Earnings Call Transcript - TECK Q1 2022

Operator, Operator

All participants, thank you for standing by. Welcome to Teck's First Quarter 2022 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 Wednesday, April 27, 2022. I would now like to turn the conference call over to Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis. Please go ahead.

Fraser Phillips, Senior Vice President, Investor Relations and Strategic Analysis

Thanks very much, Patrick. Good morning, everyone. Thank you for joining us for Teck's first quarter 2022 results 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. Explanations and reconciliations regarding these measures could be found in our MD&A and the latest press release on our website. Don Lindsay, our President and CEO, will begin today's call with first quarter highlights, followed by Jonathan Price, our CFO, who will provide additional color on our financial results. We will conclude today's session with a question-and-answer period to address any remaining questions. With that, I will turn the call over to Don.

Don Lindsay, President and CEO

Thank you, Fraser, and good morning, everyone. We are pleased to report an exceptional start to the year and our record-setting financial results in the first quarter and what is going to be a transformational year for all of us here at Teck. Solid operational performance and continued strong commodity prices drove a quarterly record of $3 billion in adjusted EBITDA, which is more than triple the same period last year. We delivered adjusted diluted earnings of $2.96 per share compared to $0.61 in Q1 of 2021. And importantly, our strong financial performance enabled us to both strengthen our balance sheet and return significant cash to shareholders. We continue to advance our flagship QB2 copper project with overall progress now surpassing 82% completion. We must say we're very proud of this achievement, especially in light of the significant impact the Omicron wave had on workforce absenteeism, which exceeded 20% early in the quarter. Our QB2 capital cost guidance remains unchanged, and our teams are focused on systems completion and handover as we expect first copper from line 1 in Q4 of this year, assuming no further COVID waves or other major disruptions. During the quarter, we made meaningful progress towards our commitment to safety and sustainability leadership. On safety, our high potential injury frequency remained low at 0.14 in the quarter. On climate, as you will have seen, we expanded our climate action strategy building on our existing commitment to net zero across our operations by 2050, we included a new short-term goal to achieve net zero scope two GHG emissions by 2025. We also have an ambition to achieve net zero Scope 3 emissions by 2050. We are pleased to see our continued sustainability efforts being recognized by the industry. During the quarter, we were named to the 2022 Bloomberg Gender Equality Index in recognition of a high level of disclosure and performance in gender quality, and Highland Valley was the first Canadian mine site to be awarded the Copper Mark verification for its responsible mining practices. Turning to Slide 4. As stated earlier, we delivered $3 billion in adjusted EBITDA in the quarter, notwithstanding global inflationary pressures, which increased our overall operating cost by 13% compared to last year. Our results reflect meaningful contributions from each of our business units. Solid operational performance, combined with the strong commodity price environment, enabled us to further strengthen our balance sheet and accelerate our ability to return capital to shareholders. In the first quarter of 2022, we redeemed USD 150 million of our maturing notes, and we also paid CAD 337 million in dividends to shareholders. And subsequent to quarter-end, we completed $100 million of buybacks. Just last night, we announced our intention to repurchase a further USD 500 million in Class B subordinate voting shares. We think this demonstrates both our confidence in the outlook for our business and our commitment to balance growth with shareholder returns. Going forward, we will consider additional buybacks in the context of market conditions at the time. With the startup of QB2, we are quickly approaching an inflection point where the potential for further increased cash returns to shareholders will be possible. Turning to our operations. Starting with our copper business unit on Slide 6. Record quarterly copper prices of $4.53 per pound and higher contributions from byproducts drove EBITDA of $523 million in the first quarter, which is an increase of 25% from last year. At Highland Valley, production was impacted by unplanned maintenance that reduced mill throughput. However, copper sales exceeded production as the logistics chain recovered from the weather-related disruptions at the end of 2021 and inventory was drawn down. Overall unit operating costs were in line with our annual guidance. The increase year-over-year was primarily the result of higher diesel prices and profit-based compensation. In April, Antamina submitted an application for an amendment to its currently approved environmental impact study to extend the mine life from 2028 to 2036. Looking ahead, we continue to expect strong performance from all of our copper operations in 2022. Our annual guidance is unchanged. However, there continues to be upward pressure on cash unit costs. Moving on to zinc on Slide 7. EBITDA on our zinc business increased by 71% compared to Q1 last year to $298 million. The increase was driven by higher concentrate sales volumes and zinc prices, which were up 32%, partly offset by substantially higher royalty costs related to profitability at Red Dog. The higher zinc and concentrate sales volumes in Q1 were primarily a result of the late start of the 2021 shipping season and the historic weather-related delays resulting in the deferral of a portion of 2021 sales into Q1 2022. Unit costs are down as a result of lower smelting processing charges, which more than offset inflationary pressures. At Trail, refined zinc production was impacted by nonrecurring operational challenges, which are now behind us. Looking ahead, we expect Red Dog zinc and concentrate sales of 50,000 tons to 70,000 tons in the second quarter, which reflects normal seasonality, and our annual guidance is unchanged. On Slide 8, our steelmaking coal business unit delivered yet another record quarter, generating $2.1 billion in EBITDA, a fivefold increase compared to $415 million last year. Pricing for steelmaking coal increased significantly through the quarter, resulting in a record quarterly realized price of USD 357 per ton. Sales to our customers in China are based on the CFR China price, which was at a discount to FOB Australia during this quarter. Sales in the quarter were 6 million tons, exceeding production but slightly below guidance, and that was a result of the CP rail work stoppage in late March. Production was impacted by processing challenges and curtailments early in the quarter associated