Teck Resources Ltd (TECK) 2010 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to SilverBirch Energy's conference call. (Operator Instructions).

The Corporation may make forward-looking statements during this call. These statements are based on SilverBirch's expectations and are subject to a variety of risks and uncertainties and other factors which are inherent in a proven development stage oil sands mining and extraction enterprise that could materially affect SilverBirch's results. No representation can be or is being made with respect to the accuracy of the projections or the ability of SilverBirch 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 Monday, April 18, 2011, at 7.00 AM Mountain time and will be available for playback on the Corporation's website.

I will now turn the conference over to Ms. Jina Abells Morissette, Vice President Legal and Administration for SilverBirch Energy. Please go ahead.

Thank you, operator, and good morning, everyone. Thank you for joining us this morning for our call. My role today will be to chair the conference call.

I'm joined today by Howard Lutley, President and CEO of SilverBirch; Wayne Bobye, Vice President and Chief Financial Officer; and Phil Aldred, Vice President of Resources.

I will now turn the call over to Howard.

Thank you, Jina, and good morning, everyone, and welcome to our first conference call as SilverBirch Energy. I draw your attention to the presentation on the website, and as I go through our material this morning, I will be referring to the slides in that presentation on the website. So I hope you are all able to access that.

Really the purpose of our call today is essentially it's going to be a short call to cover the year-end results, update our status on the Frontier and Equinox projects, and then announce our new and significant discovery on our Audet leases, which are leases 418 and 271.

So let's get right to it. If you can turn to the Web presentation and we will quickly go through the forward-looking statements, and then I will direct you towards slide five, which is the first of the substantive information.

Now many of you are familiar with SilverBirch, but for those that are new to the story, I need to do a quick recap of our history. SilverBirch is the company that came out of the spinout transaction when Total E&P acquired UTS Energy and the assets that move to SilverBirch Energy were the assets outside of the Fort Hills project, a project which Total did not choose to acquire. The SilverBirch management team is essentially a subset of the UTS management team. A large majority of the management team and other employees stayed with SilverBirch and now form the new Company.

And, as before as UTS, SilverBirch is still focused on exploration and development and production of oil sands hydrocarbons from the oil sands area in northeast Alberta.

The primary assets, the major asset, which is the mineable oil sands deposits that we hold a 50% interest in Frontier and Equinox with our partner, Teck Resources, and I will talk more about that project in due course. And then we have a number of opportunities with in situ oil sands potential, and of course, the key one being our Audet leases, 418 and 271, which I will also spend a little time on today.

And beyond that, we also have a 50% interest in a gain that is with our partner, Teck, on over 200,000 acres, which includes some perspective in situ potential, particularly in the birch mountains area, and again, that gives us future potential for future development.

Now SilverBirch has only been in existence for six months, so we have had an exciting start, and it seems like quite a lot has happened in that first six months.

So now I will ask you to turn to slide six, and we will just run through the highlights. Essentially we got off and running October 1 successfully and smooth transition over to the new Company, and we seem to get a pretty good market reaction and acceptance. We opened back in October at around CAD5.60 a share, and today we're trading in the CAD9 range.

Of course, that has coincided with a resurgence of interest in this sector, and of course, it just reminds everybody with all the events going on in the rest of the world what a stable secure production is available from the oil sands area.

I think the first key milestone that we achieved was our 58% increase in the contingent resources at Frontier and Equinox, and that was announced back in February. So essentially our 891 million barrels of contingent resources that were our share has now risen to 1.4 billion barrels, which is a very significant resource for a Company of our size. And, of course, it is the largest share of a undeveloped oil sands mining project not already held by a major energy company.

Also, as I mentioned, we were successful with our drilling program on leases, 418 and 271, the Audet leases, and 25 of the 34 resource holds came in at over 10 meters of intersection at oil sands, and the vessel came in at 40 meters. So we are very satisfied with that. And we have put in place a credit facility for CAD10 million to give us that financial flexibility should other opportunities arise that allow us -- that we would need a little bit of additional cash flow.

So we will move on to slide seven. I think really that just reiterates the fact that we -- there was good investor recognition of the opportunity within SilverBirch. We quickly rose to that CAD7, CAD8 level, and then with the announcement of the contingent resource growth, Frontier and Equinox, we moved to that higher level around CAD9 and have stayed there since that time.

