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Executives

Greg Waller - VP IR & SA

Donald R. Lindsay - President and CEO

Peter Kukielski - VP & COO

Ron Millos - SVP Finance & CFO

Tim Watson - Andacollo Project

Andrew Stonkas

Boyd Paine

Roger Higgins - SVP Copper

Analysts

Brett Levy - Jefferies & Company

Tony Robson, BMO Capital Markets

Hassain Hali - Salman Partners

Greg Burns - TD Newcrest

Orsett Walfadel – Cannaccord Adams

John Tumazos – John Tumazos Very Independent Research

Wayne Atwell - Pontis Capital Management

Jay Lubinsky - West Face Capital

Laurence Smith - Scotia Capital

Kerry Smith - Haywood Securities

Greg Barnes - TD Newcrest

John Hughes - Desjardins Securities

Brian McArthur - UBS

Unidentified Analyst

Teck Cominco Limited (TCK.B) Q4 2008 Earnings Call Transcript February 17, 2009 11:00 AM ET

Operator

Ladies and gentlemen thank you for standing by. Welcome to Teck's Fourth Quarter, 2008 Earnings Release conference call. At this time, all participants are in a listen only mode. Later we will conduct a question and answer session. This conference call is being recorded on February 17, 2009.

I would now like to turn the conference call over to Greg Waller, Vice President Investor Relations and Strategic Analysis. Please go ahead.

Greg Waller

Thank you so much Valerie. Good morning and thank you for joining us today at Teck's Fourth Quarter Investor Conference Call. Before we start, I'd like to draw your attention to the forward looking information slides in our presentation package on pages two and three.

This presentation contains forward looking information regarding our business. Teck does not assume the obligation to update any forward looking statements. At this point, I'd like to turn the call over to Donald Lindsay.

Donald Lindsay

Thank you Greg, good morning. This morning I will do a brief overview of the financial and operating results and then I will turn the presentation over to Ron Millos our Senior Vice President Financial and CFO to address more in depth financial issues. A number of other members of the management team are in the room this morning and are available to answer your question

Turning to slide five, earnings from continuing operations in the quarter on a fully diluted basis were negative $602 million or $1.27 per share after non-cash write down of $844 million. As our target indicates our earnings before this write downs would have been $0.51 per share. These results compared to net earnings of $296 million or $0.67 per share in the same quarter last year. In addition to the write downs recorded, the other very significant issue in the quarter is the loss on settlement adjustment due to declining metal prices in the quarter.

Turning to slide 6, this was a relatively complicated quarter with numerous unusual items to adjust for in order to understand the fundamental earnings capacity of the business. Adjusted net earnings are allowance for the non-recurring items in the quarter which are not part of the fundamental business for $136 million or $0.29 per share.

It is a different story of the comparative net earnings line though where we removed the impact of final pricing adjustments in the quarter. With a sharply reduced copper price in the quarter we encouraged significant pricing adjustments and with the pricing adjustments removed their fundamental earnings were very similar to last year’s result. Ron Millos will discuss the pricing adjustment issue in more detail later in the call. For those analysts who are trying to compare their earnings estimate to our result, if you are allowing for the copper hedges which we presume you were, the realized portion of the derivative gains would have to be added back to the adjusted net earnings to arrive at a comparable number. The estimated comparable earnings figure for this would be $0.42 per share.

On slide 7, turning to prices for the quarter all of our metal prices were down but the coal price was up compared to the same quarter last year. The Canadian dollar weakened in the quarter mitigating somewhat the impact of the lower metal prices.

For example in copper, our most important metal product, the price was 45% lower than last year in U.S. dollar terms but 32% lower in Canadian dollar term. The decline in zinc and lead was also steep in the quarter in the 40% to 50 % range for both in Canadian dollar terms. The realized coal price was 213% higher than last year’s fourth quarter price in Canadian dollar term but it is not shown here there was a change in price between quarter ends which impact the revenues we booked for the quarter due to unfinalized sale outstanding each quarter and the charge from the next slide highlight this.

As this charge from page 8 show, the copper price end of the quarter a full $1.50 per pound lower than what it is started the quarter at. Zinc and lead incurred substantial price declines as well. As a result we recorded substantial negative adjustments on the sales of copper, zinc and lead receivable that were outstanding at the end of the third quarter and on sales that were booked during the quarter. This chart also show the increase in the level of LME inventories in the quarter.

There have been substantial curtailments and closures announced in the past months but we have not yet seen the full impact of these on the supply and consequent inventory build. For example in zinc, we estimate that mine supply curtailment announced in the past nine month is in the order of $1.7 million tons or roughly 15% of global supply. We have not seen the full impact to these curtailments yet. Some of the closures are still to be implemented and will take into roughly June to see the full impact of these reductions in supply.

Turning to slide 9, the impact of our acquisition of the Fording Coal asset with stronger coal prices and weaker base metal prices relative to last years quarter can be seen on the relative contributions to our year’s operating profit. Coal contributed 64% of operating profit this quarter versus only 8% last year. Copper and zinc contribution is declined to 25% and 8% respectively. Our goals to assets continue to demonstrate their profitability although a relatively minor portion of our overall product mix.

On page 10, in our coal business unit our share production sales increased reflect in the acquisition of foreign share of the coal assets effective October 30th. On 100% basis though sales declined approximately 20% compared to the fourth quarter of last year as customers significantly reduced their coal pick up late in the year in the response to lower steel production.

The unit cost to product sold increased compared to last year due to lower production volumes, higher strip ratios and higher input cost. The transportation cost are also increased compared to last year primarily due to the coal price participation provisions in our [court] contracts. Operating profits increased substantially last year due to the higher coal year prices. I should note that we are still selling some coal under contract carried over from the 2007 coal year. Combined with a higher share of lower value thermal coal expected to be sold this quarter, we expect to realize coal price for the first quarter will be in the order of $190 a ton.

In our copper business unit, on page 11, production was the same overall with the same quarter last year but the mix between concentrate and capital production changed slightly.

