Teck Resources Limited Class A · TSX:TECK.A
Teck Resources Limited Class A — Elk Valley Resources — Investor Presentation (March 2023)
55 slides from Teck Resources Limited Class A's investor presentation, Mar 30, 2023
Slide 1: Elk Valley Resources Investor & Analyst Presentation and Modelling Workshop
Elk Valley Resources Investor & Analyst Presentation and Modelling Workshop March 30, 2023
Slide 2: Caution Regarding Forward-Looking Statements
Caution Regarding Forward-Looking Statements Both these slides and the accompanying presentation contain certain forward-looking information and forward-looking statements as defined in applicable securities laws (collectively referred to as forward-looking statements). These statements relate to fu
Slide 3: Agenda
Agenda EVR Overview Operational Resilience Marketing and Logistics Financial Overview Valuation and Modelling Closing Remarks and Q&A w 3
Slide 4: EVR Overview
EVR Overview Robin Sheremeta / President & Chief Executive Officer 4
Slide 5: Management Team
Management Team Robin Sheremeta Jeff Hanman Ryan Podrasky Réal Foley Glen Campbell President & Chief Operating Officer Chief Financial Officer Chief Commercial Officer Chief Human Resources Officer Chief Executive Officer • Appointed Teck SVP, Coal in • Appointed Teck SVP, • Appointed General Manage
Slide 6: Elk Valley Resources
Elk Valley Resources Planned dual-listing on the TSX and NYSE under symbol “ELK” Pure-play, responsible Canadian steelmaking coal producer focused on long-term cash generation and cash returns to shareholders A World-Class Robust Cash Flows Commitment to Resource Company Underpin Value Creation Envi
Slide 7: World-Class Steelmaking Coal Assets
World-Class Steelmaking Coal Assets Critical mineral necessary to support steel production and transition to low-carbon economy #2 Global Exporter of Production Guidance4 Seaborne Steelmaking Coal 25–27Mtpa 2023 market share1 2024–2026 Plant Capacity of 27-28Mtpa 17% BMA2 BRITISH COLUMBIA Fording Ri
Slide 8: High-Margin Steelmaking Coal Producer
High-Margin Steelmaking Coal Producer Demonstrated through-the-cycle cash flow generation Top Quartile Delivered Margins Track Record of Profitability 2022 WoodMac Margin Curve1 10 Year Average2 $2.7B $199 $193 Impairment Adj. EBITDA $170 47% Impairment Adj. EBITDA Margin Managing Core Business Driv
Slide 9: Cash Flow Waterfall
Cash Flow Waterfall Transition Capital Structure supports resilience and returns to shareholders Supplemental Shareholder Returns Min 50% of available cash flow3 $255M Resiliency of EVR Cash Flow Capital Environmental Preferred Share from Operations Expenditures Stewardship Trust Dividends Transitio
Slide 10: Transition Capital Structure to Full Separation
Transition Capital Structure to Full Separation Significant value accretion to common equity upon payment of the royalty and preferreds Transitional Capital Structure Royalty Terms Payable until the later of… 87.5% Teck Metals Gross Revenue $7.0B 6.5% Cumulative Royalty Preferred Equity (“Royalty”)
Slide 11: Nippon Steel and POSCO Interests Affirm EVR's Value
Nippon Steel and POSCO Interests Affirm EVR’s Value High-quality steelmaking coal a key input to steel and the low-carbon transition “ Nippon Steel (NSC) and POSCO to receive interests in EVR for their minority interests in Elkview and Greenhills High-quality steelmaking NSC to pay $1.025B in cash f
Slide 12: Operational Resilience
Operational Resilience Jeff Hanman / Chief Operating Officer 12
Slide 13: Operating Strategy Focused on Resilience
Operating Strategy Focused on Resilience Clear strategy to maintain competitiveness, maximize cash flows, and lead in sustainability Maintain Competitive Position Maximize Cash Flows Sustainability Leadership • Health & safety is a core value • Maintain and improve top-quartile margins by • Pathway
Slide 14: Optimization Drives Productivity and Margins
Optimization Drives Productivity and Margins Truck Productivity Plant Improvements Standard Haulage Model1 % +20% COVID absenteeism & workforce constraints 103% 102% 104% 103% 99% 101% 100% 100% 99% 90% 92% 82% 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023F • Continuous operator produc
