Teck Resources Ltd (TECK) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by. Welcome to UTS Energy's corporate update conference call. At this time all participants are in a listen-only mode. Following the presentation we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions).

The Company may make forward-looking statements during this call. These statements are based on UTS' expectations and are subject to a variety of risks and uncertainties and other factors which are inherent in a predevelopment stage oilsands mining and extraction enterprise that could materially affect UTS' results.

No representation can be or is being made with respect to the accuracy of the projections or the ability of UTS to achieve the projected results. The Company assumes no obligation to update any forward-looking statements. I would like to remind everyone that this conference call is being recorded on Thursday, March 25, 2010 at 7 a.m. Mountain Time and will be available for playback on the Company's website.

I will now turn the conference over to Miss Jina Morisette, Vice President, General Counsel and Corporate Secretary for UTS Energy. Please go ahead.

Thank you, operator, and good morning, everyone, thank you for joining us. My role today will be to chair the conference call. I'm joined this morning by Will Roach, President and CEO of UTS; Wayne Bobye, Vice President and Chief Financial Officer; Howard Lutley, Vice President Mining and Extraction; Martin Sandell, Vice President Engineering; and Daryl Wightman, Vice President Resource Development and Business Strategy. I'll now turn the call over to Will.

Thanks, Jina. Good morning, everyone. Thanks for calling in. We have our presentation, as usual, up on the website and I hope all of you can get sight to that. We're going to be talking to that presentation and we'll try and let you know which slide we're looking at when we do that. Each one of the slides has a slide number on the top right hand side.

I'm going to assume that everybody has looked at the forward-looking statements at the front of the presentation occupying slides 2, 3 and 4. And hope that everybody has read and digested that.

So I'm going to go straight to slide 5 which is UTS Highlights Number (1). And what I'd like to do before I get into that is just say there's going to be -- we're going to try and focus on three themes today. We're going to try and talk a little bit about what we achieved in 2009.

We're also going to talk quite a bit about what UTS expects to happen at Fort Hills. And this is really our understanding of where it sits in the Suncor portfolio of assets and why we think that. And that's pretty important because I know that Suncor has talked to the market and said they're going to come back in the fourth quarter and talk about that. We've gone ahead of that a little bit; we're trying to give our shareholders a view of where this fits and why we think that.

So we're going to be talking about that, but I would want to emphasize that's the UTS view of where that sits and both Howard and Martin are going to talk a little bit about that and Wayne is going to give us some idea of what that does to the balance sheet.

And then going on to the last point, we really went to emphasize the strength of our balance sheet and how this is going to translate into our plan to deliver value across the portfolio of our assets, not just Fort Hills. And that's really one of the themes that we're going to talk about and Daryl may talk a little bit about that later in terms of the exploration.

So coming specifically now to the highlights. Pretty clearly a big deal when Suncor integrated with Petro-Canada, became operator of Fort Hills. Still working on the project. We expect some significant opportunities to come out of that transition. Don't have any specific details, but Martin and Howard are going to talk a bit about where that sits today.

Frontier and Equinox, the 50-50 owned projects we have with Teck, both mining projects, making pretty good progress and, again, we're going to talk about where they fit in the timeline, how much money we think we'll be investing in those properties and how we're going to create some value going forward with those projects through the regulatory process.

Slide 6, which is the Highlights (2) slide. Just going -- peripherally mention the Lease 421 Area, which we disposed of our 50% working interest there for CAD250 million. A key point there is we invested about CAD15 million in those lands over a period of two and a half years. Outstanding return and I'd like people to open their minds to the value that we've created in the portfolio outside Fort Hills. Not belittling Fort Hills at all, but the key point is Daryl and his team have done a great job finding these resources and I'm optimistic that we're going to be able to repeat that. And we may talk a little bit about that later.

And then lastly, we did a lot of piloting work on the process that we think is going to be able to add a lot of value to our portfolio, high temperature paraffinic froth treatment, we did that with Teck and results of that were pretty positive. And also we actually used the ores from Frontier and Equinox to run through that plant. The key bit there is we end up with clean bitumen that we think then allows us a pretty wide set of opportunities in the refiners and market to be able to sell that product.

And then finally, just try to draw your attention to the tagline at the bottom of the slide. We're really the only small stage company, relatively, in the oilsands mining business. And we've got a huge potential in front of us on the already proven assets that we have our working interest in, up to about 200,000 barrels a day if we retain our current working interest.

So with that I'm going to hand it to Howard now to talk about a little bit more detail on the Fort Hills project.

Good morning, everybody, this is Howard Lutley, VP Mining and Extraction. So if you turn to slide 7 -- as you may recall, Suncor has already said that they're looking at Fort Hills to see where it sits in their overall development plans. We're quite pleased that they've put together a senior level team made up of experienced project development people from within Suncor as well as some resources from an EPC contractor.