Total settlement adjustments in the quarter in copper were $335 million which results in us showing the unusual situation of revenues being lower than operating profit and stated before pricing adjustment as we have done here. The operating profit before depreciation and before pricing adjustment is equivalent to a cash margin of US$ 0.88 per pound of copper sold compared to the quarter average market price of a $1.79. This cash margin changes the course with operating cost treatment charges and byproduct credits but it does demonstrate the strength of our copper business to contribute to earnings at relatively modest copper prices.

In zinc on page 12, zinc and led concentrate production was lower than the same quarter last year primarily due to some down time and reduced throughput rates at Red Dog. These issues were largely rectified by year end. Production of refined zinc, metal at Trail was also lowered in Q4 2007 as we announced the curtailment of metal production commencing in November. We find lead production was up but that is comparing to a low quarter last year due to a one month maintenance shut down in the lead furnace.

In our gold business unit on slide 13, operating profit before depreciation increased this quarter compared to last year primarily due to lower U.S. dollar unit costs of both Pogo and Hemlo.

I would now like to turn it over to Ron Millus to address some financial issues.

Ron Millus

Thanks Don. I am on to slide 15 and we have summarized our impairment charges that we have taken on after tax basis on this slide. The largest impairment charge is due to the write down of goodwill from the Aur acquisition but we did not have to write down the full amount of the goodwill recorded with this acquisition due to the announcement early in 2008 of the billion-ton-inferred resource at Quebrada Blanca, which we expect will allow the mine life to be extended for many years.

After marketable securities, we marked our securities to market each month than to comprehensive income given the current economic conditions we have determined that the lower values other than temporary and because of the way the accounting rules where we were required to remove the write-down from the comprehensive income and move at through earnings. Accordingly this is really just a re-classification within shareholders equity on our balance sheet there is no overall effect on our equity as the change to comprehensive income is all set by a corresponding change to our retained earnings and there is no impact on our balance sheet as the investments were already recorded at their market values.

We have recorded goodwill on the Fording acquisition of about $900 million. The balance of the purchase price was allocated to the various assets and liabilities that we acquired based on our expected future cash flows from 100% of the coal business .The fair value exceeds the carrying value of our original investment and original investments than recently recorded cost therefore there is no goodwill impairment and you have to recall that the impairment testing is based on 100% of the assets that we now own and the perspective 52% that we acquired in the step purchase over the past few years was on our books at $1.5 billion. So the overall weighted average book value is much lower than perhaps people are expecting and on that basis there is no impairment in the goodwill.

I am moving on to slide 16 that shows our final pricing revenues for the fourth quarter. As we highlight each quarter pricing adjustment on sales of our various products can have a significant impact on our revenues, outstanding receivables from one quarter can be settled in different prices than they are originally booked at, and sales booked during the quarter are re-priced at quarter end reflecting the market prices.

As Don indicated final pricing adjustment for this quarter were substantial and across the board for most of our base metals. For example in copper at the end of September we had 157 million pounds of copper receivables which were settled in the fourth quarter at more than a dollar per pound less than the price that they were booked at in the third quarter. In Canadian dollar terms, this reduced our revenues in the quarter by $174 million. We also encouraged significant negative adjustment in zinc and lead as well, totaling $255 million on pre tax basis for all three of those products.

We also recorded final pricing adjustments on sales booked during the quarter as these are re-priced at the quarter end reflecting the market price. For example, on our copper business typically between 90% and 100% of sales in the quarter settled in the following quarters and our revenue is therefore effectively booked at the quarter end forward curve. These contributed addition $219 million in pre tax revenue reductions related to the monthly average. Remember when analyzing the impact of price changes on our final pricing revenues, refining and treatment charges in the Canadian U.S. dollar exchange rates must be included in your calculations. In addition, when trying to analyze the impact on our net earnings you need to consider the impact of taxes and royalties.

Moving on to slide 17, this shows our changes in cash balance. Our cash flow from operations was $598 million in the quarter after counting for non-cash working capital changes of $1.2 billion .Proceeds from debt for the acquisition of Fording assets were $11.8 billion and we repaid debt in the quarter of approximately $1.1 billion and I will show the details of this one on the next slide.

The acquisition of Fording was $11.6 billion net of the proceeds of $2.9 billion from the sale of our Fording units and the cash acquired from Fording. Our capital expenditures in the quarter were $212 million and investments were $196 million primarily for our share of the funding for our Fort Hills project. After proceeds from assets, sales and allowing for the effective exchange rate changes on cash or net cash on the quarter was a decrease of $397 million.

Slide 18 shows our debt position at the end of the year; we started the quarter with approximately $1.5 billion of debt in Canadian dollar terms. We re-paid U.S. $150 million revolver that was acquired with Aur transaction last year and we repaid a portion of Fording debt acquired with the Fording transaction. Of the acquisition debt of $9.8 billion, we repaid $460 million U.S. of bridge debt as of the end of the year and after allowing for exchange rate changes in the quarter, the total debt at quarter ended is $12.9 billion Canadian or about U.S. $10.5 billion.

On to the slide, our resulting debt to debt plus equity ratio year end is 54% and that is compared to the maximum permitted under our acquisition financing facility to 60% but I would like to point out that, that 60% test does decline to 50% by the end of September of 2009.

Moving on to slide 20, at the end of December we had a little over U.S. $1 billion in currency hedges outstanding at the exchange rate of 101 Canadian per each U.S. dollar approximately 80% of these hedge position was acquired from Fording and you should keep this hedge in mind when projecting our Canadian dollar coal revenues. Substantially all of it less than 5% actually is in the second quarter but the balance is all in the first quarter.

During the fourth quarter we also put in place the hedge to cover significant portion of our copper productions through March of 2009 at approximately 50% of our copper hedge production for that period of hedge at about 240 per pound and that is through to the end of the first quarter. And note that this hedge is mark to market at the end of December so any increase in copper prices will create accounting loss in Q1 although they will settle with a cash gain.

