Ladies and gentlemen, thank you for joining us. Welcome to Teck's Second Quarter 2023 Earnings Release Conference Call. This call is being recorded on Thursday, July 27, 2023. I will now hand the conference over to Fraser Phillips, Senior Vice President of Investor Relations and Strategic Analysis. Please proceed.

Thanks, Galen. Good morning, everyone, and thank you for joining us for Teck's Second Quarter 2023 Conference Call. Please note, today's call contains forward-looking statements. Various risks and uncertainties may cause actual results to vary. Teck does not assume the obligation to update any forward-looking statements. Please refer to Slide 2 for the assumptions underlying our forward-looking statements. In addition, we will reference various non-GAAP measures throughout this call and explanations and reconciliations regarding these measures can be found in our MD&A and the latest press release on our website. Jonathan Price, our CEO, will begin today's call with highlights from our second-quarter results. Crystal Prystai, our CFO, will follow with additional color on the quarter. And then Jonathan will conclude the call today with an update on our copper growth strategy. And of course, we will then open the lines to questions. With that, I'll turn the call over to Jonathan.

Thank you, Fraser, and good morning, everyone. Now before we get into the second-quarter results, I'd like to begin by taking a moment to say that we are deeply saddened by the fatality that occurred in May 2023 at our Quebrada Blanca operations. Health and safety is a core value at Teck, and we are focused on our goal of every single person going home to their families safe and healthy each and every day. We undertook a thorough investigation, and learnings from the investigation are being shared across Teck and with our industry peers to help prevent future incidents. So moving now to the highlights for the second quarter on Slide 4. Overall, we maintained positive momentum through the second quarter with achievements across all four pillars of our value creation strategy. First, we made significant investments in copper growth. We achieved a major milestone at QB2 with the first sale of copper concentrate, and we are advancing ramp-up towards full production rates later this year. We also continue to progress our copper growth pipeline, and we achieved another major milestone with the receipt of regulatory approval from the Peruvian Environmental Authority for the Zafranal project. The team did a fantastic job throughout the process, and we are very pleased to have the permit in hand. And for San Nicolas in Mexico, we closed the joint venture transaction with Agnico Eagle in the quarter, and the new project management team finalized the EIA permit application in June. Second, our continued focus on execution on our operations drove strong financial performance. We generated $1.5 billion in adjusted EBITDA and ended the quarter with $7 billion of liquidity. Third, our strong financial performance enabled us to return cash to shareholders while continuing to strengthen our balance sheet. We paid our quarterly base dividend, repurchased $85 million of Class B shares through the NCIB, and repaid the first biannual installment on the QB2 project finance facility. And finally, we advanced our governance and sustainability initiatives. We made a step change in the advancement of our governance structure with the completion of the plan of arrangement to implement a sunset of the multiple voting rights attached to the Class A common shares. We also marked the 1-year anniversary of Teck becoming the first mining company globally to commit to the goal of becoming nature-positive by 2030 with a $10 million donation to the Chilean Nature Fund. This will help protect a critical global biodiversity area. Since the launch of our Nature Positive program, I am particularly proud that Teck has helped conserve over 51,500 hectares, which is equivalent to 4.5 times the size of the city of Vancouver. Furthermore, we are pleased that Trail became the first stand-alone zinc processing site globally to be awarded the Zinc Mark based on 32 responsible production criteria, including GHG emissions, community health, and respect for indigenous people's rights. And we were honored to be named one of Corporate Knights' Best Corporate Citizens in Canada for the 17th consecutive year. Now looking at our progress at QB2 on Slide 5. As noted earlier, we achieved a major milestone at QB2 with the first shipment and sale of copper concentrate in the second quarter. Line 1 is operating well as per our expectations, and Line 2 is now in commissioning. The concentrate pipeline, concentrate filter plant, and storage systems at the port are now in operation. Due to delays in construction and commissioning, we have updated our QB2 2023 production guidance to 80,000 to 100,000 tonnes but continue to expect to be operating at full production rates by the end of the year. So total QB2 2023 production guidance has been revised to 90,000 to 110,000 tonnes, which includes 10,000 tonnes of cathode. Our project capital cost guidance of USD 8 billion to USD 8.2 billion remains unchanged. And with that, I will hand it over to Crystal for additional color on the quarter.