This team is looking at potential synergies between Fort Hills and Suncor's base operations, as well as applying their extensive operational and construction expertise to develop a revised capital operating cost estimate. So we expect that output from this work will be a go-forward plan that will be completed towards the end of the third quarter or maybe early in the fourth quarter of this year of 2010.

And then the next step would be to move into the DBM stage and we would expect this to be completed by the middle of next year. So and one of the things that Suncor has emphasized to us through our management meetings is this project team is trying to preserve as much of the engineering completed under Petro-Canada's management as possible. So that we minimize the rework and retain value for the past money spent on engineering and initial site activities.

So let's move on to slide 8. And this is the schedule of how we see things going forward. So with this work going on one of the questions we're repeatedly asked is when will we see first oil from Fort Hills? Now Suncor hasn't provided a project schedule, but just based on the discussions we've had with them, we've prepared our view of what we can expect the earliest first oil date to be which is essentially end of 2016 or early 2017. And I want to emphasize that this is UTS' schedule. We shared it with Suncor, but this is our view.

I think the key things to look for as we go forward is the decision to proceed to DBM update at the end of this year, which is a partnership decision. And then, in the middle of next year, whether the partnership moves into a feed update where we would start committing and spending significant dollars again. So those are the key dates that we're looking at in the Fort Hills project schedule.

So, to summarize, we see the earliest first oil is at 2016-2017 timeframe and, of course, it could be as late as 2019, just depending on the schedule that the partnership moves forward with. But 2019 is the last date required to preserve the current leases. So now I'll turn it back to Will to talk about where the projects fit in the overall scheme of things.

Thanks, Howard. So we're on slide 9 now and this really is a pretty neat slide that Howard put together. And what we're trying to do here is just showed you the universe of all of the projects. As you go from left to right in this chart you have increasing quality. Now just to give you some scale here, we used with chart with our Board of Directors yesterday and they made a pretty good point, and I'm going to reiterate it now. The difference between a TV to BIP of 12 and a TV to BIP of say 9 is really in terms of operating cost, Howard, around CAD2 a barrel?

CAD2 to CAD3 a barrel, yes.

So the whole spectrum here is really bottom scale or the ex-axis, as I'd call it being a scientist, is operating cost. And then obviously ore quality is at quite a condensed scale and they all come in to within 10.5% to 12% working interest. So this is really quite a condensed scale and this is the universe of the oilsands mining. And this includes existing projects in operation and also future projects.

So what we've done is we've also tried to plot the size of each project on this. And these sizes are taken from the regulatory applications for each of the projects. So they may not reflect the final size of the resource, it's just a measurable point in time for each one of those.

So if you now go to the next slide, slide 10, you can take out all of the projects that are being built already, are in production, or are being constructed such as the Kearl project. And you see pretty clearly there are not many projects left and the biggest one clearly is Fort Hills. Pretty clearly also you see that this is a great opportunity as a go-forward mining project.

I should add the other two projects there, Shell Pierre River to the right just reflects, as we understand it, the resources to the south of our Equinox Project, so that may get bigger. But also they go to the north the TV to BIP will go up. So that may move to the left hand side and get slightly bigger. And I think the same is probably true for the Total Joslyn project. So what you see is that Fort Hills really is, in terms of quality, the next one to go.

Moving on to slide 11, we have used this slide before. And really what we're trying to do here is just take what we've heard from Suncor in the public domain which is their targeted 10% to 12% oilsands growth, and then put in it what we understand the portfolio looks like right now. It's not trying to be impertinent, it's just trying to communicate with our shareholders where we think the Fort Hills project fits.

And the one message I want you to take off this, ignore the order, it's basically to achieve their goals with the current portfolio Fort Hills needs to get developed. Now we obviously would like to see that done earlier and Howard has talked about the schedule that we see going forward with the production starting in 2016. Pretty clearly that window, as I've said before publicly, is 16 to 19 given our current understanding.

So with that hopefully you get the point that it's the next big one, it's pretty key to UTS, but also we think pretty important to our operating partner, Suncor. And as Howard said, the go-forward decision clearly is a partnership decision that involves Teck, Suncor and UTS. So, with that I'd like to hand it over to Martin to talk a little bit about another one of our growth assets.

Good morning, I'm Martin Sandell, Vice President of Engineering. I'm going to give you an update on our Frontier Project. So moving on to slide 12. In conjunction with our partner, Teck, the Frontier Project is now being materially progressed. Contracts for the design basis memorandum studies of the mine and processing facilities have been awarded involving some CAD10 million of expenditures this year. Gathering of data for the environment impact assessment continues with a view to completion over the next 12 months and consultations with the various stakeholders are also ongoing.