Onto slide 21, we summarized our production guidance for the year and it should note that any assets sales particularly on our gold business could affect our production guidance. Coal production is expected to be approximately 20% lower than the rate we have been planning through our net 2009 prior to the global economic downturn. Our copper production is expected to be about 5% higher than last year primarily due to increased production at Highland Valley copper and if production plans for the balance of our products are either similar last year’s results or reflect announced closures and curtailment.

And with that I will turn the call over to Tim Watson to give a brief update on the status of the Andocollo concentrate project.

Tim Watson

Thank you. I would like, there is three photos starting on page 24. The first one on the far left hand side of the photograph, you can see the corrugated tunnel, which is the reclaimed tunnel coming from beneath the core source stockpile. The structure you see in the center of the photograph is the pebble crusher circuit that is very well advanced and you can see we have begun to construct some of the conveyor sections feeding the pebble crusher circuit.

On the bottom right hand corner of the photograph, I would like to draw your attention; we have got the main power transformers installed that is one of two fully redundant transformers for the new facility. Beneath the middle section of the conveyor, back on the distance you can see the new truck shop facility that was built and turned over to operations some months ago.

Turning onto slide 25, shown in the center photograph is the main grinding circuit facility. On the left hand side of the photograph you can see the sag mill which is fully erected, scaffold were we now proceeding with torquing all of the bolts for the head and shell sections. Behind that you can see the first two ball mills that have been assembled, and then the background, the large steel structure, is the support for the cyclones for the ball mill circuits.

At this next photo I just like to draw your attention that you do not see much in a way of building structure. This is a fully open air concentrator which certainly helps in terms of speeding up the overall construction and keeping the cost of the facility as low as possible. Slide into slide 26, on the far left hand side you can see that same support steel for the cyclones and in the center of photograph, towards the back you can see the flotation cells. The flotation plant is nearing the finalization of installation of all the mechanical equipment. And then in the back you can see where we have commenced construction for the concentrate storage facility and then on the far right hand side where we see some additional structure and a yellow tank being fabricated, that is for the lime plant.

At this point I had like to turn it back to Donald Lindsay.

Donald Lindsay

Thanks Tim.

Tim Watson

And just want to touch on Fort Hills for a moment on slide 27. Fort Hills the investment decision has been deferred while the project is being re-costed to reflect the current economic environment and the project is being advanced now as a bitumen producer only with the upgrader on hold.

On slide 28, we also have our 50% interest in Frontier and the Equinox project. I will share the results of Frontier as 774 million barrels and this result assessment is for the southern portion of the project only. We are quite pleased with developments on Frontier. The Equinox project, our share of the resources was 166 million barrels. A design base’s memorandum study is due to be completed in the first quarter of 2009. On slide 29, returning to asset sales, we announced in the quarter that we sold our interest in the Lobo-Marte project in December. We are also scoring the sale of our interest in the Pogo and Hemlo Mine, the Morelos project which is an advanced expiration project with the feasibility study and expiration properties in Turkey that we shared with Frontier.

We have strong expressions of interest in all these assets and indicative offers have been received. We are advancing discussions with potential purchasers but these processes take time to complete, of course. Unfortunately we would not be able to tell you much more on the task of these until we complete the transaction and have something to announce.

Page 30, the biggest issue facing us of course is our re-financing plan. We first announced our deal with Fording back in July 29 and we have consistently said that our number one priority post-transaction would be the pay down the acquisition debt as soon as possible. We have never anticipated, of course, that all the debt would be repaid within the first year. We expect to see a reduction in the acquisition debt through the first half of the year from our operating cash flow, our capital expenditure reductions and asset sales.

We have received $950 million to date of our expected refunds of $1.1 billion on especial tax refund and our current cash balance now is approximately $1.4 billion. We have commenced discussions with our lead banks regarding the possible extension of the maturity of the bridge debt but we can not get into any of the details about discussions of course and I would remind you that the maturity date is October 29, 2009.

We have a large refinancing requirement but our asset base is strong and we have a great deal of flexibility to address our short term refinancing requirement.

With that I would like to thank you for you attention and open it up for questions.

Question-and-Answer Session

Operator

(Operator instructions)

Your first question comes from the line of Brett Levy - Jefferies & Company

Brett Levy - Jefferies & Company

I know this is cutting to the chase, and I will ask some operational questions too, but last month we did a 20%, 21/2 year financing $ 290 million for a single B-rated Company just a bridge through a [flip] this year. Obviously you guys are BBB/BB rated. If worst came to worst, among the things you are considering in addition to equity and debt refinancing, would you consider something that I mean I do not even know what the pricing would be, 13%, 14%, 15% for the like relatively shorter bond paper to get you through this ridiculous financing period?

Ron Millos

What I would say is we would certainly look at any proposals or any term sheets that were presented. We are in close contact with our banks in the normal course of any events and they feed quite a number of market opportunities to us. Some weeks the market’s pretty stale some other weeks there have been opportunities that come up and at the right moment we will take advantage of those. We are examining all of our options ranging from financing options, as you described, to a various asset sales and basically we will just have evaluate them on their own merit.

Brett Levy - Jefferies & Company

Can you talk a little bit about, obviously there is a lot of talk back and forth about the net coal discussions and can you give a little bit of sense to what you are hearing and clearly a bunch of your assets do not make sense if net coal is below $100 a ton and can you give a little bit of sense as to what your strategy might be as things go well, medium well and then badly with respect to negotiations and where do you think they are coming out?

Ron Millos

Okay well, the first comment I would make is that we have see a whole array of data points on the coal market. Some positive, some neutral and some negative but we tend to see in the media and different analysts’ reports or industry newsletters is we really focus on all of the negative these throughout the positive points, throughout the neutral points and double down on the negative. Frankly, we have made various sales that we have not disclosed and we had discussions with our customer about positional pricing and we do not see the ranges that you just described as being something that would occur.

