Teck Resources Ltd (TECK) 2010 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to UTS Energy's Q2 earnings 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's expectations, and are subject to a variety of risks and uncertainties and other factors which are inherent in a predevelopment stage, oil sands mining and extraction enterprise that could materially affect UTS's results. No representation can be or is being made with respect to the accuracy of the predictions 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 Wednesday, August 4, 2010, at 7 AM Mountain Time, and will be available for playback on the Company's website.

I will now turn the conference over to Ms. Jina Abells Morissette, 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 today. My role will be to chair the conference call. I am joined today by Will Roach, President and CEO of UTS; Wayne Bobye, Vice President and Chief Financial Officer; and Howard Lutley, Vice President, Mining and Extraction. I will now turn the call over to Will.

Thanks, Jina. Good morning, everyone. As usual, we have a presentation that has just been posted on the website. And I'm going to run through that and hopefully give you the key slide numbers that I am talking to.

Today, what we're going to do is I am going to walk you through the recently announced transaction with Total and give you some color on feedback. Wayne is then going to talk through some of the highlights from the quarter which we have just announced.

And then I have the great pleasure of introducing the proposed CEO, or the new CEO for SilverBirch, Howard Lutley, in a slightly new role. And I then have to be quiet and listen to Howard talking about some of the opportunities that I think we all see with the SilverBirch companies --the new spin out company.

So as indicated, I am going to speak to the presentation on the website entitled "Q2 Conference Call," August 4. And there are, I will point out several forward-looking statements and disclosure statements about the forward-looking nature of some of the comments we're going to make. I would draw your attention to those.

And I will go straight to slide number five, which relates to the transaction we announced, in fact, four weeks ago today, which is the sale of UTS to Total E&P Canada for C$3.08 a share, which on its own represents a pretty substantial premium to the trading price prior to that. The numbers are there -- 46% to the actual day, and then 36 over a 30-day volume -- percent.

Now the key there is that those numbers don't include the fact that you get a share, a proportionate share for SilverBirch. We are doing one SilverBirch share for 10 UTS's shares, so there is consolidation occurring. So you are ending up with a pretty substantial premium to the actual trading price, price of that. And I think we closed yesterday around 3.56, and it has been high in the intervening period as 3.70. And I will let Howard talk to you a little bit about how he sees those opportunities in that company panning out shortly.

So suffice to say, we feel as the management and board of directors unanimously that this is a substantially good offer for the Company. We have had some very positive feedback in the intervening period from the vast majority of shareholders and we had a very busy time over the last four weeks and Jina has been very busy with the team putting the circular together which indeed includes an IPO level document around the launch of SilverBirch.

The other point is that one of our major shareholders locked up to the transaction -- West Face Capital, which shows their clear support for the transaction.

So going to slide six, which is the transaction summary -- it really just summarizes what I just said. But the key one is look out for the circular, which I now think is either being mailed late August or beginning of September -- Jina?

Beginning of September.

Beginning of September, and then we are expecting to be able to have an extraordinary general meeting I think towards the end of September, with the deal forecast to close around the beginning of October.

So with that, what I would like to do now is pass it to Wayne to just run through some of the Q2 highlights.

Thank you, Will. I'm on slide number seven. I'm going to just run through some of the highlights.

For Fort Hills, Suncor continues to be focused on integration opportunities to define the scope and timing of the Fort Hills Project. The timing of (technical difficulty) on Fort Hills remains uncertain.

In terms of Frontier and Equinox, work continues on the design basis memorandum with Equinox as a satellite. And we are doing the necessary technical and environmental information to support putting a regulatory application in early 2011.

We have done some fieldwork during drilling season to get some more geological data and engineering stuff. Late in 2009, we purchased Lease 418 and 271. We own 100% of that, and we are going to be drilling about 50 core wells to see what we've got there. It looks like it might have in situ potential.

Now just turning to our slide eight, just to give you a recap of the balance sheet, we continue to have a very strong balance sheet -- working capital of C$435 million. Our cash and equivalents is C$408 million. As always, we have no debt, and in terms of the earn-in for Fort Hills, it has remained at the C$407 million level. So a very strong balance sheet for the quarter.

With that, I will turn it over to Howard or back to (multiple speakers).

