings were very similar to last year's results. Ron Millos will discuss the pricing adjustments issue in more detail later in the call.

For those analysts who are trying to compare their earnings estimate to our results, if you were allowing for the copper hedges, which we presume you were, the realized portion of the derivative gains would have to be added back to the adjusted net earnings to arrive at a comparable number. We estimate that the comparable earnings figure will be -$0.62 per share.

On slide seven, turning to prices for the quarter, all of our metal prices were down, but the coal price was up compared to the same quarter last year. The Canadian dollar weakened in the quarter, mitigating somewhat the impact of the lower metal prices. For example, in copper, our most important metal product, the price was 45% lower than last year in US dollar terms but 32% lower in Canadian dollar terms. The decline in zinc and led was also steep in the quarter in the 40% to 50% range for both in Canadian dollar terms.

The realized coal price was 213% higher than last year's fourth quarter price in Canadian dollar terms. What is not shown here, though, is the change in price between quarter ends, which impacts the revenues we booked for the quarter due to unfinalized sales outstanding each quarter. The charges on the next slide highlight this.

As these charts on page eight show, the copper price ended the quarter a full $1.60 per pound lower than what it started the quarter at. Zinc and lead incurred substantial price declines as well. As a result, we recorded substantial negative adjustments on the sales of copper, zinc and lead receivables that were outstanding at the end of the third quarter and on sales that were booked during the quarter. These charts also show the increase in the level of LME inventories in the quarter. There has been substantial curtailment enclosures announced in the past months, but we have not yet seen the full impact of this on the supply and consequent inventory build.

For example, in zinc we estimate that mine supply curtailment announced in the past nine months is in the order of 1.7 million tonnes or roughly 15% of global supply. We have not seen the full impact of these curtailments yet. Some of the closures are still to be implemented, and it will take until roughly June to see the full impact of this reduction in supply.

Turning to slide nine, the impact of our acquisition of the Fording coal assets with stronger coal prices and weaker based metals prices relative to last year's quarter can be seen in the relative contributions to our year's operating profit. Coal contributed 64% of operating profit this quarter versus only 8% last year. Copper and zinc contributions declined to 25% and 8% respectively.

Our gold assets continue to demonstrate their profitability although at a relatively minor portion of our overall product mix.

On page 10, in our coal business unit, our share of production sales increased, reflecting the acquisition of Fording's share of the coal assets effective October 30. On a 100% basis, though, sales declined approximately 20% compared to the fourth quarter last year as customers significantly reduced their coal pickup late in the year in response to lower steel production. The unit cost of products sold increased compared to last year due to lower production volumes, higher strip ratios and higher input costs. Unit transportation costs also increased compared to last year, primarily due to the coal price participation provisions in our court contracts.

Operating profit increased substantially over last year due to the higher coal year prices. I should note that we are still selling some coal under contract carried over from the 2007 coal year. Combined with a higher share of lower value thermal coal expected to be sold this quarter, we expect the realized coal price for the first quarter will be in the order of $190 a tonne.

In our copper business unit on page 11, production was the same overall as the same quarter last year, but the mix between concentrate and cathode production changed slightly. Total settlement adjustments in the quarter in copper were -$335 million, which results in us showing the unusual situation of revenues being lower than operating profits when stated before pricing adjustments as we have done here. The operating profit before depreciation and before pricing adjustments is equivalent to a cash margin of US$0.88 per pound of copper sold compared to the quarter average market price of $1.79. This cash margin changes, of course, with operating cost treatment charges and byproduct credits, but it does demonstrate the strength of our copper business to contribute to earnings at relatively modest copper prices.

In zinc on page 12, zinc and lead concentrate production was lower than the same quarter last year, primarily due to some downtime and reduced throughput rates at Red Dog. These issues were largely rectified by year end. Production of refined zinc metal at Trail was also lower than Q4 2007 as we announced the curtailment of metal production commencing in November. Refined lead production was up, but that is comparing to a low quarter last year due to a one month maintenance shutdown in the lead furnace.

In our gold business unit on slide 13, operating profit before depreciation increased this quarter compared to last year, primarily due to lower US dollar unit costs at both Pogo and Hemlo.

I will now turn the call over to Ron Millos to address some financial issues.

Thanks. I'm on slide 15. We have summarized our impairment charges that we have taken on an after-tax basis on this slide. The largest impairment charge is due to the write-down of goodwill from the Aur acquisition. We did not have to write down the full amount of the goodwill recorded with this acquisition due to the announcement early in 2008 of the billion tonne inferred resource at Quebrada Blanca, which we expect will allow the mine life to be extended for many years.

For marketable securities we marked our securities to market each month through comprehensive income. Given the current economic conditions, we have determined that the more values are other than temporary, and because of the way the accounting rules work, we're required to remove the write-down from the comprehensive income and move it through earnings. Accordingly, this is really just a reclassification within shareholders equity on our balance sheet. There is no overall effect on our equity as the change to comprehensive income is offset by a corresponding change to our retained earnings, and there's no effect on our balance sheet as the investments were already recorded at their market values.

We have recorded goodwill on the Fording acquisition of about $900 million. The balance of the purchase price was allocated to the various assets and liabilities that we acquired. Based on our expected future cash flows from 100% of the coal business, the fair value exceeds the carrying value of our original investment and original investments and recently recorded cost. Therefore, there is no goodwill impairment.