Having said that we do not know what the prices is going to be and we would not know for some time unlike some report that negotiations have not started. We do have a team in Asia right now but we have a team in Asia probably every other week in some form and talking to customers and looking at their requirements and dealing with the ongoing shifting arrangements and the rest of it.

So we have a quite a bit of market insights but the bottom line is we do not know and we would not know for quite sometime. The second part of your question, we have developed an number of different scenarios depending upon what the ultimate coal price is and associate with that on the take up of the tonnage of their currently contracted volumes which to this point all of the contracted tonnage that has been shipped has been at full price but of course they deferred their shipments and stretched over a much longer period of time and a much slower rate than what is initially anticipated. So those are the kind of issues that we are dealing with.

We have our different scenarios that we have run at different, not just coal prices but copper, zinc prices too and basically we will implement the plan accordingly.

Brett Levy - Jefferies & Company

And then looking a little further, are any of your customer on the net coals wiling negotiate somewhat higher prices for 2010 or 2011 on the thought that if and when this current situation ends? They might be able to lock in somewhat of the advantage when the normal conditions of coal shortage for met returns. Are you able to go to some of your customers and say, in some of the out years, are you guys are willing to make a deal?

Ron Millos

It is a very good question. We can not comment specifically. We have had discussions with different like coal long-terms strategic customers about having longer term contracts and it highlights the issue that once this downturn ends which it will at some point, we just do not know when. You could have a situation where coal, frankly, is quite scarce. Because there is only so much of it and if you assume that the billions of people in China, India and emerging markets get back on track with the organization trends and the rest of it, the demand for steel will be quite strong and see when that coal will be important.

China has announced that they are continuing to build large steel plants on the coast. In total they have a three projects between now and 2013 that add up to $30 million tons that will require a lot of Seaborne coal as they consolidate their industry towards the coast away from smaller inland, less efficient plant. As that trend continues the demand for our product is going to be quite strong and it could be short down the road but we do not know when. It could be quite a while and in the meantime we just have to deal with the issues at hand.

Operator

Your next question comes from the line of Orsett Walfadel – Cannaccord Adams

Orsett Walfadel – Cannaccord Adams

I was hoping if we could start just drilling down on the coal business. Your cost where I guess 97a ton in the quarter and your guiding to higher strip ratios going forward, is that a good run rate going forward and where would you see cost come in at 150 coal price with some of the variable compensation involved.

Donald R. Lindsay

First it is important that you are quoting Canadian dollar cost and the key to the cost in the posting for first period when the FX schedules that were in place from last year fall away will of course be the exchange rate and $80 versus the hedges that were around a dollar price or minus you get a 20% decline in cost rate there from some change in the currency and we tend to look at it on the U.S. dollar basis versus the U.S. dollar price as well. In terms of your original question it is hard to say because one of the reasons that cost have gone up is because we reduced the volumes to better match the price to demand and we do not know how long that will last so I would not say that the current cost are the normalized cost and we have to really have a better feel for what the volumes will be. For example the volumes go back to roughly 23 million tons of last year; cash crop per ton will come down because we have more ton to spread the fixed cost over.

Orsett Walfadel – Cannaccord Adams

I mean 20 million ton guidance?

Donald R. Lindsay

It depends on the mix of the coal taken from each mine so we could not tell you at this point.

Orsett Walfadel – Cannaccord Adams

On the 20 million guidance, how much of that do you expect in Q1? At the higher coal price presumably.

Donald R. Lindsay

We have not disclosed the number on that but what we have said is that normally Q1 has a lower volume, it is sometimes the transportation issues from seasonal factors and also of course if you are in the negotiations with the customers they tend to send to your shifts while you are negotiating as a trend and they do not place for many years but we believe that we are on track in Q1, to have a volume that would be appropriate for our 20 million ton annual run rate.

Operator

Your next question comes from the line of Laurence Smith – Scotia Capital

Laurence Smith – Scotia Capital

I hate to dwell on coal, you mentioned in the release that you think that your average realized price for coal will be $190 a ton in Q1 and I know you are reluctant to talk about volumes but I am just wondering how you get the realized price that low and I guess the related question is the 500, 000 tons of 2007 contract year carry over? How do you end up having carry-over going back that far? So you could maybe give some idea of how you get the 190 of realized price? How much [per mol]? How much met at various prices and also explain why the carry-over from 2007.

Donald R. Lindsay

There are several factors involved and do not worry about dwelling on coal because we certainly do.

In the January to March quarter there is a number of different types of sale taking place. They are the sales of high quality, hard coking coal that carry on with our core customers at 2008 price and then there are some additional tons of hard coking coal where we had no 2008 contract but we have been able to make some additional sales in the period since November that we did not have contrast before but those where at a lower price from the 2008 at the end of the contract, right?

That we do have a small proportion of thermal and from time to time we can make an additional sale of the shipment of thermal coal that obviously will be a much different price and that in effect the average over all which takes you to the $190 guidance that we have given.

Laurence Smith – Scotia Capital

Could you give some idea of how much thermal volume would there be in there?

Donald R. Lindsay

We are not going to break it down particularly because this are literally additional one off spot shipment and we would not want people then go and think that in to a run rate of percentage because it is a unique customer driven situation.

Laurence Smith – Scotia Capital

You talked about your sales, would have you on track for the 20 million full year digits. Is it possible that your sales volume would be above 5 million tons in Q1? Is that plausible or is that ridiculous?

Donald R. Lindsay

Well, it would not be normal. The normal amount in Q1 is lower and the average quarterly if you like that is what in the history.

Laurence Smith – Scotia Capital

And this year will be the same as history? Is that what you are saying?

Donald R. Lindsay

I guess that the comment we made that we are on track to do 20 million tons and first quarter looks normal.