We will move on to slide eight. Now really we have put this slide just to give you a quick recap of the locations of our projects and the distribution of our exploration land. I want to point out we were not affected at all by the recent announcements from the Alberta government in the lower Athabasca regional plan, which assigns some new parkland in the region. None of our lands were affected by that.

So the key areas we are talking about today are the Frontier project west of the river and the leases, 418 and 271, on the East side up against the Marguerite River Wildland Park.

We will move on to slide nine, and my purpose now is to bring you up-to-date on what is happening on the Frontier and Equinox projects. We are making tremendous progress on the projects, and Teck has assembled a technically strong team with lots of oil sands mining experience and regulatory and environmental experience. So they have a complete technical team in Calgary now to take this project forward.

The mining consultant completed a new mine plan early this year, and that is what resulted in the 58% increase in contingent resources. I should point out that was completed at the end of last year, it was reviewed by Sproule, and announced in February of this year. And also, the design and engineering for the design basis memorandum was also completed early this year, and the data from the technical submissions submitted to the EIA consultants so that they can get on and start working on the environmental impact assessment.

We were expecting to have preliminary capital cost estimates by this stage, but that is taking a little longer than expected. And so we are now expecting to see that -- see those estimates in the second quarter of 2011.

Another significant piece of progress has been in the area of regulatory management. The EIA is well underway, and we are expecting that to be completed by the end of third quarter of this year. And that will allow submission of the regulatory application in the fourth quarter. Typically once we get the documents back from the EIA consultant and, of course, we anticipate all the way, there is a final owner's review. So that takes a few weeks, and we would expect that to go out before year-end of this year.

I will ask you to move on to slide 10, and now we can move on to our 418/271 area, which is the Audet leases.

Six months ago when we first started up, we told you about our plans to drill off this area, and we were quite excited about the potential. And this area is in a very active area. We have got Imperial working to the west of us, Grizzly to the south of us, Oilsands Quest is drilling to the southeast of us, and then Husky's Sunrise project is just coming forward to the Southwest, and further South is Cenovus' Borealis project. And there is proposed new pipeline coming into the area, the Norealis pipeline.

So it's a hot area, and of course, it is very close to our former lease 421 area, which back in UTS days we owned with Teck Resources and sold that block to Imperial for CAD250 million back in 2009.

So it is a very active area, quite interesting in the character of the oil sands in that area. As we saw on 421, very coarse and quite rich uninterrupted oil sands intersections, and we were hoping that that would be replicated on this lease, and that appears to be the case. At that time, we indicated that we got from geophysics that there was potential on 10 to 15 sections, and we think that potential has been met and perhaps exceeded with the current drill program.

So we will move on to slide 11. As I mentioned, 25 of the 34 core holes encountered oil sands from -- and this is data estimated from logs -- with thicknesses over 10 meters with the single highest one at 40 meters. So the average thickness across those 25 wells was 22 meters, which is quite substantial and quite encouraging for in situ production. The depths to the top of the sands ranged from 100 meters to 175 meters. So this puts it in the in situ shallow SAGD window.

The cores are in the labs as we speak. We are getting back the initial bitumen saturation numbers and various other reservoir parameters. And the more complete analysis of those lab results will be in our hands by the third or the fourth quarter, and we will take an opportunity to talk more about those as we had those results in place.

We also were able to take a few cap rock samples, and we were -- we had those in for geomechanical analysis at the moment. So, again, later in the year we will be able to talk a little more about the potential for the cap rock integrity and the extent of the cap rock and so forth.

So now I ask you to move on to slide 12, which shows the map of the distribution of the sands. Evidence so far is that they are very clean, coarse oil sands, high depth bitumen saturation seen in the cores tested so far, and no significant interbedding in the column. So, again, it looks like ideal oil sands for in situ production.

So really the program for this year was to prove up the geological concepts, to validate the existence of the oil sands, and really to focus next year and for the work for the balance of this year and the next year will be to prove up the commerciality or otherwise, but we believe the commerciality of this area, and that will be a focus for the coming months.

So if we move on to slide 14, this shows a bit of a summary of what we planned to do over the next 12, 18, perhaps 24 months. And essentially our plan as has been our history is to get the project from this very early exploration stage and take them through to the decision, a point at which a production decision can be made. And so essentially we will move this forward to completion of the design basis memorandum.