You have to recall that the impairment testing is based on 100% of the assets that we now own, and the first effective 52% that we acquired in step purchases over the past few years was on our books at $1.5 billion. So the overall weighted average book value is much lower than perhaps people are expecting, and on that basis, there is no impairment in the goodwill.

Moving onto slide 16, that shows our final pricing revenues for the fourth quarter. As we highlight each quarter, pricing adjustments on sales of our various products can have a significant impact on our revenues. Outstanding receivables from one quarter can be settled at different prices than they were originally booked at, and sales booked during the quarter are repriced at quarter end reflecting the market prices. As Don indicated, final pricing adjustments for this quarter were substantial and across the board for most of our base metals.

For example, in copper at the end of September, we had 157 million pounds of copper receivables, which were settled in the fourth quarter at more than $1.00 per pound less than the price that they were booked at in the third quarter. In Canadian dollar terms, this reduced our revenues in the quarter by $174 million.

We also incurred significant negative adjustments in zinc and lead as well, totaling $255 million on a pre-tax basis for all three of those products.

We also recorded final pricing adjustments on sales booked during the quarter as these are repriced at the quarter end reflecting the market price. For example, in our copper business, typically between 90% and 100% of sales in the quarter settle in following quarters, and our revenues is, therefore, effectively booked at the quarter end forward curve. This contributed an additional $219 million in pre-tax revenue reductions related to the monthly average. And remember when analyzing the impact of price changes on our final pricing revenues, refining and treatment charges in the Canadian/US dollar exchange rate must be included in your calculations.

In addition, when trying to analyze the impact on our net earnings, you need to consider the impact of taxes and royalties.

Moving onto slide 17 shows our changes in cash balance. Our cash flow from operations was $598 million in the quarter after accounting for non-cash working capital changes of $1.2 billion. Proceeds from debt for the acquisition of Fording's assets were $11.8 billion, and we repaid debt in the quarter of approximately $1.1 billion. I will show the details of this on the next slide.

The acquisition of Fording for CAD11.6 billion was net of the proceeds of CAD2.9 billion from the sale of our Fording units and the cash acquired from Fording. Our capital expenditures in the year were CAD212 million -- or in the quarter were CAD212 million, and investments were CAD196 million primarily for our share of funding for the Fort Hills project. After proceeds from asset sales and allowing for the effective exchange rate changes on cash, our net cash in the quarter was a decrease of $397 million.

Slide 18 shows our debt position at the end of the year. We started the quarter with approximately $1.5 billion of debt in Canadian dollar terms. We repaid US$150 million revolver that was acquired with the Aur transaction last year, and we repaid a portion of the Fording debt acquired with the Fording transaction.

Of the acquisition debt of US$9.8 billion, we repaid US$460 million of the bridge debt as of the end of the year. And after allowing for exchange rate changes in the quarter, the total debt at quarter end is $12.9 billion or about US$10.5 billion.

Onto the next slide, our resulting debt to total debt plus equity ratio at year-end is 54%, and that is compared to the maximum permitted under our acquisition financing facility of 60%. But I would like to point out that that 60% does decline to 50% by the end of September of 2009.

Moving onto slide 20, at the end of December, we had a little over US$1 billion in currency hedges outstanding at an exchange rate of CAD1.01 for each US$1.00. Approximately 80% of this hedge position was acquired from Fording, and you should keep this hedge in mind when projecting our Canadian dollar coal revenues.

Substantially all of it, less than 5% actually is in the second quarter, but the balance is all in the first quarter. During the fourth quarter, we also put in place a hedge to cover a significant portion of our copper production through March of 2009. Approximately 55% of our copper hedge production for that period is hedged at about US$2.40 per pound, and that is through to the end of the first quarter. And note that this hedge was marked to market at the end of December, so any increase in copper price will create accounting loss in Q1 although they will settle with a cash gain.

On slide 21, we have summarized our production guidance for the year, and I should note that any asset sales, particularly in our gold business, could affect our production guidance. Coal production is expected to be approximately 20% lower than the rate we have been planning to run at in 2009 prior to the global economic downturn. Our copper production is expected to be about 5% higher than last year, primarily due to increased production at Highland Valley copper. And production plans for the balance of our products are either similar to last year's results or reflect announced closures and curtailments.

And with that, I will turn the call over to Tim Watson to give a brief update on the status of the Andacollo concentrate project.

Thank you very much. I would like to point out that there are three photos starting on page 24. The first one on the far left-hand side of the photograph, you can see the corrugated tunnel, which is the reclaim tunnel coming from beneath the core source stockpile. The structure you see in the center of the photograph is the pebble crusher circuit that is very well advanced. And you can see we have begun to construct some of the conveyor sections feeding the pebble crusher circuit.

On the bottom right-hand corner of the photograph, I would like to draw your attention, we have got the main power transformers installed. That is one of two fully redundant transformers for the new facility. Beneath the middle section of the conveyor, back in the distant, you can see the new truck shop facility that was built and turned over to operations some months ago.

Turning onto slide 25, shown in the center of the photograph, is the main grinding circuit for the facility. On the left-hand side of the photograph, you can see the sag mill, which is fully erected, scaffold where we are now proceeding with torquing all of the bolts for the head and shell sections. And behind that, you can see the first of two ball mills that have been assembled, and then the background, the large steel structure, is the support for the cyclones for the ball mill circuits.