Operator

Your next question comes from the line of Tony Robson from BMO Capital Markets

Tony Robson -BMO Capital Markets

Don, I guess this requires a little bit of a crystal bowl but are you feeling recently confident, let us say by September you will we be able to get some material assets sales underway and secondly it was a follow-up question on that. On to the Fort Hills slide where you mentioned strategic alternative as being explored, I wonder if you could add a little bit color on that please.

Donald R. Lindsay

Okay, out the first question, well, you can never say for certain. We are pleased with how the sales process are going. As we mentioned in our previous calls we have been running four parallel asset sale tracks and part of the reason for that is to keep competitive tension and keep our options open as we look at the prices for each of those. I would say that we have made good progress. Gold is probably a little bit ahead of the others because we have started it before and we have been on the record for some time and saying that in order for Teck shareholders to realize value on gold ultimately we have to sell them and it was looking it reasonably good and the rest are proceeding so I am not sure that I can say much more than that other than we feel pretty good about the process so far.

On the second one on Fort Hills, we are looking at strategic alternatives but it means just that, that we will watch developments with our partners and see what they do and depending on the results of that we could make some decisions but at the moment we think that the long-term prospects for the oil sands sector generally and for the properties we got in particular, it look pretty good and we like to hang on to them but at the same time as I said earlier to your question, we are examining all of our options with all the assets and comparing them to the values that are plausible and that would be included in that position.

Operator

Your next question comes from the line of Greg Barnes TD Newcrest

Greg Barnes - TD Newcrest

I just noticed that July in copper operations both QB and Andacollo, had negative operating profits in Q4. Is there any contemplation of cutting back production or shutting those mines down given the lower copper price?

Donald R. Lindsay

We have done a lot of work on looking at what the actual cash cost after everything including sustained capital would be and then we look at literally day by day as to whether they are generating cash or not and at this point all of our operations that other than Ponderay which is almost closed are generating positive cash so we would keep them open. It is a good question, we have looked at different scenarios where if the copper price dropped to a certain point, where we might stop mining but keep bleaching and that sort of things. The scenario planning is taking place but at this point and at this price level we will keep going.

Greg Barnes - TD Newcrest

What kind of cash cost are you running in Chile?

Donald R. Lindsay

Well, we have a range mine by mine, I guess what we have indicated generally is that for the Company overall, we are about a dollar on average but all operations will keep going at a $1.30 or above.

Greg Barnes - TD Newcrest

And in the press release you have opened the door to potentially doing an equity issue. Is that a scenario that would pan out ex-asset sales including asset sales, of more coal price that have to be done at?

Donald R. Lindsay

I think what you are referring to is the statements listed in the risk factors and I guess our description would not be that we have opened the door. I would like to continue that there is no equity issue under consideration at this point, so we can certainly say - never say never. We have this asset sale process that is in underway. We need to see the result of those and as I say we think they are going pretty well so that is our position at this point but I think the language you have read is in the liquidity risk section and we need to make that as complete as possible and so that would include that.

Operator

Your next question comes from the line of John Tumazos from John Tumazos Very Independent Research

John Tumazos - John Tumazos Very Independent Research

Is there anything in the Chinalco/Rio Tinto transaction announced last week that you think would not be a good model or something to put under the range of alternatives that you might consider for tax?

Donald R. Lindsay

That is a very interesting question that we could talk about at length. I find it a fascinating transaction and basically the developments in the global mining scene are intriguing, to say the least, as the world sorts its way through a pretty serious global meltdown. I think it is an interesting model and I do not think you can compare directly to the deal itself because it involves a variety of assets and prices for those assets and a long-term plan and the situations are just so different but the concept to having a strategic partner that is a big customer for the long-term, obviously that has some feel and if we were in that clever discussion we would look at it quite seriously but I would repeat what I said at the beginning we are looking at all options and there are quite interesting options like that available to us and we will continue to pursue these and eventually make a decision based on the merits of the options before us.

Operator

Your next question comes from the line of Unidentified Analyst

Unidentified Analyst

What will be the necessary sufficient conditions for you to open the door to an equity issuance?

Donald R. Lindsay

Let me make this clear. We do not want to do an equity issue. I know that various times different rumors that are spread by market participants in the hopes of that but that is not in the plan at the moment as I say you can never say never but we have a program that we are executing and we are pleased with the progress but that takes time and there will be no single announcement that says that all of the issues have been resolved. There will be a series of announcements, some of them are quite small in cumulative taken together they can become quite significant and help with the reduction of debt and ultimately financing and so at this stage there is no equity issue plan.

Unidentified Analyst

Just a follow up question, you are around four and half times level on the debt to EBITA basis at this point. On that metric what kind leverage are you comfortable operating the business and secondly will you be comfortable upgrading Teck Cominco as a single B-rated Company?

Donald R. Lindsay

On the latter no, unequivocal no. On the former, of course, that involves various assumption of commodity prices to make that calculation and so I do not think we could give a straight answer to that but we will carry on with our plan on reducing the debt and that is the most important part.

Operator

Your next question comes from the line of Kerry Smith – Haywood Securities, Inc

Kerry Smith – Haywood Securities, Inc

Ron, have you discussed or is there any consideration to selling a minority interest in the coal operations to one of your partners or one of your customers or a number of you customers? Has that have been discussed at all?

Ron Millos

The short answer will be yes and I think people would generally assume that we have versions of those discussions for some time and in fact going back before the transaction as we analyzed, every which way we could. We concluded at that stage that we think that we actually need to own a 100% of the coal. We felt that it was the right thing to do at that time to take control of it and then sort of which partner we want to have for the long term and key customers were obviously on that list and as I think your question is indicating there are various players in the market that will have the real long term needs, strategic need for seaborne and met coal.

So obviously China is key on the top of the list given that they are committed to building the coastal plant for the long term similar to what Korea has. Then Japan has been a long-term customer. I mean several key companies there that are our very valuable customers and a consortium there obviously would have an interest in a long-term secure supply of coal.