Furthermore, during the recent recently completed winter drilling program we finalized the drilling necessary for the regulatory application. As a result we expect to be able to file the application for Frontier with Equinox as a satellite in the first quarter of 2011. We would then expect, on the basis of present regulatory timelines, to have approval for our next major project in early 2014.

So now moving on to the slide 13 and a different topic. Given the current threads of UTS expenditure we've developed a cash flow model for the purpose of business planning, particularly with respect to use of our current cash balance. The base planning case for our model assumes the following.

Firstly, the earliest expected development of Fort Hills with first oil in 2016 with two trains and cost in our guidance range of CAD8 million to CAD10 million. Secondly, that Frontier and Equinox are progressed to regulatory approval as I've described, but without construction or procurement activities. Thirdly, a successful exploration program on our lands and subsequent delineation. And finally, normal escalation of G&A and other costs.

So moving on to slide 14 where we see the results for our base case, and I'd like to emphasize again that these are solely UTS' view of these numbers and there's been no consultation with our partners on these. And I'd also like to point out that the variability in G&A is due to payment of taxation in 2010 and subsequent rebates as shown in the green bar.

As you can see on this graph, Fort Hills dominates future expenditure under the base case assumptions. Even with an extensive successful exploration program. Nonetheless, UTS' cash position is sufficient to fund our activities until well into 2014. Furthermore, since this is the most aggressive spending case, our current cash balance could actually last considerably longer than shown here. I'm now going to hand over to Wayne Bobye to talk more about UTS' balance sheet.

Thank you, Martin. My name is Wayne Bobye, I'm Vice President and Chief Financial Officer. I'm on slide number 15. I'll talk a bit about UTS' balance sheet. Presently our balance sheet is very strong, we've got an excellent cash position. If you look at the balance sheet we've got about CAD234 million in cash and we do have the proceeds now today for the sale of Lease 421. So we've got about CAD450 million in cash.

Our working capital is excellent; we've got -- working capital is CAD450 million when you take the current assets minus current liabilities. We have no debt, no long-term debt. We show, and Martin alluded to this -- when we sold the lease for 421, we paid some taxes and we show CAD42 million there. We should be able to recoup that over a three-year period and try to get as much back as we can. In fact, when we sold Lease 14, now called Equinox, we paid taxes but we got all those taxes back over a three-year period.

In addition to that, we've got a very strong shareholder equity base. That's very important as we move forward and do financing when we look at debt to equity ratios. We've got CAD863 million of shareholder equity. So when you look at our company, it's financially very strong, we've got the cash of CAD440 million, we've got an earn-in of CAD704 million. So we've got over CAD1 billion of reserve there for Fort Hills and our other projects.

Just a quick comment on the earn-in. It did go up from the third quarter, it was CAD695 million. The reason for that is Petro-Canada had over accrued the costs and the costs were a lot less in the year-end results. So that's why that earn-in is more. So we've got an excellent -- we're in an excellent financing position. With that I'll turn it back over to Will.

Thanks, Wayne. So I'm going to skip over 16; on 16 we've got a couple of just highlighted points there on the balance sheet that Wayne has just been through.

Turning over to slide 17, and this is really a good new slide and it intentionally doesn't include the exploration activities there. What it really is trying to show is pretty lumpy news flow unfortunately for the shareholders. Wait until the year end on Fort Hills to hear where Fort Hills' partnership project sits within the pretty large Suncor portfolio.

And then on the projects we're working with Teck, they're going into an engineering phase and the next big news that comes out of that really is that we put the application together and make them in 2011. So, in parallel with that obviously, as Martin said on the cash flow projection, Daryl and his team are going to be investing quite some money over the next three years into our exploration portfolio, which we're pretty optimistic about.

The last slide that I want to talk to is, again, slide 18. And it just tries to show you recent oilsands transactions, the price per barrel we see in those transactions and the UTS share price. This just assumes the cash and earn-in are undiscounted on the bottom and what we're actually trying to do is take asset transactions and say if you look at those imply a value back, where should UTS fit?

This is obviously one of our major challenges in 2010 and certainly one for me where we need to get you, the market, to understand the intrinsic value in the portfolio. We feel that, given where we're trading right now, that is not reflected. And we're going to try and work hard to make sure that's fully understood by our shareholders. And with that, Jina, I'll pass it back to you.

Thank you, Will. I would now like to open the floor for the question-and-answer session and ask the operator to come back on to explain how to proceed.

(Operator Instructions). Phil Skolnick, Genuity Capital Markets.

A couple questions. First, I noticed that the earn-in at the end of the year went up about CAD9 million, or CAD704 million from the end of the third quarter. And also the expenditure since inception at Fort Hills was about CAD2.8 billion which is CAD59 million lower than what you stated at the ended the third quarter. Just wondering what those differences were for?