In this photo, I would just like to draw your attention that you don't see much in the way of building structure. This is a fully open-air concentrator, which certainly helps in terms of speeding up the overall construction and keeping the cost of the facility as low as possible.

Turning to slide 26, on the far left-hand side, you can see that same support steel for the cyclones. In the center of the photograph towards the back, you can see the flotation shells. The flotation plant is nearing the finalization of installation of all the mechanical equipment. And then in the back, you can see where we have commenced construction for the concentrate storage facility, and then on the far right-hand side where we see some additional structure and a yellow tank being fabricated, that is for the lime plant.

At this point I would like to turn it back to Don Lindsay.

Thanks. I just want to touch on Fort Hills for a moment on slide 27. At Fort Hills the investment decision has been deferred while the project is being recosted to reflect the current economic environment, and the project is being advanced now as a bitumen producer only with the upgrader on hold.

On slide 28 we also have our 50% interest in Frontier and the Equinox project. Our share of the resources at Frontier is 774 million barrels, and this resource estimate is for the southern portion of the project only. We're quite pleased with the developments on Frontier.

At the Equinox project, our share of the resource is 166 million barrels, and a design basis memorandum study is due to be completed in the first quarter of 2009.

On slide 29 and turning to asset sales, we announced in the quarter that we sold our interest in the Lobo-Marte project in December. We are also exploring the sale of our interest in the Pogo and Hemlo mines, the Morelos project, which is an advanced exploration project with a feasibility study and exploration properties in Turkey that we share with Frontier. We have strong expressions of interest in all of these assets, and indicative offers have been received. We are advancing discussions with potential purchasers, but these processes take time to complete, of course. Unfortunately we will not be able to tell you much more on the status of these until we complete the transactions and have something to announce.

On page 30 the biggest issue facing us, of course, is our refinancing plan. Since we first announced our deal with Fording back on July 29, we have consistently said that our number one priority post-transaction would be to pay down the acquisition debt as soon as possible. We never then anticipated, of course, that all the debt would be repaid within the first year. We expect to see a reduction in the acquisition debt through the first half of the year from our operating cash flow, our capital expenditure reductions and asset sales. We have received $950 million to date of our expected refunds of $1.1 billion on special tax refunds, and our current cash balance now is approximately $1.4 billion.

We have commenced discussions with our lead banks regarding the possible extension of the maturity of the bridge debt, but we can't get into the details of those discussions, of course, and I would remind you that the maturity date is October 29, 2009. We have a large refinancing requirement, but our asset base is strong, and we have a great deal of flexibility to address our short-term refinancing requirements.

With that, I would like to thank you for your attention and open it up for questions.

(Operator Instructions). Brett Levy, Jefferies & Co.

I know this is cutting to the chase, and I will have some operational questions too, but last month we did a 20%, two and a half year financing, $290 million for a single "B" rated company. Just to kind of bridge them through a put this year, obviously you guys are BBB/BB rated. If worse came to worst, among the things you are considering in addition to equity and debt refinancing, would you consider something that? I mean I don't even know what the pricing would be, 13%, 14%, or 15% for like relatively short bond paper to get you through this ridiculous financing period?

What I would say is we would certainly look at any proposals or any term sheets that were presented. We are in close contact with our banks in the normal course in any event, and they feed quite a number of market opportunities to us. Some weeks the markets are pretty slow. Other weeks there have been opportunities that come up, and at the right moment, we would take advantage of those.

We're examining all of our options, ranging from financing options as you describe to various asset sales, and basically we will just have to evaluate them on their own merit.

All right. And then can you talk a little bit, obviously there's a lot of talk back and forth, about the met coal discussions. Can you give a little bit of sense as to what you're hearing, and clearly a bunch of your assets do not make sense if met coal is below $100 a tonne. Can you give a little bit of a sense as to sort of what your strategy might be if things go well, medium well, and then badly with respect to the negotiations and where you think they are coming out?

Well, the first comment I would make is that we see a whole array of data points on the coal market, some positive, some neutral and some negative. What we tend to see in the media and different analyst reports or industry newsletters is the real focus on all of the negative, throw out the positive points, throw out the neutral points and double down on the negative. And frankly, we have made various sales that we have not disclosed. We have had discussions with our customers about provisional pricing, and we don't see the ranges that you just described as being something that would occur.

Having said that, we don't know what the price is going to be, and we will not know for some time. Unlike some reports, negotiations have not started. We do have a team in Asia right now, but we have a team in Asia probably every other week in some form and talking to customers and looking at their requirements and dealing with ongoing shipping arrangements and the rest of it. So we have quite a bit of market insight, but the bottom line is we don't know, and we won't know for quite some time.

In terms of the second part of your question, we have developed a number of different scenarios depending upon what the ultimate coal price is, and associated with that on the take-up of the tonnage, there are currently contracted volumes, which to this point all of the contracted tonnage that has been shipped has been at full price. But, of course, they have deferred their shipments and stretched them over a much longer period of time and a much slower rate than was initially anticipated.

So those are the kind of issues that we are dealing with. We have our different scenarios that we have run at different, not just coal prices but copper and zinc prices too, and basically we will implement the plan accordingly.

