Performance

We incurred a gross loss in the third quarter from our steelmaking coal business unit of $63 million compared with gross profit of $425 million a year ago. Gross profit before depreciation and amortization in the third quarter declined by $508 million from a year ago (see table below), primarily due to a CAD$71 per tonne decrease in realized steelmaking coal prices and a decline in sales volumes of 16%, or 1.0 million tonnes.

Our third quarter sales volumes of 5.1 million tonnes were within the guidance range issued in the second quarter and slightly higher than the second quarter of this year.

In the third quarter, we signed a non-binding term sheet reflecting an agreement in principle with Westshore Terminals for the shipment of steelmaking coal beyond the expiry of the current contract on March 31, 2021. The proposed agreement provides for the shipment of between 5 and 7 million tonnes annually at fixed loading charges and Teck will ship a total of 32.25 million tonnes under the agreement over a period of approximately five years. The proposed agreement with Westshore Terminals complements upgrades at Neptune Bulk Terminals and capacity at Ridley Terminals. Together, these will provide greater flexibility and optionality for Teck shipments and contribute to reduced costs and improved performance and reliability throughout our steelmaking coal supply chain. The proposed agreement is subject to definitive documentation and the financial terms of the agreement will not be made public.

STEELMAKING COAL BUSINESS UNIT

Operations

As previously disclosed, we had planned mining and production outages at our operations in the third quarter to correspond with anticipated reduced demand related to COVID-19. In light of the above, we reduced logistics capacity through the five-month planned shutdown at Neptune Bulk Terminals, which was completed in September. As a result, our third quarter production of 5.1 million tonnes was 22% lower than the same period a year ago.

Despite the COVID-19 measures we have implemented, daily operating productivities at our operations continue to achieve historical high performance levels. Similar to the second quarter, the efficiencies realized and supported by our RACE21™ innovation-driven business transformation program resulted in a 5% improvement in third quarter truck productivity, compared to the same period last year. The improved productivities reduced material movement costs.

Outlook

We are expecting sales of 5.8 to 6.2 million tonnes in the fourth quarter of 2020. Despite the reduced production in 2020, we continue to maintain an annual production capacity of approximately 26 to 27 million tonnes supported by the four operations in the Elk Valley.

We expect adjusted site cash cost of sales in the second half of 2020 to be between $60 to $64 per tonne consistent with our previous guidance. Higher costs of sales in the first and second quarters of 2020 were due to logistics issues and the impacts of COVID-19 and are offset by our cost reduction efforts and mine production curtailments through temporary shutdowns in the second half of the year. Further, with the closure of our Cardinal River Operations and the expansion of our Elkview Operations completed in the first half of 2020, we have structurally shifted the cost base lower for the business unit. RACE21™ continues to deliver value and with all of these factors combined, we expect December adjusted site cash cost of sales to be below $60 per tonne. While we are still refining our production plans and operating cost estimates for 2021, we expect adjusted site cash cost of sales to be in line with the second half of 2020 reflecting the structural shift in the cost base.

Transportation costs in the second half of 2020 are expected to be approximately $39 to $42 per tonne, consistent with our previously issued guidance.

We expect sustaining capital expenditures for our steelmaking coal operations to be approximately $620 million in 2020, including approximately $285 million related to water treatment, $240 million for ongoing operations and $95 million for sustaining capital projects ongoing at Neptune Bulk Terminals. Included in the sustaining capital expenditure guidance for 2020 is $140 million relating to increasing the plant capacity at Elkview Operations and the development of new mining areas at our Elk Valley Operations, including the Castle project at Fording River Operations.

In addition to the 2020 capital expenditures noted above, the Neptune Bulk Terminals facility upgrade project includes $335 million to be spent in 2020 and approximately $210 million in 2021 and is considered growth capital. Compared to our previous guidance, spending for 2020 has decreased slightly and shifted into 2021 due to timing of project work and payments.

RACE21™ growth capital includes $25 million that will be invested in the steelmaking coal operations, relating to our autonomous haulage pilot project at our Elkview Operations.

Capitalized stripping costs in 2020 are expected to be approximately $310 to $340 million.

Related Link: Official Document