Wayne.

Phil, it's Wayne Bobye. What happened there was we do accruals when we get the numbers from Fort Hills and the numbers came in a lot lower at the end of the year. So that meant that we hadn't spent as much so the earn-in went up as a result of that.

Okay, good. Also, would you look to try to accelerate activity with your in-situ properties? Maybe to try to do a pilot sometime sooner than later or do you have enough drilling done yet to try to do that?

Hey, Phil, how are you; it's Will. I am going to [obfuscate] that. We obviously have a pretty strong land position and Daryl is sitting across the table smiling at me and I'm going to hand it to him in a minute. But pretty clearly we -- in that exploration expenditure we're going to be looking at all of our assets. And we really are right at the beginning of that process and haven't really drilled many wells in that extensive land -- I think it's 111 sections or something. Daryl, why don't you carry on.

Yes. I'm Daryl Wightman, Vice President of Resource Development and Business Strategy. I think, as well as I think Will has said most of that, we are looking at all of our lands and we are looking at we do have a considerable land base in the in situ and in the coming months we'll be looking at all of that and looking at our drilling programs in the next few years. And one of the things that we are looking at is drilling wells and our in situ acreage.

The budget we show and Martin talked through sort of includes the presumption that we're going to go ahead and drill some of that up, Phil.

Okay. So come many core holes would you need to drill before you could even decide that you have enough to say, okay let's try to do a pilot?

You'd probably have a drilling program of somewhere between 20 and 40 wells depending on the target that we pick, the area that we choose. So the first year of drilling would really give you the data as to whether you have something with potential and then from there you'd have a more extensive drilling program in the following year.

The budget that Martin showed and talked about in the cash flow expenditure forecast is one of the cases that we're looking at. We could -- some of those expenditures would increase obviously with more success and they could decrease with less success. So we've got -- that's one of the cases that we have in there and it assumes some success in our drilling program.

Okay, thanks.

(Operator Instructions). Mark Friesen, Versant Partners.

Thank you, good morning. A couple of questions for you. First of all with respect to last winter's core hole drilling program, 68 wells on the 311 area. I wonder if you could maybe just give some color as to what you saw with that. Was that entirely to fill in density to move 311 like Frontier towards an application? Or were some wells a little more exploratory in nature?

Dear Whiteman to answer the question. Mark, number one, the program was very successful. We had a very good program, 83 wells. The wells really were drilled for the regulatory application; they were to infill the density required for the first 10 years of mining, so that was -- that was accomplished. And there were other wells that were drilled that are also related to the application in terms of where the facilities would be placed and aspects like that. So, the wells that were drilled really were not of an exploratory nature.

Okay, thanks, Daryl. So has enough drilling been done then on Frontier to move it to an application stage?

Yes, that is correct. The drilling program this winter has fulfilled our drilling requirements for that and we on that -- in that regard we are ready then, we will be ready to move forward to submit the application.

Okay, good. Thanks, Daryl. And just another question, if I could, on the Company's lease holding activity. I think on page four of the release it says you spent about CAD15.3 million on land acquisitions during 2009. Just wondered if you could maybe give a little bit of color as to maybe where those leases are and what your intentions are with exploration of the lands?

Good morning, Mark, I'll answer that and we sort of wondered whether that would get picked up. Pretty clearly we have bought some land and we, I think, would like to think it's in the oilsands area, Daryl? So from that perspective we're pretty optimistic. And I would add that this is land that has been picked by the same team that Daryl leads that found Equinox, Frontier and the Lease 421 area. So we're pretty optimistic about it.

And the other point is, and Wayne was talking about the strength of the balance sheet, we for the first time have bought this 100%. So we've invested that money in land for the UTS shareholder on our own.

So, I think it shows a couple of things, still opportunities out there and we're being a bit vague about it because there are, we still think, other opportunities around there. And pretty clearly we've done this with our balance sheet. So, hopefully we'll be able to get on and to move that forward in the exploration sequence. And in fact the cash flow you've seen talked to by Martin includes drilling, some drilling activity on those new lines.

Okay. Are you able to say, Will, if it's east or west of the river at least?

No.

Okay. Any indication as to the amount of exploration drilling on all of your leases going forward say in the next winter schedule?

Yes, Daryl can talk about that number of wells we think we're going to be drilling. But this is really guesswork because we haven't had a sit-down with our partners. Obviously on the other land we don't need to do that.

Great, okay, thanks.

Operator, am I to assume there are no more questions? All right. Thanks, everyone, for joining us today and listening to our conference call. This slide presentation will be up on our website, www.UTS.ca. Have a great day.