And then looking a little further out, are any of your customers on the coal, on the met coal side, willing to negotiate somewhat higher prices for 2010 or 2011 on the thought that if and when this current situation ends, they might be able to lock in somewhat of an advantage when the normal conditions of coal shortage for met returns. Are you able to kind of go to some of your customers and say, in some of the out years, are you guys willing to make a deal?

It's a very good question. We cannot comment specifically. We have had discussions with different what I would call long-term strategic customers about having longer-term contracts, and it highlights the issue that once this downturn ends, which it will at some point, we just don't know when, you could have a situation where coal, frankly, is quite scarce. Because there's only so much of it, and if you assume that the billions of people in China, India and emerging markets get back on track with urbanization trends and the rest of it, the demand for steel will be quite strong and seaborne met coal will be important. China has announced that they are continuing to build large steel plants on the coast. In total, there are three projects between now and 2013 that add up to 30 million tonnes. That will require a lot of seaborne coal as they consolidate their industry towards the coast away from smaller inland less efficient plants. And as that trend continues, the demand for our product is going to be quite strong, and it could be short down the road. But we don't know when. It could be a while, and in the meantime we just have to deal with the issues at hand.

Orest Wowkodaw, Canaccord Adams.

I was hoping we could start just drilling down into the coal business. Your costs were I guess $97 a tonne in the quarter, and you are guiding to higher strip ratios going forward. Is that a good run-rate going forward, and where would you see costs come in you say at a $150 coal price with some of the variable compensation involved?

First, it is important that you are quoting Canadian dollar costs, and a key to the costs in the post April 1 period when the FX hedges that were in place from last year fall away, will, of course, be the exchange rate and at a CAD0.80 dollar versus the hedges that were around a CAD1.00 plus or minus, you get a kind of 20% decline in cost rate there from the change in the currency. And we tend to look at it on a US dollar basis versus the US dollar price as well.

In terms of your original question, it is hard to say that because one of the reasons that costs have gone up is because we have reduced volumes to better match supply to demand, and we don't know how long that will last. So I would not say that the current costs are the normalized costs, and we would have to really have a better feel for what the volumes will be.

So for example, if the volumes go back to roughly 23 million tonnes as last year, you know cash costs per tonne will come down because you have more tonnes to spread the fix cost over.

I mean that is a 20 million tonne guidance.

It depends on the mix of the coal taken from each mine, so we could not tell you at this point.

And of the $20 million guidance, how much of that do you expect in Q1 at the higher coal price presumably?

We have not disclosed the number. What we have said is that normally Q1 is a lower volume -- it's sometimes the transportation issues on seasonal factors, and also, of course, if you are negotiation with your customers, they tend to censor your ships while you're negotiating. That is a trend that has been in place for many years. But we believe that we are on track in Q1 to have a volume that would be appropriate for a 20 million tonne annual run-rate.

Lawrence Smith, Scotia Capital.

I hate to dwell on coal. You mentioned in the release that you think your averaged realize price for coal will be $190 a tonne in Q1. I know you are reluctant to talk about volumes, but I'm just wondering how you get to realize price that low?

And I guess a related question is, the 500,000 tonnes of 2007 contract year carryover, how do you end up having carryover going back that far? So if you can maybe give some idea of how you get the $190 realized price, -how much thermal, how much met at the various prices, and also explain why the carryover from 2007?

There are several factors involved, and don't worry about dwelling on coal because we certainly do.

In the January to March quarter, there have been a number of different types of sales taking place. There are the sales of high-quality hard coking coal that carry on with our core customers at the 2008 price. Then there are some additional tonnes of hard coking coal where we had no 2008 contract. But we have been able to make some additional sales in the period since November that we did not have contracts with before, but those were at a lower price than the 2008 (inaudible) contract price.

Then we do have a small proportion of thermal, and from time to time we can make an additional sale of a shipment of thermal coal that obviously will be in a much different price, and that can affect the average overall, which takes you to the $190 guidance that we have given.

Could you give some idea of how much thermal volume would there be in there?

Well, we are not going to break it down particularly because these are literally additional one-off spot shipments, and we would not want people then going to make that into a run-rate or a percentage because it is a unique kind of customer-driven situation.

But you talk about your sales, what have you on track for the 20 million full year? Is it possible that your sales volume would be above 5 million tonnes in Q1? Is that plausible, or is that ridiculous?

Well, it would not be normal. The normal amount in Q1 is lower than the average quarterly if you like. That is what has been the history.

And this year will be the same as history? Is that what you are saying?

I guess the particular comment I made, that we are on track to do 20 million tonnes in the first quarter, looks normal.

Tony Robson, BMO Capital Markets.

I guess this requires a little bit of a crystal ball, but are you feeling reasonably confident that, say, by September you will be able to get some material asset sales underway?

And secondly, as a follow-up question on that, under the Fort Hills slide where you mentioned strategic alternatives being explored, I wonder if you could add a little bit of colour to that, please?

Okay. On the first question, well, you can never say for certain, we're pleased with how the sales processes are going. As we have mentioned in previous calls, we have been running four parallel asset sale tracks, and part of the reason for that is to keep competitive tension and to keep our options open as we look at the prices for each of those.

I would say that we have made good progress. Gold is probably a little bit ahead of the others because we have started it before, and we have been on the record for sometime saying that in order for Teck shareholders to realize value on gold ultimately we have to sell them. And so that is looking reasonably good. And the rest are proceeding.