Thank you, Jonathan. I'm going to start on Slide 7 with our financial results for the quarter. As Jonathan noted, we delivered solid financial performance in the quarter, driven by robust commodity prices and steelmaking coal sales. Overall, adjusted EBITDA was $1.5 billion, and adjusted profit attributable to shareholders was $643 million or $1.22 per share on a diluted basis. We paid $65 million in quarterly base dividends, completed $85 million in share buybacks, and reduced our debt through the first semiannual repayment on our QB2 project finance facility of USD 147 million. We've outlined the key drivers of our profitability on Slide 8. Adjusted EBITDA was $1.5 billion in the second quarter. Compared to the same period in 2022, the decrease was primarily driven by lower prices for our principal products, which were at historically high levels last year, particularly for steelmaking coal. Lower prices were partially offset by a weaker Canadian dollar. Lower copper sales volumes, continued inflationary pressures on our unit costs, and the sale of Fort Hills also had a negative impact on our Q2 EBITDA compared to last year. Looking ahead, we remain highly focused on managing our controllable operating expenditures. While diesel and other fuel costs have materially declined from last year, we continue to experience inflationary pressures in the cost of key supplies, including mining equipment, tires, and contractors. Our underlying mining drivers remain relatively stable, and the continued pressures on certain input costs are already reflected in our 2023 sustaining capital and annual unit cost guidance, which are unchanged. Looking now at each of our business units in more detail and starting with copper on Slide 9. Copper production of 64,000 tonnes was 10% lower than the same period last year, reflecting expected lower grades as well as unplanned maintenance at Highland Valley and reduced milling rates in response to cyclone impacts at Antamina. Copper production in the second half of the year is expected to be strong, with our annual copper production guidance, excluding QB2, unchanged. Net cash unit costs were higher than the same quarter last year due to lower production and higher consumable costs, particularly for power, as well as higher maintenance costs. We expect copper unit costs to be within our annual cost guidance range with higher production in the second half of the year. Importantly, we achieved the first sale of copper concentrate at QB2 in the quarter. Looking forward, as Jonathan mentioned earlier, Line 1 is operating well and Line 2 is in commissioning. We continue to expect QB2 to reach full production rates by the end of 2023. However, recent changes to IFRS require us to recognize sales proceeds and related costs associated with products sold during ramp-up and commissioning through our earnings. Historically, we and others in the industry would have capitalized these amounts during ramp-up through to commercial production. We expect this change in accounting treatment to increase our unit operating costs for QB2 during ramp-up. As a result, we do not anticipate generating significant gross profit from QB2 in the third quarter despite the expected ramp-up in production rates. As Jonathan noted earlier, we updated our full year production guidance for QB2 to 80,000 to 100,000 tonnes from 140,000 to 170,000 tonnes. As a result, our total annual copper guidance has been updated to 330,000 to 375,000 from 390,000 to 445,000 tonnes. Our previously disclosed QB2 production guidance for 2024 to 2026 is unchanged.

