Teck Resources has raised the capital cost estimate for its QB2 copper mine in Chile again, to US$8.6-8.8 billion after a number of unforeseen events in the September quarter caused additional delays and costs.

The company reported net earnings of $276 million for the September quarter on revenues of $3.6 billion, a decline of 62.8% compared with the same period in 2022. A 25% decline in the steelmaking coal price resulted in the majority of the revenue fall.

The company produced 72,000t of copper, 153,000t of zinc in concentrate, 67,000t of refined zinc and 5.5Mt of steelmaking coal in the quarter, broadly similar to the 2022 period, with higher copper and refined zinc production and lower zinc concentrate and steelmaking coal production.

Teck ended the quarter with $1.3 billion in cash and $4.9 billion in long-term debt, with the first maturity in 2030.

QB2

Teck said QB2 continues to ramp-up and is operating at 70% of design capacity, with production of 18,300t of copper in the quarter, and generating its first generating gross profit of $19 million. The company said it expects to achieve design throughput by year-end.

However, the company updated its capital cost guidance for the second time this year to $8.6-8.8 billion from $8-8.2 billion due to issues with the molybdenum plant and offshore port facilities. Completion of the molybdenum plant is now due before year end and the port facility in the March quarter of 2024. Teck also said its copper concentrate from QB2 will now come in near the lower end of its guidance of 80,000-100,000t.

"We are not pleased. … A number of issues that caused us to reguide arose in the third quarter, which impacted the schedule and costs," said chief executive Jonathan Price during the results conference call.

Chief operating officer Red Conger explained that the 16 pumps of the tailings return water facility were found to have an internal manufacturing defect once they were installed, which only showed when at full load.

"We had to take out each pump and modifiy it in the machine shop and reinstall. This is a major system that we had to build twice," said Conger.

The port development also had a major issue when the piling drill bit failed in the ocean, which took two months to overcome. "We were unable to drill the pile in an alternative location. … We have hired additional contractors to work on other offshore areas like the mooring buoys, at a significant cost increase," said Conger.

Conger also said the new estimate includes full settlement of a number of contractor claims related to cost increases they face following changes in the scope of work requested by the company. "We are reviewing these and will determine what settlements are appropriate. All the claim figures are in the forecast, although some may not be settled for the full amount," said Conger.

Steelmaking coal

Teck said wildfires and labour disruption at ports in British Columbia, and plant challenges saw sales fall below guidance, while increasing transportation costs. The company produced 5.5Mt in the quarter down from 5.7Mt a year ago.

It said that although steelmaking coal prices have fallen from a year ago, they rose again during the September quarter and remain robust, driven by supply constraints and strong demand, particularly from India and China. Prices rose to FOB $343/t in the spot market, which it said bodes well for delivering strong financial performance in the December quarter.

Price said the separation of the steelmaking coal business "remains a priority" with a decision expected before year-end. With a number of companies interested in acquiring the business and market conditions improving, Price said expectations are also increasing.

"The view of the market has evolved since February. The outlook for steelmaking coal has definitely improved, there is a favourable structure for the market, there is growth of blast furnace capacity as well. There is also greater appreciation for EVR [Elk Valley Resources] as a long life, high margin company as well, so there has been a move in expectations," he said.

Copper growth

Price said the company continues to advance its copper growth portfolio, which could grow production to 1Mtpa. It said its copper reserves increased 8% compared with a year ago.

A feasibility study for a mine life extension at Highland Valley (2028 to 2040) was completed and an environmental assessment submitted. At San Nicolás in Mexico, the company plans to submit its permit application before year end and to complete a feasibility study in the March quarter of 2024. Permitting for the Quebrada Balance mill expansion (QBME) continues with a feasibility study due before year end. At Zafranal in Peru, detailed engineering studies are commencing.

However, the company does not want to repeat the development issues of QB2.

"We will undertake a detailed lessons learned from the QB2 experience to carry forward to future projects, in terms of capital assumptions and how they are delivered. We will take those assumptions forward to future projects. Although the projects in the portfolio are an order of magnitude simpler in complexity, scale and scope, we will make sure we understand those lessons well before we sanction any other project," said Price.