So I'm not sure that I can say much more than that, other than we feel pretty good about the process so far.

On the second one on Fort Hills, we're looking at a strategic alternative. But it means just that, that we will watch development with our partners and see what they do, and depending on the results of that, we could make some decisions. But at the moment, we think that the long-term prospects for the oilsands sector generally and for the properties we have got in particular look pretty good. We like to hang onto them. But at the same time, as I said earlier to a question, we're examining all of our options with all of the assets and comparing them to the values that are possible, and that would be included in that addition.

Greg Barnes, TD Newcrest.

I just noticed the Chilean copper operations, both QB and Andacollo, had negative operating profits in Q4. Is there any contemplation of cutting back production or shutting those mines down given the low copper price?

We have done a lot of work on looking at what the actual cash costs after everything including sustaining capital would be, and then we look at it literally day by day as to whether they are generating cash or not. At this point all of our operations other than Pend Oreille, which is almost closed, are generating positive cash, so we would keep them open.

It is a good question. We have looked at different scenarios where if the copper price dropped to a certain point where we might stop mining but keep bleaching and that sort of thing. So the scenario planning has taken place, but at this point and at these price levels, we will keep going.

What kind of cash costs are you running in Chile?

We have a range mine by mine. I guess what we have indicated generally is that for the company overall we are about $1.00 on average, but for all operations we will keep going at $1.30 or above.

And in the press release, you have opened the door to potentially doing an equity issue. Is that a scenario that would pan out ex asset sales, including asset sales, or copper price or coal price that that would have to be done at?

I think what you're referring to is the statements listed in the risk factors, and I guess our description would not be that we have opened the door.

Okay, fair enough. Thank you.

What I would like to repeat is that there's no equity issue under consideration at this point, and while you certainly can never say never, we have these asset sale processes underway, and we need to see the results of those. And as I say, we think they are going pretty well, so that is our position at this point.

But I think the language you have read it is in the liquidity risk section, and we need to make that as complete as possible, and so it would include that.

Fair enough. Thank you.

John Tumazos, John Tumazos Very Independent Research.

Is there anything in the Chinalco/Rio Tinto announced last week that you think would not be a good model or something to put under the range of alternatives that you might consider for Teck?

I mean that is a very interesting question that we could talk about at length. I find it a fascinating transaction, and basically the developments in the global mining scene are intriguing to say the least as the world sorts its way through a pretty serious global meltdown.

I think it is an interesting model, and I don't think you can compare directly to the deal itself because it involves a variety of assets and prices for those assets and a long-term plan, and the situations are just so different. But the concept of having a strategic partner, it is a big customer. For the long-term, obviously that has some appeal, and if we were in that kind of a discussion, we would look at it quite seriously.

But I would repeat what I said at the beginning. We're looking at all options, and there are quite interesting options like that available to us, and we will continue to pursue these and eventually make a decision based on the merits of the option before us.

Gaurav Bana, AllianceBernstein.

What would be the necessary and sufficient conditions for you to open the door to an equity issuance?

Well, let me make this clear. We do not want to do an equity issue. I know that there are at various times different rumours that are spread by market participants in the hopes of that, but that is not in the plan at the moment. As I say, you can never say never, but we have a program that we are executing, and we're pleased with the progress. That takes time, and there will be no single announcement that kind of says that all of the issues have been resolved. It will be a series of announcements, some of them quite small. But in cumulative taken together, they can become quite significant and help with reduction of debt and ultimate refinancing. And so at this stage, there is no equity issue planned.

Okay, just a follow-up question. You are around 4.5 times leveraged on a debt to EBITDA basis at this point. On that metric what kind of leverage are you comfortable operating the business, and secondly, would you be comfortable upgrading Teck Cominco as a B-rated company?

On the latter, no, unequivocal no. On the former, of course, that involves various assumptions of commodity prices to make that calculation, and so I don't think we could just give a straight answer to that. But we will carry on with our plan of reducing the debt, and that is the most important thing.

Kerry Smith, Haywood Securities.

Don, have you discussed or is there any consideration to selling a minority interest in the coal operations to one of your partners, one of your customers or a number of your customers? Has that been discussed at all?

The short answer would be yes. I think people would generally assume that we have had versions of those discussions for some time. And, in fact, going back before the transaction, as we analyzed it every which way we could, we concluded at that stage that we did not necessarily need to own 100% of the coal. We felt that it was the right thing to do at the time to take control of it and then sort out which partner we wanted to have for the long-term, and key customers were obviously on that list.

As I think your question is indicating, there are various players in the market that will have a real long-term need, strategic need, for seaborne met coal. So obviously China is key and top of the list given that they are committed to building the coastal plants for the long-term similar to what Korea has that (inaudible) has.

And then Japan has been a long-term customer. I mean several key companies there that are core, very valuable customers, and a consortium there obviously would have an interest in a long-term secure supply of coal.

Brazil is another country where clearly they are very blessed with rich iron ore resources, and developing a national steel industry and leveraging those iron ore assets would be valuable. But they cannot do it without seaborne met coal, and clearly Canada is best placed to supply that, particularly with the Panama Canal increasing capacity, which would allow the larger ships, the cape vessels to go through.