Thank you, Crystal. As we move on to zinc on Slide 10, Red Dog zinc production of 134,000 tonnes decreased by 7% compared to last year as a result of lower grades as expected in the mine plan as well as reduced power system availability. Red Dog zinc production is expected to improve in the second half of the year. At Trail, refined zinc production was impacted by the planned roaster shutdown and the commissioning of the automated circuit to produce zinc. Refined lead production was impacted by unplanned KIVCET boiler repairs. Net cash unit costs were higher than the same period last year and above our annual guidance range for 2023, primarily due to the timing of sales. Our annual unit cost guidance for the year is unchanged. The Red Dog shipping season commenced on July 4. Looking forward, we expect Red Dog zinc and concentrate sales of 240,000 to 280,000 tonnes in Q3, reflecting the normal seasonality of our sales. For the full year, we have updated our guidance for lead production at Red Dog to 95,000 to 110,000 tonnes from 110,000 to 125,000 tonnes. As a result of our decision to advance the KIVCET boiler replacement at Trail from 2026 into 2024, we expect lower byproduct production and related profitability next year. Turning now to Slide 11. Strong performance and cash flow generation from our high-margin steelmaking coal operations in the second quarter further reinforce the inherent value of this business. While prices decreased from all-time record highs in Q2 last year, they remain strong and significantly above the long-term average. Production of 5.8 million tonnes was 9% higher than the same period last year, reflecting the timing of maintenance outages and improvements in productivity and reliability, despite intermittent plant reliability challenges in the quarter. The logistics chain performed well during the second quarter, drawing down steelmaking coal inventories to low levels as anticipated. Second quarter sales volumes were 6.2 million tonnes, within our guidance range and similar to last year. We were pleased to enter into a long-term rail agreement with Canadian Pacific and Kansas City Limited to support the efficient movement of our high-quality, low-emission steelmaking coal to global customers through 2026. We also announced jointly a unique collaboration to pioneer hydrogen locomotive technology which supports our climate action plan and the objective of achieving net zero by 2050. Looking forward, we expect Q3 sales of 5.6 million to 6 million tonnes reflecting planned shutdowns at two of our operations and our low inventory levels. We expect slightly elevated transportation costs in the third quarter, reflecting the utilization of alternate port capacity to minimize the impact of the BC port worker strike in July. Nonetheless, we anticipate transportation costs to decline in the second half of the year due to lower demurrage costs. As a result, our annual transportation cost guidance is unchanged. We expect our annual production to be at the lower end of our previously disclosed guidance range of 24 million to 26 million tonnes. Moving now to Slide 12. Our financial position remains strong. Our liquidity is currently $7 billion, including $1.7 billion of cash. In Q2, we purchased approximately 1.6 million Class B shares for $85 million and paid our quarterly base dividend of $0.125 per share. We also reduced our debt through the first semiannual repayment of USD 147 million on the QB2 project finance facility. We continue to maintain investment-grade credit ratings from S&P, Moody's, and Fitch. Looking ahead, in accordance with our capital allocation framework, we remain focused on balancing our investment in growth against returning capital to shareholders while maintaining a strong balance sheet. And with that, I'll turn it back over to Jonathan.

Thanks, Crystal. I would like to take a moment to touch on our progress on advancing our strategy to create value for shareholders. First and foremost, the Board and senior management remains focused on delivering the tremendous value inherent in our base metals and steelmaking coal businesses. The exciting potential we see is a testament to the incredible work our teams have done to position each business for sustainable long-term success. The Board continues to evaluate paths to unlock the full potential of our unparalleled copper growth pipeline and create significant value and opportunity for our shareholders and all stakeholders. As previously announced, Teck continues to engage with a number of parties that have expressed interest in our steelmaking coal business. These expressions of interest demonstrate the broad recognition of the quality of Teck's high-margin, long-life steelmaking coal assets. The Board and special committee are pleased with the progress we have been making to date as we continue to move through this comprehensive and competitive review. We are focused on arriving at an outcome that maximizes value for shareholders and ensures a sustainable future for the benefit of our employees, local communities, and indigenous peoples. Our steelmaking coal business is best-in-class, underpinned by a high-quality reserve base with top quartile margins and a record of free cash flow generation through various commodity cycles. This business is positioned to capitalize on the global supply gap from existing mine depletion and a lack of new projects coming into production. The core business fundamentals are robust. I highlight this only to underscore our commitment to delivering the right value for our highly profitable and resilient steelmaking coal operations. We will transact only if the benefits to our shareholders and other stakeholders are clear. Now we don't intend to provide any other detail regarding the ongoing review at this time, but we'll continue to provide updates as appropriate.