with high mine inventories, which were carried over from the various weather disruptions in late 2021. Our rail infrastructure and complementary port capacity upgrade at our Neptune terminal demonstrated its value by mitigating the impact of major weather events. The rapid recovery of the logistics chain and the ability to recover deferred sales allowed us to capture higher margins and sales in a high-price environment. Adjusted site cash cost of $77 per ton and transportation costs of $46 per ton in the quarter reflect continued inflationary cost pressures, including substantially higher diesel prices, profit-based compensation, demurrage costs, and fuel surcharges. These increases were partially offset by lower port costs at Neptune. Looking forward, we expect sales of 6.3 million tons to 6.7 million tons in the second quarter. Given our lower production in Q1, we expect 2022 production to be in the lower half of our guidance range of 24.5 million tons to 25.5 million tons. As a result of the same factors that impacted our first-quarter costs, we now expect 2022 adjusted site cash costs between CAD 79 and CAD 83 per ton. Additionally, we increased our capitalized stripping cost guidance by $50 million, which reflects the inflationary mining cost pressures in 2022. It's important to note that the primary cost increases are not related to key mining drivers such as mine productivity and strip ratio, which remain relatively stable. Notwithstanding recent volatility in steelmaking coal prices, the FOB and CFR benchmarks are currently trading at significantly higher levels compared to our record average realized price in the first quarter, which points to continued strong results in Q2. Turning to Slide 9. Our energy business delivered $119 million of EBITDA in the first quarter, driven by the significant increase in the price of Western Canadian Select and Fort Hills ramping up to a two-train operation. In addition to its positive contribution to our bottom line, our investment in Fort Hills provides us a natural hedge against increasing WTI and diesel prices. Lower adjusted operating costs per barrel reflect higher production, which is partially offset by higher costs for natural gas and diesel. The increase in WTI price also impacted costs for diluent, which is required for blending with the bitumen. Looking forward, a 20-day planned maintenance outage in the second quarter is expected to reduce production to one train during this period. However, we continue to expect Fort Hills to operate at an average utilization of 90% in 2022. As we have previously stated, adjusted operating costs are expected to continue to decrease throughout the year. However, given increases in the price of natural gas and diesel, we now expect adjusted operating costs for 2022 to be in the range of CAD 28 to CAD 32 per barrel. Moving on to QB2 on Slide 10. We now have 12,500 workers on site, which is the highest to date, evidencing the recovery from the impacts of the Omicron virus early in the quarter when absenteeism exceeded 20% at times with hundreds of workers in isolation. Despite these challenges, steady progress has been made since our last report just two months ago, and QB2 is now over 82% complete. We expect first copper from Line 1 in Q4 this year, while our capital cost guidance remains unchanged. We are proud of this progress. We are also pleased to report the QB2 project has been named by Bechtel as their Global Construction Project of the Year. We completed a number of key milestones in Q1, including the completion of the power transmission line tower construction and, in terms of water supply, the seawater intake and the outlet pipes are now in place on the seafloor in preparation for water extraction pipes. We have entered the hydrotesting phase for the water supply pipeline. I'm proud to say that the QB mine fleet has completed their master work scope for the tailings starter dam construction, which is now over 85% complete, and the mine fleet has transitioned to open pit activities. Our focus going forward is on system completion and handover of key facilities as we drive towards first copper. Looking into Q2, key milestones include energization of the high-voltage power transmission system, which is in progress, completion of the mine infrastructure required for pre-stripping, and we will begin turning over key systems at the concentrator to pre-operational testing, including the Line 1 mills. The photo on the right side of slide 10 shows workers installing the siding on the building which houses the mills. Slide 11 shows the preparation for launching and placing the second and final seawater intake pipe on the seafloor. This pipe is a key component of our water supply system and was successfully deployed during the quarter. On the next slide, Slide 12, you can see the placement of one of the last modules for the electrical room at the desalination plant and the reverse osmosis units on the left side of the photo. Slide 13 shows preparations for the hydrotesting phase of the water supply pipeline, which is a key step in construction and pre-commissioning of the pipeline for supplying water to the project for commissioning and operations. Slide 14 shows workers mounting the Concave inside the primary crusher. The major mechanical components associated with the primary pressure are now all installed. Next, you see the transfer station on the overland conveyor that will transport ore between the crusher and crude oil stockpile, and we will begin shortly the installation of the conveyor belts in this area. Slide 16 illustrates the progress we are making on the assembly of the stockpile dome, which is well advanced and approaching its final height. The approximately 15-story high stacker structure can be seen feeding into the dome. Slide 17 provides an overall view of the concentrator area from February, with the stacker structure and the grinding building in the background and the flotation area in the foreground. The focus in this area is on completion of Line 1 in preparation for first copper. As mentioned earlier, in Q2, we will begin turnover of key systems in this area to pre-operational testing, including the Line 1 mills. On Slide 18, you can see the progress on the Cyclone station, which sits above the future tailings impoundment area. The Cyclone station will be used to classify the tailings once we are in operation. Finally, on Slide 19, you can see the starter dam, where we continue to make excellent progress. As I said, the Teck mine fleet has completed the master work scope for the starter dam, and it has transitioned back to the mine area. In summary, we continue to be very pleased with the progress we are making, and we are excited to build on our construction successes to date with a focus on delivering on the project's key milestones. I encourage all of you to visit the Investors section of our website to watch the latest progress video and view the most recent photo gallery. With that, I will now pass it over to Jonathan to discuss our financial results.