So what we have on offer is a long-term resource, 100 years plus, and it is available once and only once. So there is some scarcity value. So in our discussions, we see that there is sort of interest between Brazil, China, Korea, Japan, and let's not forget India. Even though the shipping distance is quite aways, it does have plans to grow their steel industry quite substantially, and it has an impact on the overall seaborne met coal market. So it is kind of country to country at this stage.

But those are the kind of things that take time to have the discussions. Everyone wants to see what the 2009 coal price will be, and we won't know that for sometime. So that is kind of the status of that one. But it makes an awful lot of sense to take on one of these strategic partners, and for them this is kind of -- we're the second-largest in the world. There are not that many sources of seaborne met coal, and some of them are in places that are less stable or have difficult infrastructure issues. This one is up and running, and if you buy an interest in it now and get your share of coal right now, it tightens up the market for everyone else, and it is kind of a move against your competitor. So we have an interesting process, but it is going to take some time.

And you did not actually specifically mention a strategic minority sale of an interest in the coal assets. Does that suggest that it has moved to the back burner because the price that was discussed was not appropriate or for other reasons? I'm just curious why it was not actually discussed sort of in the preamble as it were. Even in the slides, it was not actually mentioned. So I'm presuming it is lower priority for one or more reasons.

It may not have been in the preamble specifically, but I guess what we have said is that we're running various asset sales. And then other than in gold, where we have been public for some time, we're not talking about in detail what we're doing there.

And then to the second part of your question, I would say that nothing has become low priority. Everything is high priority right now.

Okay. And perhaps can you give any guidance on what the exploration budget and the R&D budget might be for '09?

Between the two, probably between about $50 million and $60 million.

Okay. And also the G&A for the year, if I was to net out the stock-based compensation to take that out of the equation, what would that be roughly?

$80 million, $85 million.

Okay.

If I could just clarify a point there, the answer Ron gave is correct. But within the R&D part, it is important to understand that our product technology center in Mississauga, while we lift the costs there, it actually generates revenues all sorts of -- it is a revenue neutral or breakeven kind of situation on that one. So if you just look at R&D alone without that content, it would overstate the number by quite a bit.

Okay and just one last question if I could. When you looked at the impairment on the coal assets, you had to make some assumptions on coal prices on a go forward basis and exchange rates. Can you share what those assumptions may have been?

Well, we actually got an independent view on that from a large well-known accounting firm, and we have not shared those assumptions. I'm not sure that we're likely to, frankly. But they looked at various scenarios, and what I can tell you is we're very pleased with the result, and given that the total cost of 100% of Teck coal is the base, the valuation that they came up with significantly exceeded that number, so there was no issue.

Okay, thanks a lot.

I think it is pretty easy for most analysts to pick a variety of coal prices and discount rates, and you will see that they are pretty strong cash flows. The exchange rate is the key. That is the big factor.

Wayne Atwell, Pontis Capital.

If I'm not mistaken, your CapEx is estimated $500 million this year. Do you have much flexibility there? Can you pull that down much?

Well, we already went through a process in October taking it down to the minimum level. Within that $500 million, there is $250 million of sustaining capital. We can operate at that level for another year. Thereafter, there would be some catch-up, and we have been on the record saying that before.

The rest of it is in project development, of which 180 I believe, and Tim Watson is here, he can give more clarity, is on the Andacollo project that Tim just discussed. And we're very pleased with that project and the progress there, and it is set to start commissioning in the fourth quarter this year.

So that number in 2010 will go down because we will be essentially finished with the project. But the sustaining capital will stay where it is in 2010 roughly, and then by 2011 it will have to go back up.

Okay, thank you. Can you give us any clarity on the possible timing of asset sales and what your best guess is as to the total you can achieve at this point?

Unfortunately I cannot, but I would repeat the comment I made earlier that we're pleased with the progress. We will announce them as they are concluded, and no one announcement will appear to be that material I don't think. I think people will examine each announcement and say, well, is that what I expected. It will be a little higher, a little lower. Some of them are smaller. But taken in total, it becomes a significant number that reduces the debt a fair bit. So unfortunately I cannot give you further details until they are actually concluded.

(Operator Instructions). David Charles, GMP Securities.

I'm just wondering if it is safe to say that the detailed negotiations with the bankers on your bridge loan syndicate will really only kick into high gear after we have some clarity on the coal volumes and prices for this year? Is that safe to say, or do you think that you can proceed a long way with the negotiations prior to that and maybe even get them to extend the deadline for the bridge loan prior to that?

The short answer is I don't know. What I can say is that we have a good dialogue with the banks. I would say the discussions have been quite constructive so far. We will continue that dialogue. There are a lot of banks. It is 25 banks in one facility, 11 now with the takeover (inaudible), and the other, it is complex and it takes time, but I think it has been very constructive dialogue so far, and we're pleased with it. But we just cannot predict what the result will be or when it will be or what it will be. It is going to take some time.

Is it safe to say as well that the banks will have certain expectations of what they want you to do? So you like, do you think that in the back of their mind they have a number, let's say, on asset sales, maybe a number that you have discussed with them or one that they have worked up themselves, you know, in these negotiations, is that true?

What happens, each bank has their own model and their own risk committees and so on and can come to their own views on what they think that we should do. The one common theme is they want us to reduce the debt and so do we. So we have the same interest. I think what I could say is that there has been general acceptance that we have interests that are aligned with the banks. We want to get the debt down and finding the best way to do that.