So turning to Slide 15, driving organic growth through development of our copper project pipeline remains critical to our value creation journey. As I mentioned earlier, we continue to ramp up our flagship QB2 project, demonstrating its ability to operate consistently to plan and significantly accelerating our copper production profile. Our pipeline of additional projects is full of high-quality assets in stable jurisdictions, and the portfolio is at an advanced state of readiness given our deliberate pre-investment. We have the opportunity to double copper production in the near term and double it again by the end of the decade to drive substantial new intrinsic value. But we will always remain disciplined in balancing the pursuit of growth with returning capital to investors in line with our capital allocation framework. Now looking at our near-term copper projects in more detail, we have five significant near-term projects to drive additional copper-focused growth, all located in well-established mining locations: San Nicolas, Zafranal, NewRange, and Galore Creek. These are diversified by jurisdiction and scale, with all projects significantly less complex than QB2. In addition, they are forecasted to be low-cost operations and in many cases, already derisked through strategic partnerships. As I mentioned earlier, we significantly advanced these projects in the second quarter with the receipt of regulatory approval for Zafranal, and the close of the JV with Agnico Eagle and finalizing the permit documentation for submission for San Nicolas. On Slide 17, Teck is pursuing an active portfolio management approach to our growth pipeline, maximizing optionality and value. With numerous sanction windows within the next three years, we'll be in a position to drive substantial additional growth from these development projects before the end of the decade. For each of these projects, we have significant work underway to advance development, including resource definition, engineering and design, and permitting and stakeholder engagement. We are progressing projects toward the earliest possible sanction date. We have derisked product delivery financially and operationally through a partnership approach set as our approach for the development of QB2. It is important to note that this is an unconstrained view of our copper growth. In prioritizing our growth options, we will consider multiple investment criteria, including financial returns, balance sheet capacity and financing options, project readiness, project development capacity, and the social, political and environmental context. Importantly, each of these projects will have to compete for capital with the rest of the business and demonstrate and generate strong returns. While permitting is a major gating factor in determining potential sanction dates, we are largely in control of project timing. We will continue to apply our disciplined capital allocation framework that balances growth with returns to shareholders. Overall, Teck's copper growth pipeline is well positioned to maximize optionality and value. In closing, on Slide 18, I want to reiterate our objective to responsibly create value for shareholders. That is my job, first and foremost. If there is one conclusion that I hope our shareholders will take away from this call, it is that everything we do at Teck is designed to further that goal of responsible value creation. This is our North Star as we explore a range of options to unlock the full potential of our world-class base metals business and evaluate any transaction for our high-margin steelmaking coal business. It is also our focus as we continue to execute against our copper growth strategy while continuing to balance growth with cash returns to shareholders. And we remain strongly committed to our purpose and values and to being a responsible corporate actor with good business practices. We are steadfast in our belief that behaving responsibly and thoughtfully enhances value. Operating the right way makes Teck a partner of choice, minimizes disruptions to our operations, and opens new opportunities for our company and our stakeholders. Teck is a fantastic company with an incredibly bright future. There is undoubtedly more work to do, and we remain both confident and excited about the potential for Teck in the future. Thank you. Operator, please open the line for questions.

The first question is from Orest Wowkodaw with Scotiabank.

I was wondering if we can get some more color on the QB2 progress. We saw you disclosed production of only 3,000 tonnes in Q2, yet the comment was made in the presentation that Line 1 is operating well for expectations. Can you give us an update on what the status of Line 1 is and sort of what the issues have been?

Yes. Thanks very much for the question, Orest. I'm going to hand that over to Red.

Orest. We've had some delays in construction and commissioning in the second quarter that we've addressed, such as the required rework and some adjustments and modifications that are not uncommon. And as you know, we've been building and commissioning this thing all along with the thought in mind of long-term reliable performance. So we've addressed things rather than patching them. And so now that we've got everything actually up and running strong in June and sending concentrate down to the port, getting it filtered, and getting it off to market. We have all of those things in place now. And those adjustments and modifications that we made on Line 1 have all been made on Line 2. So we're commissioning Line 2 now with the full knowledge of everything that we addressed on Line 1, and that is going very smoothly, very positively for us. So we're in a situation now where the second half of the year, the productions are going to be heavily weighted toward the fourth quarter than the third quarter. But we're very confident that we'll be at full production rates by the end of the year.

Just on that Red, can you give us an idea of where throughput is right now on Line 1 in terms of tonnes per day?

Yes. No, we've hit design capacities for periods of time. So as you commission all of this equipment like the concentrate pipeline and the filter plant, we have to adjust throughput as we're commissioning those components. We don't have a lot of storage space either at altitude or at the port. So the throttle as we commission these other components is throughput, but when everything is wide open and running, it runs very strongly according to design and we're very excited about the performance plan. These adjustments that we made in the second quarter are not uncommon; there were no fatal flaws, and everything was sized and powered appropriately. So those are all significant checks for us that give us the confidence that this project will perform as designed. We've seen it for periods of time performing as designed. And as we get everything else commissioned, you'll just have more and more of those days strung together, and that's how our forecast is built.