So, in the next few months, we are going to engage consultants for a scoping study. We are lining up our reservoir and geomechanical consultants, talking to some of the facilities and infrastructure guys, and looking at things such as water source, water disposal, and putting together our regulatory plan and stakeholder strategy.

In the coming weeks, we are going to firm up a geological budget and geophysical work, and we are looking at doing some seismic, perhaps getting started this summer if possible with a seismic test, but certainly doing some seismic and further drilling during the coming winter. And then in that engineering and geological scope, we will also look at other in situ tests that we are going to need for the application purpose such as in situ stress test, micro -- whatever those are called? Phil, micro --

Mini-frac.

Mini-fracture, that is it. You can tell I'm not a SAGD expert. So really that wraps up where we are on 418 and 271, and obviously we will welcome questions on that during the Q&A session. So basically we will move to wrap up the call, but I will go on to the financial summary.

As you will recall, we did bring some cash over when we formed SilverBirch coming across from UTS, and we opened the year with about CAD60 million in the bank, and we are funded for the next 12 months of development work. We have the line of credit in place as we mentioned and no debt. Total assets essentially CAD285 million, and of course, our property, plant and equipment is valued under the new IFRS system on a cost basis.

I think let's move on to slide 15. As far as our use of cash for the coming months, we have commitments with Teck for about CAD18 million on Frontier and Equinox, and our spending on Audet, or 418 and 271, will total about CAD20 million. And, of course, some of that has been spent already this year and about CAD8 million on corporate G&A, and the remainder, there is a working capital adjustment.

So we are in good shape as far as financing goes, but obviously as we firm up our plans for 2012 activities, we will need to look at our financing needs and again look for further information on that in the coming weeks.

So to wrap up, we will move to slide 16, and basically just summarizes where we believe we have come from and where we are going. I think the key, as I said earlier, was that we have a very substantial resource with our Frontier and Equinox 1.4 billion barrels our share, and an excellent partner with Teck who know what they are doing when it comes to executing large-scale mining projects. We will have those cost estimates we hope within the next month or two, and we will keep working on the EIA and the regulatory applications so that it can be submitted by Q4 or in Q4 of this year. And then we will keep working on 418 and 271, putting together the next drill program and analyzing the technical results as the core results come out of the lab. And we will see what we can do next year as far as getting a third-party resource evaluation so we can talk more concretely about barrels as opposed to just the intersections on the drill map as we have it. And, of course, we will continue to evaluate business opportunities on the remainder of our lands and, of course, other opportunities as they present themselves within our specific area in the oil sands.

So, with that, I will turn it back to Gina, and thank you all for joining us in the conference call.

Thank you, Howard. I would now like to open up the floor for a question and answer session, and I would ask that the operator come back on and explain how we can proceed.

(Operator Instructions). Phil Skolnick, Canaccord Genuity.

Just a few questions. First, what is the major -- well, I guess delay in getting out that cost estimate? Is it related to cost inflation or anything specific?

No, nothing specific. It is really just the work process. It took us a little longer to get the mine plans and some of the process plans completed. Working up the tailings, again, with making sure we've got all the new information to comply with Directive 74 figuring out -- it was a lot of the details really looking at things such as dike locations, plant location and so forth. So there are several iterations, and it ended up just taking a little longer than expected.

And how about your view on what capital costs are? Is it time to start worrying about that?

I don't know about worrying about it. I mean we are keeping an eye on it. We know from other people working in the area and even from the first indications that we're getting from the consultants that there is general upward pressure on some of the inputs. And actually from our own drilling programs, I think we get the best indication in that we are already seeing that certain categories of skilled labor are tight in short supply and that we are being advised to sign contracts with drilling companies and suppliers, which, again, comes back to commodity costs, getting those signed up early, which we are doing.

So I think it is valid we are certainly seeing upward pressure on costs, but how that will roll over into the capital cost for a long-lived project. I mean the other thing we keep in mind we are not looking to construction until after 2015. So we've got maybe another half a cycle to go through before we get into construction.

Okay. Thanks. And just going over to the in situ lands that you just did the drilling on, what are your views and thoughts on the cap rock because that is in the area where you don't have the clear water shale.

Yes, maybe I will start, and I will see of Phil Aldred, our VP of Resources, wants to add anything. But we knew going into the program that cap rock was an issue in the area, and you are right that we don't have any incidence of any clear water shales in the area.