Brazil is another country where clearly they are very blessed with rich iron ore resources, and developing a national steel industry and leveraging those iron ore industry. Iron ore assets would be valuable but they cannot do it without seaborne and met coal and clearly

Canada is best place to supply that particularly with the Panama Canal increasing capacity, which would allow the larger ships to keep vessels to go through.

So what we have on offer is our long-term resource, 100 years plus and it is available once and only once so there is some scarcity value and so in our discussions we see that they are sort of interest between Brazil, China, Korea, Japan and let us not forger India even though that the shipping distance is quite a waste it does have plans to go their steel industry quite substantially and we have enough fact on the overall seaborne and met coal market. So it is a country to country of these stage but those are the kind of things that take time to have in discussions.

Everyone wants to see what 2009 coal price will be and we would not know that for sometime so that is the status for that one but it makes an awful lot of sense to take on one of this strategic partners and for them this is kind of, we are the second largest in the world. There are not that many sources of seaborne and met coal and some of them on places that are less stable or have difficult infrastructure issues. This one is up and running and if you buy an interest in it now and get your share of coal right now, it tightens up the market for everyone else, and it is kind of a move against your competitors so we have an interesting process but it is going to take sometime.

Kerry Smith – Haywood Security

And you did not actually specifically mention sort of the strategic noise sales of the interest in the coal assets. Does that suggest that it is moved to the back burner because the price that was discussed was not appropriate or for other reasons. I am just curios why it was not actually discussed in the preamble in the slides. It was not actually mentioned so I am just presuming it is lower priority for one or more reasons.

Ron Millos

It may not have been in the preamble specifically but I guess what we have since we are running various asset sales and then other than gold, where we have been public a little for sometime we are not talking about in detail on what we are doing there and to the second part of your question I would say that nothing has become low priority. Everything has high priority right now.

Kerry Smith – Haywood Security

And perhaps Ron, can you give any guidance on what the expiration budget and the R&D budget might be for 2009?

Ron Millos

Between the two, probably between $15 million to $60 million.

Kerry Smith – Haywood Security

And also the G&A for the year if I was to net out the stock base compensation to take that out of the equation, what would that be roughly?

Ron Millos

Eighty to eighty five million.

Donald R. Lindsay

If I could just clarify a point there, the answer Ron gave is correct but within the R&D part, it is important to understand that our prior technologies center in Mississauga while we lift the cost there it actually generates revenues as well so it is a revenue neutral or break even kind of situation in that one. So if you just look at R&D alone, without that content it would over save the number by quite a bit.

Kerry Smith – Haywood Security

When you look at the impairment on the coal assets you have to make some assumptions on coal prices on a go forward basis and exchange rates. Can you share what those assumptions may have been?

Ron Millos

Well we actually got an independent view on that from a large loan accounting firm and we have not shared those assumptions. I am not sure is that we are likely to, frankly but they were the bridge scenarios and what I can tell you is we are very pleased with the result and given that the total cost of 100% of met coal is the base on the evaluation that they came up with significantly exceeded that number so there was no issue.

I think it is pretty easy for most analysts to pick a variety of coal price and discount rates and they will see that there are pretty strong cash flows. So the exchange rate is the key. That is a big factor.

Operator

Your next question comes from the line of Wayne Atwell from Pontis Capital

Wayne Atwell - Pontis Capital Management

If I am not mistaken your CapEx is estimated to be $500 million this year. Do you have much flexibility there? Can you pull that down much?

Donald R. Lindsay

Well, we already went through a process in October and taking it down to the minimum level within that $500 million there is $250 million of sustaining capital. We can operate at that level for another year. Thereafter there would be some catch up and we have been on the record saying that before. The rest of it is in project development of which a 180 I believe and Tim Watson is here, he can get more clarity is on the end of coal project that Tim just discussed and we are very pleased with that project and the progress there and it is set with joint commissioning in the fourth quarter of this year. So that number in 2010 will go down because it will be essentially finish the project but the sustaining capital will stay where it is in 2010 roughly and then by 2011 they will have to go back up.

Wayne Atwell - Pontis Capital Management

Can you give us some clarity on the possible timing of assets sales in which your best guess is the total you could achieve at this point?

Donald R. Lindsay

Unfortunately I cannot but I would repeat the comment I made earlier that we are pleased with the progress. We will announce them as they are concluded and no one announcement will appear to be that material. I think people will examine each announcement and say “Well, it is not what I expected; it should be a little higher or a little lower.” Some of them are smaller but taken in total it becomes a significant number that reduces a debt a fair bit so unfortunately I cannot give you further details until they are actually concluded.

Operator

(Operator instruction)

Your next question comes from the line of David Charles GMP Securities

David Charles - GMP Securities

I am just wondering if it is safe to say that the detailed negotiations with the bankers on your bridge loan syndicate will really only kick in to high gear after we have some clarity on the coal volumes and prices for this year. Is that safe to say or do you think that you can proceed a long way with the negotiations prior to that and maybe you can them to extends the deadline for the bridge loan prior to that?

Donald R. Lindsay

The short answer is I do not know. What I can say is that we have a good dialogue with the banks. Let us say that the discussions have been quite constructive so far. We will continue that dialogue. There are a lot of banks. It is 25 banks in one facility, [eleventh] now with the take over of Merrill Lynch in the other. It is complex and it takes time but I think it has been very constructive dialogues so far and we are pleased with it, but we cannot predict what the results will be or when will it be, or what it will be. It is going to take some time.

David Charles - GMP Securities

Is it safe to say as well that the banks will have certain expectations of what they want you to do? Do you think that in the back of their mind they have a number on assets sales, maybe a number that you have discussed with them or one that they have worked on themselves in these negotiations? Is that true?

Donald R. Lindsay

What happens is each bank has their own model and their own risk committees that is going and come to their own views and what they think they should do? The one common thing is they want us to reduce the debt and so do we. So we have the same interest and I think what I could say is that there has been general acceptance that we have interests that are aligned with the banks. We want to get the debt down and finding the best way to do that but to go back to the situation that we have here. The company is running quite well and I think if you look at the result that we reported and we try to sort of breakout the numbers with as much detail to give people feel. The operations are doing their job and the company is quite cash positive. We had a good quarter for generating cash and then we have a good solid asset that can be sold for reasonable prices.