Red, what gives you the confidence that despite the delays and the revised guidance for this year, the guidance for 2024, which I believe is the lower end of the 3-year forecast of 285,000 tonnes, will be achievable? Are there any constraints that might affect the ramp-up next year?

No, not at all. If we did see constraints, we would be flagging those and signaling those. Again, I want to repeat the plant is very well designed. It performs as designed. We've made a lot of adjustments that are for the long-term benefit of the operation. We're not patching things or leaving things to be modified in the future. We identified them in the second quarter, addressed them, and the run of Line 1 in June and July indicates that all of that is very strong, very sound, and very solid.

Yes. Thanks, Red. And Orest, just to reiterate, overall, the reduction in guidance that we've communicated today is due to delays in construction and commissioning, not ramp-up. That gives us the confidence that we will achieve full rates of production before the end of this year. And that, again, is why we don't expect any impact or carryover into 2024 and why we've retained that guidance.

The next question is from Carlos De Alba with Morgan Stanley.

Regarding QB2, when do you anticipate the operation will become profitable based on what was discussed earlier?

Yes, Carlos, thanks very much for that question. I'll turn that one over to Crystal, please.

Carlos, thanks for the question. I think as we've indicated, as a result of the change in accounting treatment where we have to record the results through our earnings right from sort of get-go rather than waiting until we've achieved commercial production, it has an impact on the profitability. We haven't really commented on or guided to what that may look like. I think we do expect QB2 to be up to those full production rates by the end of the year and expect to be generating free cash flow into 2024. But that accounting treatment is really going to preclude us from generating substantial profitability in 2023.

Understood. Crystal. And so on the expansion of QB2 now, the mill expansion, given the recent changes that haven't become law yet, but might become law soon that increased the tax royalty for copper operations in Chile. Have you now under this new paradigm, this new scenario, analyzed the possibility of moving ahead with this operation or with this expansion? And if you could remind us, that would be great if the tax stability agreement that you have for QB2 also applies to this expansion or doesn't?

Yes, good question, Carlos. We assume that the bill that's been announced will be passed into law. Therefore, of course, we've modeled the impact of that across all of our operations and future projects in Chile. We have a stability agreement in place at Carmen de Andacollo, which runs through to 2027. And as you know, we have a 50-year stability agreement for QB2. Now the design for the QB mill expansion or QBME is designed to be an expansion of QB2, not a separate project. For that reason, we think it should achieve the same tax stability protection as that will ultimately be definitively tested through our engagement with the government. But either way, Carlos, as we look at the economics of QBME, whether with or without the stability agreement, it looks attractive. Of course, it looks more attractive if we have the cover of that agreement, and that's something we're working through now. The permit application that we submitted in the first quarter of this year for QBME is running along very well. We've had questions and queries from the relevant authorities that we've addressed, and we see that moving along exactly as we would expect. So very pleased with progress there so far.

And if I may squeeze just one more on QB2. Any comments on the port and jetty and when would you expect that part of the project to be ready for you to ship the concentrate out of the country?

Yes. Let me pass that one back to Red.

Yes. Carlos, first of all, just a nod to our marketing and logistics team. They've put together a great set of alternate programs for us to truck concentrate out of the port. We've already proved that up, and it's working well. So we've got a strong sales mechanism in place in the interim. The jetty work is progressing. We're wrestling away with this construction project from the Wild Pacific Ocean, and it's been quite an interesting project for all of us. But we’re making progress and should be shipping concentrate out of our own port facility by the end of the year.

Next question is from Lucas Pipes with B. Riley Securities.

Jonathan, I appreciated your earlier comments about the strategic aspects. I know there is a process in place, but could you possibly outline the preference regarding steelmaking coal and a partial sale? How would that fit into your strategic objectives?