Slide 15: Pathway to Net Zero Emissions by 2050
Pathway to Net Zero Emissions by 2050 Focusing on material drivers; on track with key milestones Carbon Reduction Pathways Overview Detailed Carbon Reduction Pathways Diesel Natural Gas Hard to Abate Offsets & Insets Core 3 and Coal Activities Piloting and adopting smaller zero emissions vehicles (e
Slide 16: Achieving Water Quality Improvements
Achieving Water Quality Improvements Stabilizing and reducing selenium levels in the watershed Water Treatment Facilities to 2027 millions of litres per day Pre-2020 2020 to 2022 2023 to 2027 Initial facilities Transitioning from Additional SRF treatment capacity completed, successful AWTF to SRF to
Slide 17: Long-Term Environmental Stewardship
Long-Term Environmental Stewardship Creation of an Environmental Stewardship Trust to invest in the future of EVR Sets aside cash in trust over time to fully fund long-term environmental and reclamation obligations Escalating fixed annual contributions, starting at $50 million; prioritized ahead of
Slide 18: Marketing and Logistics
Marketing and Logistics Réal Foley / Chief Commercial Officer 18
Slide 19: Critical Ingredient to Global Economic Growth
Critical Ingredient to Global Economic Growth Steel’s Essential Role Premium Steelmaking Coal Supports Decarbonization Strategy Essential for economic growth Steel demand is forecast to remain HCC a critical raw material to steel Supply gap forecasted by 2025 in a low-carbon world strong through to
Slide 20: Steelmaking Coal Market Outlook
Steelmaking Coal Market Outlook Global Seaborne Coking Coal Outlook1 Seaborne HCC Demand Growth to 2030 by Region2 Mt Mt Australia Supply India Demand 300 Canada Supply Total World Demand ROW Supply 250 S.E. Asia 120 Mt 200 Supply Gap Rest of World 150 China 100 Europe 50 India Japan/Korea/Taiwan 0
Slide 21: Chinese HCC Imports Expected to Remain Resilient
Chinese HCC Imports Expected to Remain Resilient Ex-Australia seaborne imports up to new record high of 36 Mt Chinese HCC Imports1 Blast Furnace Utilization Rates in China2 Mt % Ex-Australian Australian Imports Mongolian Imports BF EAF 80 100% Australian Coal Ban 70 15 80% 60 24 26 34 15 50 28 26 60
Slide 22: Resilient HCC Price Over Time
Resilient HCC Price Over Time Consensus long-term estimates consistently below 5Y rolling average by 22% Metallurgical Coal Prices Argus Premium FOB Australia quarterly average (US$/t) Consensus LT HCC Price Rolling 5-Yr Avg HCC 700 Expanding demand Over investment Increasing demand Supply shortage
Slide 23: High-Quality HCC Drives Premium Pricing
High-Quality HCC Drives Premium Pricing Premium Pricing through Market Diversification Teck 2022 Steelmaking coal revenue % CSR % EVR HCC1 comparable with top premium 80 product from Australia 40% Asia (ex-China, India) US 30% China Canada Australia Australia HCC and 15% India Canada South Africa 60
Slide 24: Integrated Logistics Infrastructure
Integrated Logistics Infrastructure Underpins resilience while providing flexibility to maximize margins Neptune Bulk Terminals >18.5 Mtpa • 100% ownership of coal-handling facilities • Primary terminal for market access, with competitive cost of service structure Prince Rupert British Columbia West
Slide 25: Financial Overview
Financial Overview Ryan Podrasky / Chief Financial Officer 25
Slide 26: Top-Tier Steelmaking Coal Margins
Top-Tier Steelmaking Coal Margins Five-year historical performance1 Production Unit Costs Mt Mt 2 26.2 25.7 Adjusted Site Cash Cost of Sales Transportation 24.6 89 21.1 21.5 62 65 64 65 44 47 37 39 41 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 EBITDA Margin Capital Expenditures3 %, adjusted f
Slide 27: Guidance and Outlook
Guidance and Outlook Production1 Unit Costs 2023–2026F (Mt) 2023F ($/t) $88-96 25-27 25-27 25-27 24-26 Adjusted site cash cost of sales2 $45-48 Transportation costs 2023F 2024F 2025F 2026F Expect costs to remain elevated through 2025 due to Capital Expenditures inflation and HCC benchmark price assu