Jonathan Price, CFO

Thanks, Don. Teck delivered record-setting profitability in the first quarter, largely as a result of continued strength in the prices for all of our principal products as illustrated on Slide 21. Copper prices reached an all-time quarterly record average of USD 4.53 per pound in the first quarter, while zinc prices increased by 36% to an average of $1.70 per pound. Western Canadian Select, the heavy oil benchmark price increased sharply due to the impact of the Russian war in Ukraine. FOB Australia coal prices reached peak levels in the first quarter, averaging a record high of USD 395 per ton for the quarter lagged by one month and a record high of USD 487 per ton for the calendar quarter. CFR China prices traded at an average of USD 405 per ton in the quarter. As you may have noted, we published a press release on April 10 announcing the sales volume, average realized price, and pricing adjustments for our steelmaking coal business unit in the first quarter. We intend to continue pre-releasing these data points each quarter going forward, given the lack of visibility and publicly available information. We've outlined the key drivers for our record profitability on Slide 22. Adjusted EBITDA of $3 billion in the quarter represents an increase of more than $2 billion compared to last year, predominantly driven by strong commodity prices. Like others in the industry, we continue to face inflationary cost pressures which increased our Q1 operating costs by 13% compared to last year. Approximately half of this increase relates to diesel costs at our operations and in our transportation costs. The diesel prices increased by 52% compared to the same period last year. Further increases in the cost of a number of our key suppliers, including mining equipment, fuel, tires, and explosives, are being driven by price increases in underlying commodities such as steel, crude oil, and natural gas. While our underlying key mining drivers remain relatively stable, key input costs and profit-based compensation continue to put upward pressure on our unit costs and capitalized stripping guidance in 2022. Now we generated cash flow from operations of $2.3 billion in the first quarter compared to $585 million in the same period last year. This is largely a reflection of the positive impact of substantially higher commodity prices, most significantly steelmaking coal. Debt proceeds from the QB2 project financing facility were $260 million in the quarter. The USD 2.5 billion facility was fully drawn in April. In the first quarter, our capital investments totaled $867 million, including $654 million for QB2 and $186 million in sustaining capital. Additionally, we incurred $233 million for capitalized stripping, primarily related to the advancement of pitch for future production at our steelmaking coal operations. This was higher than a year ago as a number of development mining areas transitioned from sustaining pre-production capital to early stages of operations. As Don outlined earlier, solid operating performance and strong commodity prices enabled us to pay down debt and return meaningful cash to shareholders in the quarter. In January, we repaid $236 million in debt, including USD 150 million of our maturing 4.75% term notes. In the quarter, we paid out $337 million in dividends, consisting of our quarterly base dividend of $12.05 per share and a supplemental dividend of $0.50 per share. Additionally, we paid out another $100 million through the purchase of 2 million Class B shares under our normal course issuer bid, 1.8 million shares or $90 million of which was completed in the first quarter. As shown here on Slide 24, our balance sheet remains strong with a net debt to adjusted EBITDA ratio of 0.6 times, investment-grade credit ratings, and no significant debt maturities due prior to 2030. As of April 26, we had $8 billion of liquidity. Importantly, our record profitability and strong balance sheet have enabled us to deliver meaningful cash returns to shareholders. As Don noted earlier, in accordance with our capital allocation framework, we announced our intention to repurchase a further USD 500 million in Class B subordinate voting shares. This demonstrates both our confidence in the outlook for our business and our commitment to balancing growth with shareholder returns. Going forward, we will consider additional buybacks in the context of market conditions at the time. Supplemental distributions will continue to be considered annually by the Board in February when we have the final results for the full year. Slide 26 outlines our guidance for capital investments. With the completion of QB2, 2022 will be the high watermark in our capital spend profile. As previously noted, we expect a significant decrease in capital investments into 2023 to a total of approximately $3 billion. With first production from QB2 in the fourth quarter of this year and the operation ramping up to full capacity, we are approaching a major cash flow inflection point, where we shift from a period of significant capital investment to a period of significant cash generation. I will now pass it back to Don for closing remarks.