Yes. Thanks for the question, Lucas. As we said previously, we were looking for a separation here of coal from the metals business, something that would be considered simpler and more direct. We have a range of parties engaged right now who have expressed interest in the steelmaking coal business. And of course, they have a range of proposed transactions that they're bringing forward. It's a good confirmation, as I mentioned before, of the value of that business. And it's great that we have a competitive process that's running a course here. Our focus will be to maximize value for shareholders, of course, while also ensuring future for the benefit of employees, communities, and indigenous groups, et cetera. There will be a range of considerations that we have to bring to the table here as we make those decisions to ensure we are taking care of all of those stakeholder groups appropriately. And that is something that we're working through right now. So we have deliberately sought to keep a very open mind here with respect to what will create the greatest value. We do that through the lens of the perspectives of our shareholders, and we look forward to speaking to them again in the coming days, post the quarter, and I'm sure we'll learn more about their views in that regard. But look, we're working very diligently through this process. I don't want to say anything now to sort of prejudge or preempt what the outcome might be. We'll take the time to get this right and do the very best we can for our shareholders, but needless to say, we're not sitting on our hands, and we're progressing this as quickly as we can.

Thank you very much for that perspective. I have a market-related question on the coking coal side is Real on the call as well.

Yes, Lucas. I mean we made a change, as you know, recently in the organization real after many, many, many years of phenomenal contribution here at SAC and Amster's retirement. And we appointed Ian Anderson as our new Chief Commercial Officer. But Real is on the line, and I'm sure he'd love to talk to you about the current status and outlook for the met coal market. So Real, with that, over to you, please.

Well, thanks a bunch, Lucas. We appreciate your comments. So just to give you a short insight into our outlook for steelmaking coal, I guess, at a high level, if you look at the demand side, this is what is happening with co-production, hot metal production is up 60 million tonnes when you compare it to 2019, pre-pandemic. And when you do the same comparison for coal from the key exporters, it's actually down 5 million tonnes. So that kind of puts in perspective the level of tightness that we're seeing in the market. Now more specifically, steel prices are improving compared to the lows of last year. That's in response to better demand from various sectors. We are seeing some indications from China as well, and we are looking at policies to support the economy. In India, steel production is also continuing to increase towards the government's target of reaching 300 million tonnes of installed capacity by 2030, 2031. And then on the coal supply side, supply is still struggling. It's still down compared to last year. That's the fourth consecutive year of reduction in terms of exports. So it remains overall a tight market. And as a result, pricing is continuing to be substantially above the long-term average going back to 2010.

Real, I really appreciate that, and I hope you keep an eye on the coking coal markets even after October. Again, best of luck in retirement.

Thanks a bunch, Lucas.

The next question is from Liam Fitzpatrick with Deutsche Bank.

Just one quick one from myself. Just on the EVR sale process. I appreciate it's difficult to give much color, but there's a lot of interest in this at the moment. In terms of timing, is it your hope or your expectation that before the next set of numbers in October that we could get a fuller update in terms of your next steps on this business?

Yes. Thanks for the question, Liam. We are working on this very actively right now. We're engaged with multiple counterparties, as you would imagine, there's a detailed data room and a due diligence process that's working its way through, which we will run to its conclusion. As I said before, we're not sort of sitting on our hands here. We're taking a very active and diligent approach to moving this forward as quickly as we can, but also ensuring that we take time as we need it to deliver the best outcome here for shareholders and stakeholders. So I won't commit right now to timing, Liam, because, of course, that's also a function of the counterparties on the other side of this process. But suffice it to say, we've been very active and continue to be very active in this world.

The next question is from Lawson Winder with Bank of America Securities.

Jonathan, Red, Crystal and hello Real, and congratulations on your retirement. I just wanted to hopefully ask a follow-up on the coal separation again. Just based on your conversations with potential interested minority interest, is it getting to the point where the minority interest could actually add up to a majority stake in coal?

Yes. Thanks for the question, Lawson. There is a lot of interest, whether that's for the whole of the business or for components of the business. As you know, previously, with the transaction we announced earlier in the year for separation, Nippon Steel were active and keen at that point in time with respect to their interest. Again, there are a number of structures that we're looking at here and a number of different forms of transaction that we will have to compare and trade off against one another. I'm not going to preempt that now by sort of commenting on what will be more or less attractive because, of course, there's far more to it than just evaluation. There’s the allocation of risk and the long-term implications for the business beyond the transaction, all of which we have to be cognizant of in the decision-making process. But suffice to say, there is significant interest, and it’s broad-based in terms of where that interest is coming from.

Okay. And then maybe just my follow-up would be on Chile. So you've highlighted again that the QBME feasibility study is expected to be completed in the second half. And so my question that would be, would you expect that to be released with Q3 '23 results? And then assuming the economics are as compelling as you currently believe they are, is the regulatory environment in Chile, are you sufficiently comfortable with that to move ahead, whether or not you have the same tax benefits as the existing agreement with QB2?