Slide 28: Rising Industry Costs Support Strong HCC Outlook
Rising Industry Costs Support Strong HCC Outlook Significant Shift in HCC Cost Curve from 2020 to 20221 90th Percentile Costs Support HCC Prices2 FOB Australia Estimated 90th Percentile Cost $300 $500 $250 $400 90th $200 $300 50th Percentile Percentile $150 $200 $100 $100 $50 $0 2000 2002 2004 2006
Slide 29: Flexible Operating Strategy Drives Resiliency
Flexible Operating Strategy Drives Resiliency Profitability through all pricing environments Realized Coal Price vs Teck Coal Business Unit Impairment Adjusted EBITDA1 $8 $355 $400 $7 EBITDA ($B) Realized Coal Price (US$/t) $350 7.0 $300 $6 Impairment $209 $250 $174 $187 Adj. EBITDA1 $5 $149 $164 $2
Slide 30: Illustrative Cash Flow Waterfall
Illustrative Cash Flow Waterfall Based on 2022A Cash Flow Capital Environmental Preferred Share from Operations Expenditures Stewardship Trust Dividends $6.6B ($1.2B)2 ($50M) ($290M) Transition Capital Structure (TCS)1,2 90% Gross Revenue Preferred Share Royalty Redemptions $4.7B - Free Cash Flow1 $
Slide 31: Accounting Treatment for the Transition Capital Structure
Accounting Treatment for the Transition Capital Structure Gross Revenue Royalty (“Royalty”) 6.5% Cumulative Preferred Equity $7.0B or Dec 2028 $4.4B Accounting Balance Sheet Balance Sheet Treatment • Recorded as a financial liability at fair market • Recorded as a financial liability at $4.4B book v
Slide 32: Significant Equity Accretion Potential
Significant Equity Accretion Potential Illustrative EVR Enterprise Value Cash flow attributable to common equity increases 10x over the term of the Transition Capital Structure (TCS) Common Equity Royalty Preferred • EVR common equity entitled to 10% of FCF at inception, 100% increases to 100% upon
Slide 33: EVR Valuation
EVR Valuation Helen Kelly / VP Investor Relations 33
Slide 34: Peers Snapshot
Peers Snapshot EVR 22.2 12.6 12.7 Steelmaking Coal Production 5.1 7.1 2022A (Mt)1 2.2 (10% attributable)2 % Steelmaking Coal Revenue 100% 100% 98% 58% 94% 2022A3 Realized Steelmaking $355 $335 $240 $247 $269 Coal Price1 and % realized of FOB 98% 92% 66% 67% 73% Australia 2022A4 Steelmaking Coal Marg
Slide 35: Illustrative EVR Equity Valuation
Illustrative EVR Equity Valuation Enterprise Value Discounted Cash Flow 1 $B 3 Illustrative Enterprise Value 11.5 11.5 11.5 Model discounted cash flows attributable to Discount Rate 5% 8% 10% EVR common equity (-) NPV of Royalty 5.9 5.4 5.0 (-) Book Value of Preferred Equity 4.4 4.4 4.4 1 Considerat
Slide 36: Exchange Listings, Index Inclusion and Timing
Exchange Listings, Index Inclusion and Timing Applications to the TSX and NYSE under symbol “ELK” S&P / TSX NYSE • Conditional approval for TSX listing • Applied to list on the NYSE, subject to fulfilment of all listing • As a spin-off of an incumbent, EVR inherits Teck Resources’ index requirements
Slide 37: EVR Modelling
EVR Modelling Helen Kelly / VP Investor Relations 37
Slide 38: Revenue Model
Revenue Model 2020 2021 2022 A. Sales Volumes • Sales to generally mirror production in the long-term Sales Volume A Mt 21.9 23.4 22.2 • Guidance • 2023F 24–26Mt Realized Price • 2024-2026F 25–27Mt FOB Australia Benchmark1 B US$/t 126 224 364 includes impact from consolidation Realization % C 90% 93
Slide 39: Cost of Sales Model
Cost of Sales Model 2020 2021 2022 Adj. Site Cash Cost of Sales A C$/t 64 65 89 A. Adjusted Site Cash Cost of Sales1 (+) Transportation Costs B C$/t 41 44 47 2023 guidance $88-96/t (+) Other D C$/t 3 2 1 B. Transportation Costs Total Cash Unit Costs C$/t 108 111 137 2023 guidance $45-48/t Sales E Mt
Slide 40: EBITDA Build Up
EBITDA Build Up Revenue A C$M C. Depreciation & Amortization (-) Cost of Sales B C$M • Teck Coal BU 2022A $963M (+) Depreciation & Amortization C C$M • Included within cost of sales (-) Other Operating Expenses D C$M EBITDA E = A-B+C-D C$M F. General and administration2 • Teck G&A 2022A $236M, estim
Slide 41: Current Taxes Payable