So to go back to the situation that we have here, the company is running quite well. I think if you looked at the results that we have reported and we have tried to sort of break out the numbers with as much detail to give people a feel -- the operations are doing their job, and the company is quite cash positive. We had a good quarter for generating cash, and then we have good solid assets that can be sold for reasonable prices.

So the real issue is that the debt or the acquisition of an 80-year, 100-year 5 billion tonne plus resource has been shoehorned into an average maturity of less than two years. You know, a part of it in one year and part of it in three years. And in the normal course with a transaction like this, you would finance it with longer-term financing that is more appropriate for the long-term resource.

I mean as an example when we finance the construction of Antamina, that was a 15-year project financed because it had a long life resource. It happened to pay back in two years because the nature of the commodity business is you get these years, one, two, three years when prices are quite high, and you get all your money back quite quickly.

What we need to do is to extend that average maturity of less than two years first to something a little bit longer with the banks. So that it gives us more time for markets to improve and for capital markets generally to open up and then to put in permanent financing that is more consistent with the length of the resource. Our plan was to do a five, 10 and 30-year bond issue sometime from when we knew legally that we own the assets on September 30 and when the deal closed on October 30.

Needless to say, by the time October came, the markets were closed, and in other periods they have closed for a week or two, but we have never seen capital markets close for the length of time that they have. And so that has left us with the situation that we have.

But the underlying company is doing well, and the key will be the discussions on how we best spread the payments out over time.

Brian MacArthur, UBS Securities.

Just a couple of follow-ups. I just wanted to clarify when you said the accountants looked at the value of the Elk Valley Partnership, that it was a discounted analysis because as you pointed out a number of times, it is a very long-lived asset. But I just want to make sure it was not an undiscounted cash flow they use to basically stay above the book value.

No, they chose an appropriate discount.

Second question, just the other capital we have not talked about at the Fort Hills, the 330 that you have to spend as your share to get it going, when do you think that will actually potentially be spent now?

That is a number -- and maybe I have to turn over to Tim Watson in a minute -- that we have seen change quite radically in a short period of time from, say, last October when it was a much bigger number. It has come down quite a bit month-to-month, and each time the management committee has a meeting, they look at different ways to advantage that spending. But Tim Watson is on the management committee. Why don't I turn it over to him?

Thank you very much. There's a number of different things that are going on with the project right now. We're looking at, as Don had mentioned, the upgrader has been pushed out indefinitely, and there is quite a rigorous review going on to look at reducing the overall capital required for the North, which is the mine and the extraction facilities so we can produce a bitumen product.

Now with that, until we actually get to the point that we are confident that we have been able to reduce the capital to the point that we have a project that can be sanctioned, we're doing everything we possibly can to reduce the month-to-month expenditures. So while we have seen a budget that was prepared, say, the fourth quarter of last year for 2009, that was on the initial assumption that we would be through the reviews moving towards a sanction in the middle of the year.

It now looks like there is the potential to move the sanction for the facilities to the North further out. As a result, we're trying to completely reduce all expenditures associated with the ongoing engineering activities. The vast majority of all construction activities in the North have been stopped and/or suspended. And there is also in some of the budgeted numbers allowances made for -- fairly conservative allowances made for cancellation of cost of equipment associated with the South. And as we have gone forward, we have done better on some of those negotiations, further reducing the cost for 2009.

So basically you could probably get that number down some more for what you're actually going to spend this year, at least get it into the back half of the year?

That is correct. That is what we're looking to, yes.

Just switching to another issue, back to the first quarter $190 a tonne, I just want to make sure I got this right. We're going to take all the carryover tonnes from 2007 in the number. We're going to take a bunch of thermal coal. We're going to have some of the $300 hard coking coal contracts, you said those were still being honoured right now through the first quarter, and then we will have any other one-off sales. Is that kind of the four components that blends into that $190?

So then once we get through this quarter, it will just be additional sales, whatever new price you have, and then whatever you can maybe carryover of the original $300 coking coal contracts from last year?

No, I think that is a fair representation. What we have done in cutting to the 20 million tonne level, we have still kept all six mines operating. Because that gives us the flexibility to when we see customer demand of a certain blend of coal to produce it and sell it, then it's incremental tonnes. But the incremental tonnes are not at the 2008 contract price, and then some of them are thermal tonnes. But if we make money on them, we think we should do it. That is why we have kind of configured the business as it is and why you're going to see for a period of time a blend of prices there.

One last question. Just you talked about you had $850 million of cash at year-end. You brought in $950 million sometime over the last six weeks for the tax refund, which would be about $1.8 billion. Yet you talked about only $1.4 billion in cash as of February 16. That extra $400 million, can I assume it went to pay down debt? I mean you generated some cash elsewhere, too, I assume.

Some of the cash tax refunds came in in 2008, so it was already in the 2008 number.

Okay, so that is what I'm getting at. That $1.4 billion now would include $950 million and then you basically have got the extra whatever, 1.13 minus 950 to go, and that is basically one other source of cash to go in there?

Yes, I have got about 150 to go in the tax refund.

Haytham Hodaly, Salman Partners.

Just a couple of quick questions maybe to follow-up on Brian's. So for the CapEx guidance on Fort Hills for the 330 where he mentioned that maybe that was more back half of the year weighted, so you're still expecting I guess -- going back to Tim -- to possibly defer some of that costs into possibly 2010. Is that what I got from what you're saying?