Yes, Lawson, we are working through the completion of that feasibility study, which we hope to have done in the second half of this year. So it certainly will be done by the end of the year. In parallel, of course, we need to get the permit or the amendment to the existing permit to allow us to construct this project. So those two things are outstanding before we would make any sanction decision. I'm actually going to hand over to Amparo just to give you a bit of a lay of the land with respect to the regulatory environment right now. Amparo is our Vice President covering South America. At the highest level, I would just say we're pretty comfortable with it based on what we see. But let me invite Amparo to add some color to that.

Okay. Good morning, everybody. And yes, as Jonathan said, the regulatory process of the DIA, which is declaration of impact study is currently underway. The process has been smooth. We are now preparing the second round of answers. So we don't foresee any issues impacting the approval of that DIA.

The next question is from Chris LaFemina with Jefferies.

I have a couple of questions regarding QB2. One is more of an accounting question. The CapEx budget or guidance for the project remains at $18.2 billion. In the investing activities table of the earnings release, you specified the CapEx for the QB2 project and also indicated the ramp-up CapEx. Does the CapEx for the project include the ramp-up CapEx? That's my first question.

Crystal, that one for you.

Yes. Thank you, Chris. There is a portion of project capital that is related to ramp-up, but that separate bucket of capital that we've categorized there is mainly in relation to the accounting treatment and how we have to look at those costs that we're incurring during that commissioning phase — breaking those out between what goes into inventory versus what goes into cost of sales and what should continue to go into capital. So those aren't included in the project piece. But when we developed that project capital budget, there is obviously some capital associated with ramp-up that was built into that. But this is really in relation to the accounting treatment.

Okay. So the ramp-up CapEx, I mean, obviously, we're very close to commissioning. But if the ramp-up takes longer than you expect today, ramp-up CapEx would obviously continue to rise. But we should not look at that as being additive to the project CapEx. In other words, that's just basically pre-commercial production operating costs that are being capitalized.

That's the right way to think about it. And we don't guide to that number, but I don't expect that number to be substantially higher than what we've incurred already given, as you know, we're largely through the ramp-up phase.

Got it. I'm sorry, I wasn't sure exactly how that worked. My second question is if we look at QB2 in its entirety, and we consider the delays in some of the CapEx increases over the life of the project. Would it meet your hurdle rate based on your capital price assumptions? Or do you need the mill expansion now, which is obviously a much higher returning project for its entirety to actually meet your hurdle rate? So does QB2 in and of itself meet your hurdle rate based on what you've built so far and what you expect to happen going forward?

Yes. Thanks, Chris. Of course, one of the major changes that occurred since we started building the project is the long-term outlook for copper prices. When this was sanctioned and based on the returns we communicated at the time, we were using $3.15 for the long-term copper price here. Now there's a range of views as to what that price should be in the future, but I think everybody recognizes that, that wouldn't be sufficient to incentivize the capacity that we're going to need to even go some way to filling the expected gap between supply and demand a few years out. So that's a long way of saying, if you look at the additional CapEx that we've incurred, if you factor in some inflation in unit costs, which we, of course, have communicated is updated regarding our own unit costs for the market. You can still get a very strong return on QB2 using quite a reasonable copper price. So the answer is yes. But in addition to seeing inflation in operating costs and exceedances in CapEx, you have to adjust the copper price assumption commensurately to go with that. But it is still a project that looks good in its own right and doesn't require the mill expansion to make the economics work.

The next question is from Bryce Adams with CIBC.

I wanted to ask on NewRange listed as a copper growth opportunity on a few slides. So just an update on the permitting process. I think the water permit was revoked in May, but was that an air permit as well? A rundown on the permits that would be appreciated. And then if permitting is a current hurdle, should NewRange be moved from a near-term to a longer-term opportunity?

Yes. Thanks for that, Bryce. I'm going to hand you over to Tyler Mitchelson, who's our SVP of Copper Growth and, of course, is very close to that situation with the permit that you're referring to.