Current Taxes Payable Income Tax Payable A C$M B. BC Mineral Taxes (+) BCMT Payable B C$M • Deductible for the purposes of computing income taxes Current Taxes Payable C C$M E. Capitalized Stripping EBITDA D C$M • Deductible for income tax and BCMT as an operating (-) Capitalized Stripping E C$M exp
Slide 42: Free Cash Flow Build Up
Free Cash Flow Build Up EBITDA A C$M D. Capital Expenditures (-) Current Taxes Payable B C$M • 2023 guidance • Sustaining capital $760M Cash Flow from Ops C = A-B C$M • Capitalized stripping $750M (-) Capex D C$M • Refer to slide 27 for additional guidance (-) EST Contributions E C$M (-) Pref Divide
Slide 43: TCS Payments
TCS Payments 87.5% payable to Teck Metals A. Royalty Royalty Payment A = 90% x FCF C$M Opening amount $7.0B (+) Pref Equity Redemptions B = 90% x FCF - A C$M • Royalties1 are paid from 90% of FCF until the later of: Total TCS Payments C=A+B C$M • $7.0B have been paid, or • December 2028 • Recorded o
Slide 44: FCF Attributable to EVR Common Equity
FCF Attributable to EVR Common Equity FCF A C$M D. Base Dividend (-) TCS Payments B C$M • $0.20/share base dividend EVR FCF after TCS C = A-B C$M E. Supplemental Returns (-) Base Dividend D C$M • Minimum of 50% of available free cash flow after base dividend (-) Supplemental Returns E C$M • (Line C
Slide 45: Potential for Strong Cash Returns for EVR Shareholders
Potential for Strong Cash Returns for EVR Shareholders Illustrative 2022A1 Cash Flow Capital Environmental Preferred Share from Operations Expenditures Stewardship Trust Dividends $6.6B ($1.2B)2 ($50M) ($290M) Transition Capital Structure (TCS)1,2 90% Gross Revenue Preferred Share Royalty Redemption
Slide 46: Elk Valley Resources Q&A
Elk Valley Resources Q&A Investor & Analyst Presentation and Modelling Workshop 46
Slide 47: Appendix
Appendix EVR ELK VALLEY RESOURCES.
Slide 48: Nippon Steel and POSCO Investments
Nippon Steel and POSCO Investments NSC investment validates EVR valuation; consolidation of minority interests simplifies structure (NSC) 2.5% Minority interest in Elkview 10% EVR Common Equity1 2.5% Minority interest in Elkview 2.5% EVR Common Equity 10% Transition Capital Structure + 1 (Royalty +
Slide 49: Environmental Stewardship Trust
Environmental Stewardship Trust Long-term objective to achieve full cash funding to support environmental obligations Creation of an Environmental Stewardship Trust (EST) to EST Contributions fully fund long-term environmental obligations 2023 – 2036 • Initial annual contribution of $50M, increasing
Slide 50: FCF to EVR Common Equity over the duration of the TCS
FCF to EVR Common Equity over the duration of the TCS 90% FCF 1 While royalty is outstanding… 10% FCF • 87.5% payable to Teck Metals 90% FCF Royalty $7.0B • EVR is limited in its ability to raise debt while TCS is outstanding • $0.20/sh base dividend 10% FCF 10% FCF EVR common equity • 50% available
Slide 51: Proposed EVR Directors
Proposed EVR Directors Jane Bird is a Senior Business Advisor at Bennett Jones LLP, providing advice to private and public sector clients on the development and execution of infrastructure projects. Ms. Bird has over 20 years of experience leading significant projects in the transportation, power, b
Slide 52: Non-GAAP Financial Measures and Ratios
Non-GAAP Financial Measures and Ratios 52
Slide 53: Non-GAAP Financial Measures and Ratios
Non-GAAP Financial Measures and Ratios Our financial results are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. This presentation includes reference to certain non-GAAP financial measures and non-GAAP ratios,
Slide 54: Reconciliation of EBITDA; Impairment Adjusted EBITDA
Reconciliation of EBITDA; Impairment Adjusted EBITDA Reconciliation between Segmented Profit, Segmented EBITDA, Impairment Adjusted EBITDA and Impairment Adjusted EBITDA Margin1 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Profit (Loss) before Taxes $M 975 151 (1,875) 1,305 3,122 2,961 1,612 41
Slide 55: For Further Information
For Further Information Teck.com/separation investors@teck.com 1.877.759.6226 or 604.699.4257 55
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