Back to me. Sorry. Can't throw me away quite that quickly, Wayne.

Before I hand it to Howard, I would just like to say, you know, I've been CEO of this Company now about six years. And for me it's clearly time to move on for a whole bunch of reasons which I will try and explain -- some of them personal.

But really, I've worked with Howard and the team here for six years. And it's a very talented team, been extremely successful in my opinion. We've been through some very big ups and downs, and I think at the end of the day, have done a good transaction returning value to the shareholders, but created a very neat little company that has a significant upside for the shareholders as well. So the way I view the transaction is it's trying to get the shareholder the best of both worlds.

And for Howard to take over, it's really a very natural thing in my opinion to do it. We have had a very strong team for some time. SilverBirch is going to be a substantially smaller company. And I don't want to steal Howard's presentation. And he will share that with you. So accordingly, it's natural that some of the team leave and give opportunities to the other members of the team.

So I am very confident that Howard will deliver shareholder value going forward. I am going to remain very interested. And I am going to remain, in my book, a substantial shareholder. At the end of the day, when the deal is completed, I will own about 0.6% of the shares. And I intend to keep them, and give Howard regular phone calls to find out how my investment is.

So with that, I like to thank all of the shareholders and the team and the board of directors for their support over this period. I am going to stay with the Company now until the transaction completes in the beginning of October and then move on to other things.

So with that I would like to pass it over to Howard. And we are now moving on to a different color presentation.

Okay, well, thank you, Will. And in the spirit of recognizing contributions [in others], we want to recognize Will's contribution thus far for UTS, and also his recommendation to our board of directors that I take on this role as CEO of SilverBirch. And I also have to acknowledge our board of directors for their unanimous support for me taking on this position.

With that, I draw your attention to slide 10 in the presentation which, as Will said, sort of draws us to the new color and the new appearance of SilverBirch Energy.

The next three slides 11, 12, and 13 are the forward-looking statements related to SilverBirch. But there's also references to UTS. And this is important, because at the moment, of course, the plan of arrangement has not been completed. So all of the statements in the SilverBirch Energy presentation assume that we are successful on the completion of the plan of arrangements and the various other matters that are described in the circular that you will receive in the coming days.

So now I encourage you to move forward to slide 14. And as Will mentioned, the SilverBirch management team is essentially a distillation of the UTS management team. Essentially the total headcount at SilverBirch will be about half the headcount of UTS. And this is reflective of the smaller asset base and the somewhat lower level of activity that we will have without Fort Hills as a major project in our portfolio.

Having said that, I think we still have a very strong team, a lot of experience with UTS and working with the -- in the oil sands business and in resource development in general in the province.

So as you can see, I am President and CEO, and Wayne will continue on as CFO and vice president. Phil Aldred, who has managed our exploration programs for the last three years looking after the day-to-day details and the actual geophysical programs and core logging and so forth with his team, has now assumed the position of Vice President of Resources. And similarly, Cam Bateman who has been looking after our government affairs and a lot of the technical issues related to regulatory matters has now moved into the Vice President of Projects positions. Both of these fellows are very strong technically in their fields, well recognized in Alberta and in the province in general and I believe will be very successful in these positions.

And finally, we continue to have Jina in this very important and extremely busy role of Vice President of Legal Affairs and administration. And in the smaller company, in addition to doing the legal work, she will also pick up responsibility for human resources and much of the general management support to the management team.

And now I'll move to slide 15. I've got to say I'm very excited about this opportunity of -- even though we are somewhat of a smaller company, when you consider the size of this Company with 12 full-time employees, we have a very substantial resource base of around 900 million barrels when you look at the best estimates of resources for the Frontier and Equinox projects.

And we firmly believe that as we continue the engineering and advance the Frontier project with Equinox as a satellite, that will have the potential to take that resource up towards the high estimate, and in fact the planning and engineering work that is ongoing will be designed around the 16-to-1 TV-to-BIP limit, which should encompass a total resource of somewhere between -- or a total producible bitumen volume of somewhere approaching 1.4 billion barrels. So we see that as a huge growth potential for SilverBirch.

We will start off with initial working capital of C$50 million. And based on current pricing or as of yesterday, the implied market cap of SilverBirch will be approximately C$230 million.