The real issue is the debt or the acquisition of 80 year, 100 year, 5 billion tons plus resource has been shoe horned into an average maturity of less than two years, a part of it one year and part of it in three years. The normal course with the transaction like this is you would finance that with longer term financing that is more appropriate for the long term resource. As an example, when we finance the construction of Antamina, that was a 15 year project finance because it is within long life resource. We happened to pay back two years because the nature of the commodity business as you get this years one, two or three years when prices are quite high and you get all your money back very quickly.

What we need to do is extend that average maturity of less than two years. First, it is something a little bit longer with the banks so that it gives us more time for the markets to improve and for capital markets generally to open up and then to put in permanent financing that is more consistent with the length to the resource.

Our plan was to do 5, 10 of 30 year bond issue sometime from when we knew legally that we own the assets from September 30th and when the bill close on October 30. Needless to say by the time October came the markets were closed and in other periods they closed for a week or two but we have never seen a capital market closed for that length with the clients that they have and so that has left us with the situation that we have.

But the underlying company is doing well and the key will be the discussions on how we best spread the payments out over time.

Operator

Your next question comes from the line of Brian MacArthur, UBS Securities

Brian MacArthur - UBS Securities

Just a couple of follow-up I just wanted to clarify when you said the accountants looked at the value of the Elk Valley Partnership, that it was a discounted analysis because as you have pointed out a number of times it is a very long life asset but I just want to make sure what is in the non discounted cash will they use to basically stay with the above the book value?

Donald R. Lindsay

Well I hope they chose an appropriate discount.

Brian MacArthur - UBS Securities

Second question just the other capital we have been talking about is the Fort Hills, the 330 that you have to spend as your share to get it going, when do you think that will actually potentially be spent now?

Donald R. Lindsay

That is a number, it will turn over to Tim Watson in a minute but that we have seen changed quite radically in a short period of time from let us say last October when it was a much bigger number. It has come down quite a bit, month to month, and each time the management committee has a meeting they look at different ways to advance that spending but Tim Watson is on the management committee. I will turn you over to him.

Tim Watson

There is a number of different things that are going on budget right now. We are looking at, as Don had mentioned, the up grader has been pushed out indefinitely and there is quite a rigorous review going on to look at reducing the overall capital required for the North which is the mine and the construction facilities so we produced a bitumen product. Now with that, until we actually carried the point that we are confident that we have been able to reduce the capital to the point that we have a project that could be sanctioned.

We are doing everything we possibly can to reduce the month-to-month expenditures. So while we have seen a budget that was prepared, say the fourth quarter or last year for 2009 that was on the initial assumption that we would be through the reviews moving towards a sanction in the middle of the year and now it looks like there is as potential to move the sanction for the facilities to the North further out, as a result we are trying to completely reduce all expenditures associated with the ongoing engineering activities. The vast majority of all construction activities in the North had been stopped and/or suspended and there was also, in some of the budgeted numbers, fairly conservative allowances made for cancellation cost of equipment associated with this.

And as we gone forward we have done better on some of those negotiations to further reducing the costs for 2009.

Brian MacArthur - UBS Securities

So basically you could probably get that number down some more for what you are actually going to spend this year at least get it in the back half for the year?

Tim Watson

That is correct. That is what we are looking to, yes.

Brian MacArthur - UBS Securities

Just switching to another issue back to, I do not want to beat this to death, but back to first quarter $190 a ton I just want to make sure I have got this right. We are going to take all the carry over tons from 2007 and the number. We are going to take a bunch of thermal coal. We are going to have some of the $300 hard coking coal contracts, you said those were still being honored right now for the first quarter and then we will have any other one off sale. Is that kind of the four components that blend into that 190?

So then once we get through this quarter then will just be additional sales whatever new price you have and then whatever you can maybe carry over of the original $300 coking coal contracts from last year?

Tim Watson

That is a fair representation. What we have done in cutting to the 20 million ton level, we still kept all 6 mines operating because that gives us the flexibility to when we see customer demand of a certain blend of coal to produce and then sell it then it's incremental tons. But the incremental tons are not at the 2008 contract price and then some of them are [56:38] so if we make money on them, we think we should do it. That is why we kind of configure it as it is and why you are going to see for a period of time on blended prices back.

Brian MacArthur - UBS Securities

One last question, you talked about you had $850 million of cash that you are in. You brought in $950 some time over the last 6 weeks for the tax refund which should be about $1.8 and yet you talked about only a $1.4 in cash as of February 16? That extra $400 million can I assume it went pay down debt? I mean you generated some cash out so I assumed?

Donald R. Lindsay

Some of the cash tax refunds Brian came in 2008 so it was already in 2008 number.

Brian MacArthur - UBS Securities

Okay so that is where I getting it. That $1.4 would include a $950 and then you basically got the extra whatever 1.13 minus 950 to go, enough bases there will be another source of cash to go in there.

Tim Watson

Yes we have 150 to go on the tax refunds.

Operator

Your next question comes from the line of Hassain Hali - Salman Partners

Hassain Hali - Salman Partners

Just a couple of quick question maybe to follow-up on Brian ,so for the CapEx guidance for Fort Hills with 330 where you mentioned that maybe that was more back half of the year weighted. So you are still expecting I guess going back to Tim, to possibly defer some of that cost into possibly 2010? Is that what I got from what you were saying?

Tim Watson

The dollars that we are looking at, again, when we look at the budget was put together for 2009, it was associated with basically reviewing the overall capital cost and reducing the capital cost for the activities in the North. It also contained dollars associated with cancellation cost for equipment associated with the South and we are still actively moving forward on the operating side with our operating crews in the North during the some of the pre production stripping that would allow us to move into the back into the project developments side with probably sometime in 2009.