Don Lindsay, President and CEO

Thank you, Jonathan. In closing, I have to say we are very pleased with how Teck is positioned to drive long-term shareholder value. Our first quarter results provided us with an exceptional start to 2022. This is a transformational year for Teck as we rebalance our portfolio towards copper. As we bring on QB2 and advance our overall copper growth strategy, we will rebalance and reduce the proportion of carbon in our overall business. As we've done to date, we'll continue to further strengthen our existing high-quality assets through our RACE technology transformation program and our sustainability strategy. Strong commodity prices over the last few months have accelerated our ability to return capital to shareholders. Looking ahead, we have the ability to generate even greater cash flows and returns. With that, I'll turn the call back to the operator to open it up for questions.

Operator, Operator

The first question is from Orest Wowkodaw from Scotia Bank. Please go ahead.

Orest Wowkodaw, Analyst

Don, obviously, cost inflation is impacting the mining industry across the board. I'm not surprised to see your higher cost guidance in coal. But I am a little surprised that you're maintaining cost guidance in copper and zinc, even when you look at it before by-product credits. Can you maybe give us a bit of color on how you're managing that and whether that's related to perhaps some hedging done for fuel or something that's keeping costs at a lower level for some period of time?

Don Lindsay, President and CEO

I'm going to turn that question over to Shehzad. I'll just make a comment that one of the contributing factors, not just in one, but across the business, is the success of our RACE21 program, and we'll be issuing a release summarizing some of the key accomplishments there in the next short while. But Shehzad, over to you.

Shehzad Bharmal, Analyst

Orest, I'll start with the zinc business unit. Our higher production is part of the reason compared to last year as to that helps in maintaining the cost guidance, and also the sensitivity to diesel, which has gone up significantly. There's a lot less in copper and zinc than it would be in coal. And of course, as Don mentioned, we have done a fair bit of work on RACE21, both Highland Valley and Red Dog have been very active on the RACE21 side, which has helped on cost management. And as you mentioned before byproduct hedge and after-byproduct credits in copper, zinc credits at Antamina have been very helpful after byproduct credits. The same thing in the zinc business unit with lower TCs having also helped from last year.

Orest Wowkodaw, Analyst

Are there any hedges or callers that are helping to manage costs for a certain period, or is this updated guidance reflecting the full market cost?

Jonathan Price, CFO

No. This is Jonathan here, Orest. No, the guidance reflects the prices you see in the market. We haven't hedged any of our key input costs.

Orest Wowkodaw, Analyst

And then just quickly, if I may, on the capital return program, pleasantly surprised by the new USD 500 million buyback. Is this something now that the Board plans to look at on a quarterly basis?

Don Lindsay, President and CEO

I'll draw your attention to our release in February, where we said that the Board would be reviewing it regularly. We deliberately didn't use the word quarterly because regularly it could be shorter than quarterly or could be longer. But I think this does demonstrate that that's exactly what we plan to do.