So we will move on to slide 16 now and this is just a reminder of the assets we have. And the key assets of course are the mining discoveries, Frontier and Equinox, shown on the west side of the Athabasca River, which is where we are very active with an engineering program, mine planning and regulatory program.

And then the area of, probably, the most exciting potential for us is the Lease 418/271 block on the east side of the map, where we are getting ready to conduct and exploration program this winter. And as Wayne mentioned, we believe that has in situ potential; however, until we get a few drill holes into the ground, we can't be certain what that area will bring. But we are certainly quite optimistic about the potential.

And I do draw your attention to the [closology] to the Lease 421 area where, again, we are very successful in finding bitumen in an area that was somewhat unexpected by many players in the industry and had a very successful transaction with Imperial last year on that lease. So again, we remain quite optimistic about the lease 418/271 area.

Now draw your attention to slide 17. And this goes back to what I was talking about with what we believe is the potential for converting our resources from the best estimate of around 900 million when you look at Frontier and Equinox combined, to towards the higher end of the range as we complete the design and engineering work for the [CVM] phase for the Frontier and Equinox projects. And that is a work in progress and I will have a couple of comments on the timing on that in a moment.

Now if you go to slide 18, this gives an illustration of why we believe Frontier Project combined with Equinox is an important asset in our portfolio. And that's primarily because there aren't any more major mining projects in the oil sands to be discovered, we believe.

Essentially, the mining area is all leased up, and so the projects have been discovered, and the majority or the remainder of the projects are tied up with the majors. So the Frontier project owned 50-50 between SilverBirch -- or currently UTS, but to be SilverBirch -- and Teck is the only project in the development stage that is not held by a major oil company. So we believe that the scarcity value as well will help drive the value up as we move forward in its development.

I would now draw your attention to slide 19. And the key messages here are that ourselves and Teck are moving forward with Frontier and Equinox. We plan to submit a regulatory application by the middle of 2011, and we expect to move that forward with an anticipated approval by early 2014, assuming the current regulatory timelines and expectations remain in place.

So it is typically 2.5 years to 3 years to get a regulatory approval through the process. And of course as we have seen with Fort Hills and the recent transaction on Fort Hills, that an approved mining project with well-defined barrels has a much higher value for those resource barrels than an early-stage project. So that is our intention is to move forward towards that approval over the next three years.

Similarly on leases 418 and 271, we will start the process again, a process that we have become very familiar with at UTS and will continue that with SilverBirch of acquiring land; getting an understanding of its potential through [desktop] and geophysical studies; and then moving forward with a carefully planned exploration program to make the best use of our available capital.

So we will start that program once we have deferments in place. And once [freeze-up] occurs in January or February of 2011 and we would expect to have some indication of results in that, probably early second quarter of 2011. And that won't be definitive resource estimates, but to be an indication of whether we've found anything or not. So that will be an important milestone in early second quarter of 2011.

And then we have the other exploration lens and we are continuing at a somewhat lower level than UTS, but continuing to maintain an interest in how various new technologies that are emerging, particularly related to in situ extraction can help us develop our properties. So we will continue to evaluate on an -- as available [on a] time basis with a small team, the current portfolio, and keep abreast of technological developments that will help us extract further value from our leases.

So moving to close on slide 20, we believe that we have a solid foundation with the resources that we have in place and the potential for high-value adds as we go forward with our regulatory application and our exploration program on 418 and 271. And we will continue to evaluate the business opportunities that become available to us, or that we can create on our exploration land.

And so, finally, as summarized on slide 21, we believe we are in a very strong position to move forward with a solid resource base -- a small team with a proven track record and, we believe, a good degree of market recognition for what we've done in the past under Will's leadership, and hopefully I will be able to take that forward, continue that method to create further value for our shareholders in the coming two or three years.

So with that, I will turn it back to Jina and we will entertain questions.

Thanks, Howard. I would now like to open the floor for a question-and-answer session. And I'd ask the operator to come back on and explain how you can get your question through.

(Operator Instructions). And there are no questions in queue. I will turn back the call back over to you for any further comments.

Thanks, operator. Ladies and gentlemen, this concludes our conference call for today. Thank you for joining. This call will be posted on UTS's website, www.UTS.ca. Thanks for participating. You may now disconnect your line.