So until such a decision has made on sanction of the project, the goal is to reduce the capital expenditure to the absolute minimum we can, going forward. So if that means the possibility of pushing some things into 2010 we will certainly look at doing that.

Hassain Hali - Salman Partners

Okay, that was a good answer. Next question I guess to stay on Fort Hills for a second, after it is probably a question more for Ron, after the $90 million write-down that was taken on the floor, what is your carrying value for Fort Hills right now?

Ron Millus

It will be about $540 million pre tax.

Hassain Hali - Salman Partners

Okay $540 million and then maybe I will go back to sustaining CapEx breakdown of $250 million. Now, Ron what is the biggest components of those?

Ron Millus

Hang just a second. I am going to have to get back to you on that one.

Hassain Hali - Salman Partners

Sure no problem and then maybe I will ask more just in terms of your effective tax rate guidance for the full year 2009?

Ron Millus

That is a tough one. Basically the tax was going forward will likely be the mineral taxes and our foreign taxes with the porting transaction or basically the Canadian income taxes will be sheltered by the CDE pull deductions that we have available to us.

Hassain Hali - Salman Partners

Okay that makes sense. Yes, if you can get back to me on the sustaining CapEx in later time that would be great. Thanks Ron.

Operator

Your next question comes from the line of Jay Lubinsky from West Face Capital

Jay Lubinsky West Face Capital

Do you have currently have access to your revolving line of credit? If so is it fully undrawn amount available and if not what are your conditions to drawing it?

Donald Lindsay

It is still available and it is undrawn at this stage. That is the US$800 million facility.

Operator

Your next question comes from the line of John Hughes from Desjardins Securities.

John Hughes - Desjardins Securities

For the price settlement adjustment in the Q1 period, can you give us an idea just in terms of 164 million pounds of copper for example that was provisionally priced at the end of December, how much of that was settled in January?

Donald Lindsay

I do not have the details; John will have to get back from that.

Tim Watsons

Typically John in view of 90% would settle in the quarter, of course, but we can not give you a breakdown by month right now.

John Hughes - Desjardins Securities

Okay on the thermal coal side, in terms of what you mentioned in your discussions on thermal coal and how about your total product mix maybe changing a little bit in favor of that, is that coal thermal sold domestic?

Tim Watsons

No and I would not want to over state the changes in the mix because this are one off shipments that we are able to sell internationally. We do it because we generate additional cash but the bulk of the business is hard coking coal.

John Hughes - Desjardins Securities

The $1.4 billion in cash mid-February as we exit the first quarter, how much of the $1.4 billion is destined for debt repayment, whether it will be the bridge or otherwise?

Tim Watson

We will look at the whole range of sources in use of cash going forward and make that allocation overtime so we could not really answer that right now but I can show the combination of the $1.4 billion in cash plus the revolver shows that we have good financial resources at our disposal for sometime.

Operator

Your next question comes from the line of Lawrence Smith from Scotia Capital.

Lawrence Smith - Scotia Capital

A question on the tax refunds could you break down, of the $950 million received. How much fell on the DOA fiscal year that shows up in the statements we got now and how much was subsequent to that?

Ron Millos

About $160 billion or so was in 2008.

Operator

Your next question comes from the line of Greg Barnes from TD Newcrest.

Greg Barnes TD Newcrest

Ron, how much of that $1.4 billion cash is actually down in Chile?

Ron Millus

Probably a couple of $300 million.

Greg Barnes TD Newcrest

Can you get that back easily or is it subject...

Ron Millus

Yes, we have found a way that we can bring it back with minimal losses.

Operator

Your next question comes from the line of Kerry Smith from Haywood Securities.

Kerry Smith Haywood Securities

With the cost on [64:00] and Teck coal side, did you start to see much benefit from the decline in fuel prices?

Ron Millus

We are starting to see that, Elk Valley uses around little under 200 million liters of fuel per year, thereabouts and the Company as a whole uses about 400 liters at a 100% level. I would say that the sensitivity to oil price would be in the order of about to $3 million to $3.5 million Canadian for each $1 change in the oil price but you want to be careful with that number because fuel is purchased in different places with different margins from the refineries. At Red Dog for example, a huge amount of their purchases is in the 2 or 3 month window during the shifting seasons so that gives you a bit of a flavor for what our fuel build is likely to be. That is just our fuel purchases does not include what suppliers build into their cost features.

Kerry Smith Haywood Securities

Okay I will just try this to make some sense on what the cost might be because they were bit higher in Q4, obviously a $58 and whether that would come down little bit more on 2009.

Operator

There are no further questions registered at this time. I would now like to turn the meeting over to Mr. Lindsay.

Donald Lindsay

Okay, if there are no further questions, Ron will say…

Ron Millus

I will just respond to the question on capital spending for 2009. The major spending would be at Antamina, Teck coal about $50 million to $60 million, trail metals about $30 million. Our share of Antamina $30 million to $35 million, Red Dog that was $45 million to $50 million range, and those were the major sustaining capital expenditures.

Donald Lindsay

Okay. Thanks Ron I might just highlight that there are quite a number of investor conferences coming up in the next month or six weeks and these things get booked several months in advance and previously I had booked to attend a number of them but as you can tell from the question and answer session here, generally people focus on the same question and there are a number of questions that we just would not be able to answer, such as the coal price or discussion with banks. So rather than we have, along with the 101 with people who are asking the same questions that we would not be able to answer, I will be staying and focusing on these various issues, asset sales and steel negotiations, and bank negotiations and Greg Lawler will be handling those conferences so to the extent that some of you may have signed for 101 that they are going to give you a warning that we would not be doing that format for the next couple of months.

With that we want to say thanks very much for attending and we look forward to the next quarterly call. Thank you.

Operator

Thank you. The conference has now ended. Please disconnect your line at this time and we thank you for your participation.

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Source: Teck Cominco Limited Q4 2008 Earnings Call Transcript
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