So we made a specific effort to come up with some geotechnical rigs on site, and we also cored the upper formations just above the intermediate contact with the oil sands. And in quite a number of the holes, we are able to obtain quite competent samples of play mud stones. So maybe I will turn it over to Phil just to briefly characterize that, and we do recognize that this is a work in progress.

Yes, thank you, Howard. As Howard mentioned, part of the drilling program this last winter was to better understand the overburden as it relates to potential cap rock integrity.

So, in addition to the resource core hole drilling, we did recover a number of cores related to the overburden and the interval immediately above the oil sands. At this time we have really only just initiated the lab testing of those recovered cores. So we don't have anything specific at this time that we can comment on. But, as we move forward during the year and probably together with our other lab results in the fourth quarter, we should have more information to share.

Okay. Great. And then finally, anything on farmout potential with Frontier and Equinox just to reduce your risk out there?

Nothing in the works. We always maintained that that is something we would certainly consider. We recognize that the first phase of capital is going to be quite substantial for a company of our size, so we have not made any commitments on that. But we are certainly open-minded, and we will just keep watching that.

We feel we have a certain amount of time because we are just entering the regulatory process, which is typically three years. So we are still more than three years from a sanction date. But we feel that that means within the next 12 to 24 months we have to come up with a strategy for how we are going to manage our share of the capital component and whether that is farmout or how that comes about. Because we have quite a bit of time to work through that.

Mark Friesen, RBC Capital Markets.

Just a follow-up to Phil's question there with respect to the Audet lease and the cap rock situation, given what you may find there, would you consider or are you possibly considering alternative extraction techniques other than SAGD in that area?

Well, we are pretty open-minded. What our strategy is at the moment is to focus on a few areas where we believe that what I would call a cap rock that we have seen. I mean we have obviously seen some pretty good samples of fairly heavy clay muds above some of the wells. So our strategy will be to identify one or two project areas within the township that we can focus on as a potential conventional, if you can call it conventional, shallow SAGD. I mean obviously we are working at 100 meters to 175 meters of depth.

So that will be our focus. And then once we have identified a target resource and in our mines we are thinking 200 million to 250 million barrels, that would create a substantial block that we can focus on. Then we would look at how do we step out from there. So if we have got areas with no cap rock, then at some point down the road we would look at getting more resources out of the township by looking at alternative extraction technologies. But certainly our focus for the near-term will be to work on those areas where it looks like there is a pretty good opportunity to develop a conventional, if you like, shallow SAGD project.

Okay. Great. Can you make any correlation to the depth of the reservoir and that shale and mud cover that you found? Is that present in the deeper parts of the reservoir, or can you make any comment?

I will ask Phil to talk to that one.

I think you are referring to any muds within the reservoir itself. And, as far as we have seen from our visual inspection of the cores at the time, again, going back to the comments that the lab analyses are incomplete at this stage, but going back to our visual inspections we have not seen much in the way of mud content within the reservoir itself.

Yes, that is good. I was actually thinking of the overbearing mud and shale stones. So is that present in the areas where you find the reservoir at deeper depth, or can you make any correlation to that?

The debts themselves are more related to variations in surface topography than variations on subsea structure. So I think what we have seen so far is that it is fairly consistent throughout this area in terms of absolute elevation.

Okay. And just a follow-up to one of the comments you made, Howard, in your prepared comments about the technical team that Teck has in place here in Calgary, an you put some color around that maybe in terms of the size of that team and what SilverBirch's participation is with the work being done there?

Yes. It is well over 15 now, pushing towards -- I think the goal is to end up at 20 or 22 once the whole team is in place good. The way we work is essentially a joint venture management team, although we have not got the formal joint venture in place.

So our technical team and of course -- SilverBirch is pretty small. So our technical team is largely the people around the table here like myself and Phil, Cam Bateman, our regulatory guy, and then our geologists who work with our counterparts at Teck on the joint venture management team. They do most of the work. But we are still quite involved with both the facilities consultant, the EIA consultants, and the mining consultant so that we get the opportunity to provide our input. So it's a very effective functioning joint venture, and actually one of the tasks on our list for this coming year is to keep working towards negotiating the formal -- or formalizing that joint venture for Frontier.

(Operator Instructions). Ms. Abells Morissette, there are no further questions at this time. Please continue.

Thank you. Ladies and gentlemen, this concludes the conference call for today. The call will be posted on the SilverBirch website at www.silverbirchenergy.com.

Thank you for participating. You may now disconnect your lines.