Performance

Gross profit in the fourth quarter from our steelmaking coal business unit was $36million compared with $241million a year ago. Gross profit before depreciation and amortizationin the fourth quarter declined by $200 million from a year ago (see table below), primarily due to a19% decrease in realized steelmaking coal prices.

Fourth quarter sales of 6.1 million tonnes were near the high end of our guidance range, while being slightly below the same quarter a year ago, and 18%higher compared to the third quarter of this year. We increased our sales volumes to China in the fourth quarter to nearly 20% of our total sales in response to increased demand due to restrictions on Australian coal imports into China.

Pricing in China for our steelmaking coal began to increase steadily from around the middle of the fourth quarter when a large portion of our overall sales were already concluded. Our contract sales to Chinese customers, which are priced on the basis of the CFR China price assessments, also benefited from the rising CFR China price assessments. In a declining price environment, our average realized price relative to the FOB Australia price assessments would normally be lower than the long-term average. As a result of these recent Chinese sales at premium prices, our fourth quarter realized price was higher than anticipated when compared to the FOB Australia price assessments, despite the price drop for markets outside China where the majority of our volumes are sold.

STEELMAKING COAL BUSINESS UNIT

Outlook

Despite the challenges in 2020, the steelmaking coal business unit achieved a substantial ramp up in production and sales in the fourth quarter, and entered 2021 with strong raw coal inventory levels.

We anticipate annual production in 2021 to be between 25.5 and 26.5million tonnes as we transition to full production rates to meet anticipated demand. We continue to advance mining in new areas at our Fording River, Elkview and Greenhills Operations. The new areas are expected to extend the lives of these mines and allow us to produce 26 to 27 million tonnes in the long term to continue to offset the closure of Coal Mountain and Cardinal River Operations

Over the past two weeks, severe winter weather has impacted our production and logistics service providers. Including the adverse weather impacts, we expect sales of 5.9to 6.3million tonnes in the first quarter of 2021.

We will continue to prioritize available spot sales volumes to China, which is expected to result in favourable price realizations. We expect our realized price in the first quarter of 2021 to be materially higher than the ten-year average when compared with the average of the three assessments lagged by one month.

Although steelmaking coal prices have softened since the pandemic, market fundamentals remain supportive of our sales plan. We continue to have detailed discussions with customers regarding 2021 sales and we are restructuring our sales book to target approximately 7.5 million tonnes to China. These sales are subject to a range of risks including general market and economic conditions, general and specific port restrictions, Chinese regulation and policies and normal production and operating risks. We aim to sell these tonnes at CFR China pricing, which currently reflects a premium to Australian FOB spot pricing. Final sales and average prices for a given quarter will depend on product mix, market direction for spot priced sales and timely arrival of vessels, as well as the performance of the rail transportation network and port loading facilities.

We expect 2021 adjusted site cash cost of sales to be between $59and $64per tonne, consistent with the second half of 2020, reflecting the structural change in the cost base of our steelmaking coal business unit. Within this guidance, we expect to be near the higher end of the range in the second and third quarter of 2021 as a result of annual maintenance outages. In the first and fourth quarters of the year, we expect to be near the lower end of the range based on higher productivities and fewer scheduled outages.

Transportation costs in 2021 are expected to decrease substantially to approximately $36to $39per tonne with the completion of the Neptune upgrade project and enhanced rail network flexibility. Transportation costs in the first half of the year are expected to exceed the upper end of the annual range during the final stages of Neptune upgrade construction and commissioning. We expect higher first half transportation costs to be offset with costs at the lower end of the range in the second half of 2021.

In the third quarter of 2020, we entered into an agreement in principle, since reflected in a definitive agreement, with West shore Terminals for the shipment of steelmaking coal beyond the expiry of our current contract on March 31, 2021. With improving demand for steelmaking coal and strong pricing FOB Australia as well as CFR China, we have arranged for additional tonnage at Westshore to increase our operating flexibility. We expect to ship between 12.55 and 13.55 million tonnes of steelmaking coal though Westshore in 2021, of which approximately 5 million tonnes is expected to be shipped in the first quarter. After 2021, the agreement provides for the shipment of between 5 and 7 million tonnes per annum at fixed loading charges, for a total of 33 million tonnes over a period of approximately five years.

Our commercial agreements with Westshore and Ridley Terminals complement the upgrades underway at Neptune and investments by CN Rail and CP Rail between Kamloops and Neptune to enhance rail infrastructure. Together, these structural changes to the supply chain are expected to provide greater flexibility and optionality for Teck shipments and contribute to reduced costs and improved performance and reliability throughout the company’s steelmaking coal supply chain. During the fourth quarter, we continued to progress negotiations with CP Rail in anticipation of our current west bound rail contract expiring on March 31, 2021.

We expect sustaining capital expenditures for our steelmaking coal operations to be approximately $430million in 2021, including approximately $255 million related to water treatment andapproximately$175millionfor ongoing operations. In addition, growth capital of approximately $310million will be invested in the Neptune facility upgrade project and $80million inRACE21TM. The RACE21TMprogram expenditures include substantial completion of the autonomous haulage pilot at Elkview Operations and investment in process and mining operating systems and data analytics at our operations. Capitalized stripping costs are expected to be approximately $295to $345million in 2021.

Source from the official website of Teck Resource