The dollars that we are looking at, again when we look at the budget that was put together for 2009, it was associated with basically reviewing the overall capital costs and reducing the capital costs for the activities in the North. It also contained dollars associated with cancellation costs for equipment associated with the South, and we are still actively moving forward on the operating side with our operating crews in the North doing the preproduction, some of the preproduction stripping that would allow us to move back into the project development side probably sometime in 2009.

So until such a decision is made on sanction of the project, the goal is to reduce the capital expenditure to the absolute minimum we can going forward. So if that means the possibility of pushing some things into 2010, we will certainly look at doing that.

Okay. No, that is a good answer. Next question I guess to stay on Fort Hills for a second, this is probably a question more for Ron, after the $90 million write-down taken in the fourth, what is your carrying value at Fort Hills right now?

It would be about $540 million pre-tax.

Okay. And then maybe I will go back to sustaining CapEx breakdown of $250 million. Ron, what is the biggest component of this?

Hang on just a second. I am going to have to get back to you on that one.

Sure, no problem. And then maybe I will ask just one more. Just in terms of your effective tax rate guidance for the full year 2009?

That is a tough one. Basically the taxes going forward will likely be the mineral taxes and our foreign taxes. With the Fording transaction, basically the Canadian income taxes will be sheltered by the CDE pool deductions that we have available to us.

Okay. That makes sense. And if you can get back to me on the sustained CapEx at a later time, that would be great.

Jay Lubinsky, West Face Capital.

Do you currently have access to your revolving line of credit? If so, is the fully undrawn amount available, and if not, what are your conditions for drawing it?

It is still available, and it is un-drawn at this stage. That is a $800 million facility.

John Hughes, Desjardins Securities.

Just some quick cleanup questions I guess. For the price settlement adjustment in the Q1 period, can you give us an idea just in terms of the 164 million pounds of copper, for example, it was provisionally priced at the end of December. How much of that was settled in January?

I do not have the details handy. We will have to get back on that.

Typically it would be about 90% would settle in the quarter, of course, but we cannot give you a breakdown by month right now.

Okay. On the thermal coal side, in terms of you mentioned in your discussions on thermal coal and how that -- your total product mix may be changing a little bit in favor of that, is that coal thermal sold domestic?

No, and I would not want to overstate the change in the mix. These are one-off shipments that we were able to sell internationally. So we do it because we generate additional cash. But the bulk of the business is hard coking coal.

And again, noted the $1.4 billion in cash mid-February, as we exit the first quarter, how much of the $1.4 billion is destined for debt repayment whether it be the bridge or otherwise?

Well, we will look at the whole range of sources and uses of cash going forward and make that allocation over time. So we could not really answer that right now.

That is it for me.

It does show the combination of the $1.4 billion of cash. Plus, the revolver shows that we have good financial resources at our disposal for some time.

Lawrence Smith, Scotia Capital.

Just a question on the tax refunds. Could you break down of the $950 million received, how much fell into the '08 fiscal year, i.e. shows up in the statements we got now, and how much was subsequent to that?

About $160 million or so was in '08, yes '08.

Greg Barnes, TD Newcrest.

Ron, how much of that $1.4 billion in cash is actually down in Chile?

Probably a couple, $300 million.

Can you get that back easily or is it subject to --?

Yes, we have found a way that we can bring it back with minimal losses.

Kerry Smith, Haywood Securities.

Just a real quick one. With the cost at (inaudible) Teck coal side, have you started to see much benefit from the decline in fuel prices?

Well, we are starting to see that. Elk Valley uses I think around a little under 200 million litres of fuel per year thereabouts, and the company as a whole uses about 400 litres at 100% level. I would say that the sensitivity to oil price would be in the order of about $3 million to $3.5 million for each CAD1.00 change in the oil price.

But you want to be careful with that number because fuel is purchased at different places with different margins from the refineries, and then at Red Dog, for example, a huge amount of their purchases is in a two or three-month window during the shipping season. So that gives you a bit of a flavour for what our fuel bill is likely to be, and that is just our fuel purchases. It does not include what suppliers build into their cost features.

Right, okay. Okay. I was just trying to make some estimate as to what the costs might be. Because they were a bit higher in Q4, obviously the $58, and whether that would come down a little bit more in 09. Okay, that is great. Thanks.

Thank you. There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Lindsay.

Yes, I would just respond to the question on capital spending for 2009, the major spending would be at Antamina, Teck coal about $50 million to $60 million; Trail metals about $30 million; our share of Antamina $30 million to $35 million; Red Dog, $45 million to $50 million range. So those are the major sustaining capital expenditures.

Okay. Thanks, Ron. I might just highlight there are quite a number of investor conferences coming up in the next month or six weeks, and these things get booked several months in advance, and previously I had booked to attend a number of them. But, as you can tell from the question-and-answer session here, generally people focus on the same questions, and there are a number of questions that we just won't be able to answer such as the coal price for discussion with banks. So rather than have a long list of one-on-ones with people asking the same questions that we will not be able to answer, I will be staying and focusing on these various issues as to sales and slow negotiations and bank negotiations. The rest of it, Greg Waller will be handling those conferences. So to the extent that some of you may have signed up for one-on-ones, I did want to give you a warning that we won't be doing in that format for the next couple of months.

So with that, we want to say thanks very much for attending, and we look forward to the next quarterly call.

Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.