Thanks for the question. Yes, the 404 permit was the wetland permit, which is essentially the water discharge permit, and it was being contested in court. In the end, we got the decision in May that, that was revoked by the Army Corps of Engineers. Right now, we are taking a bit of a step back to understand what is the pathway forward to get that permit reinstated. So there are multiple approaches to that, including engagement with stakeholders, particularly the First Nations groups there as well as the EPA and the Army Corps of Engineering and state and federal regulators to understand what is our pathway forward from that. So we don't have a definitive answer, but it is a critical permit for us to be able to move forward with the project.

So putting it all together, do you think that asset could be in production this decade? Or is it going to the next decade?

Very difficult to say at this point in time. As stated by a number of people, this is a bit of uncharted territory right now. So over the next few months, we're going to work through what is the pathway forward, and we'll have a much better sense of what the timeline is on the project.

No, I was just going to say, Bryce, I mean, I think similar to many of the projects we have. This is common across every operator in the industry is that the permitting piece is one of the greatest uncertainties that, to a certain extent, is beyond our control. It's an advantage, therefore, to have multiple projects because of those timelines; as you identify, we're therefore very happy to have the Zafranal permit in hand. We will submit the permit for San Nicolas shortly. And of course, we have the BMA permit in Trail, as Amparo described, and it's moving along well. Ultimately, even with permits in hand, we still then have to look at how we optimize the development of capital in such a way that it leaves space for return to shareholders and that we're directing the organization's project capacity and project construction capacity and those things that will generate the highest returns. So just having a permit per se does not necessarily guarantee that any project would be the first cab off the rank because we will always take a portfolio perspective to the way we deliver the greatest value.

Okay. Maybe just a last one, a follow-up on these projects. But on that waterfall chart in Slide 15, how do you see like when you're preparing that chart, we're trying to put on the left, is that like the most probable project to be advanced? Or is it just more random?

Yes. I mean I wouldn't read into it necessarily in that first phase where you see those five projects: San Nicolas, QB mill expansions, Zafranal, et cetera, because, of course, Zafranal is the one where we have a permit, but it's Zafranal we're redoing feasibility and we've got some engineering to be done. San Nicolas, we haven't yet put in the application for the permit and QB mill expansion, of course, we're somewhere between the two. So I wouldn't read into that too definitively in terms of the sequence in which these things happen. The point we're trying to communicate here is all of these things are in the mix in what we would call the near term here from a project development capability and delivery. And we will look at that on a portfolio basis across some of the range of factors I referenced in my remarks earlier. But it's a great position to be in because of the risk of things like permitting, having multiple projects here that we can accept 1 moving back in time because there will be others that still exist within that close time frame gives us the option to continue to invest in growth, whereas if we were a single project operator or even a two-project operator, that might be a very difficult thing to achieve.

The next question is from Timna Tanners with Wolfe Research.

I wanted to follow up on that last question, just to understand Slide 16 on those cash costs. If you could just remind us when they were last updated and if it wasn't that recently, like what you think they might look like roughly, if you were to update them just high level?

Yes. Thanks, Timna. Tyler, do you want to comment on those?

Yes, those cash costs are from the most recent studies that we have done. Now some of those are dated. As we're moving through, as Jonathan says, we're moving through feasibility updates for the majority of these projects, and we'll update those as we complete the final feasibility numbers. But as noted, you are seeing inflationary impacts across the board. So we anticipate those will go up, but I can't tell you what they are at this point in time. But we'll have much better information as we work through the feasibility and the study process and update.

Okay. Fair enough. And other question is just for Crystal. I wanted to touch base on the working capital just because it continues to see pretty high inventories. And just I'm assuming, of course, that has to do with the QB2 ramp-up. But how do we think about the cadence of that normalizing because the working capital use hasn't reversed as much as we might have expected? So any timing guidance there would be great.

Thanks, Timna, for your question. You're correct. There is a build in working capital in relation to QB2. So I think you can expect that to come down over time or the rest of the year. SP-4 Okay. Great. Thanks again.

I will now hand the call back over to Mr. Price for closing remarks.

Thank you, and thanks to everyone for joining us today. As ever, if you need further details or context here, please reach out to the IR team. They will be very happy to help. And we look forward to seeing you all soon. So thank you very much, and have a good day.

This concludes today's conference call. You may disconnect your lines. Thank you. Thank you for participating, and have a pleasant day.