Lawson Winder, Analyst

Could I ask about the copper project pipeline? And whether or not your order of preference has shifted at all, particularly with some of the smaller projects such as Zafranal, San Nicolas, and Schaft Creek? And then finally, with San Nicolas and Zafranal, would you be comfortable building those two projects alone should you not find a partner?

Don Lindsay, President and CEO

So the way we look at it is we have three projects that are in mining terms near-term, meaning that they could all be in production by 2026. And those are QB mill, the QB mill expansion Zafranal, and San Nicolas. In each of those cases, we have the team is working away advancing the projects. In Zafranal's case, the hearing in Lima, Peru took place at the end of March was very successful, very impressive. I managed to get there myself and see it in action, and we've received very positive feedback from the regulator that time, and San Nicolas, a lot of work on there. I should say on both of those projects, we still have a preference to have a partner. Of course, we have a partner on Zafranal with an 80% interest and 20% with MFC. But we are in discussions with different parties on San Nicolas as well, and at some point, we'll make a decision. What’s important to us is getting the right partner. It’s really more of an interview process than a valuation process. I think all the parties involved are excited about the project, and at some point, we'll put the pin in. We do want to stay on that schedule to have it in production by 2026. So those are the three near-term. Galore Creek would then be what we would think of as medium term. It's a 50-50 joint venture with Newmont. We're working together updating the studies on that, and of course, it has a lot of gold in it. It’s got the real advantage of grade. So something for sure that's going to be a great mine. The other two are longer-dated Mesaba and Schaft Creek. But even with Mesaba, we're looking at different partner and development options there as well. I expect different announcements throughout the year. I can't tell you exactly when, but certainly, there's a lot of activity in the copper growth for sure. We’re also in the market hiring people and building the internal team. So if we ended up choosing to do it on our own, we'll have the capability to do so. We really like what we've done with QB2 and our partnership with Sumitomo Metal Mining and Sumitomo Corp. I think the market really liked it. It derisks the project, both financially and from a market point of view, with great customers, great partners. So we think that's a pretty good model. While we're at this stage, I think it’s still worth pursuing.

Lawson Winder, Analyst

And then on your updated goal to achieve net zero Scope 2, I'm curious, are there any potential substantial CapEx investments that might be required on behalf of Teck in order to achieve that? And what are the main points that have to get achieved to ultimately reach that?

Don Lindsay, President and CEO

Yes. I'm going to turn this over to Shehzad actually, but the short answer is no on the big capital. It's really all about clean power, isn’t it? Shehzad?

Shehzad Bharmal, Analyst

In Chile, we have purchased agreements for Scope 2. Remember, a couple of years ago, we converted two contracts that we had to renewable, and we have one contract left right now at 122 megawatts with the provider, and we are in the process of looking at options and working on the development of new renewable projects to be able to convert that coal-fired contract over to renewable.

Don Lindsay, President and CEO

I want to get it done faster than 2025, so I'm putting a lot of pressure on Shehzad.

Carlos De Alba, Analyst

So on QB2, congratulations on the continuous progress. I noticed that tagline 1 to start producing in the fourth quarter. But yet in the copper outlook, corporate production guidance, you have not included any volumes there. Could you elaborate a little bit more on why that is the case and give us a range as to how much volume maybe just minimum? What is the reason you are not including it in your guidance? Any color on that regard would be great. As well as I noticed that there was no comment related to QB2 COVID capital cost. So I just wonder if the guidance remains between USD 900 million and USD 1 billion for that. And then if I may, on the coal side, could you comment on the Chinese market and your expectations for shipments into that market in Q2 or for the remainder of 2022?

Don Lindsay, President and CEO

Carlos, I think we've got four questions there. I'm going to take the one on guidance and turn it to Jonathan on the copper production guidance. I'm going to ask Red to talk about QB2 since he is on the line and can give you some insights on how things are going there. Lastly, it would be Real to address the coal side.

Jonathan Price, CFO

Yes. On the production guidance, we haven't guided to volumes at this point in time. As you highlight, we will do so, of course, for 2023 in due course. But for the time being, we continue to just follow the progress of the project and will provide updates throughout the remainder of the year.

Don Lindsay, President and CEO

And then Red is on the line, so I'll hand it over to him.

Red Conger, Chief Operating Officer

Yes. Thanks for the question, Carlos. Just in general, we're really excited about where we're at right now. Our team has come through this Omicron wave extremely well. We're very proud of how they've managed the health and safety of our employees. They weathered through these high absentee rates that we had earlier in the year, with as many as 800 people in quarantine at one point. We've got a really clear path now to first copper in the fourth quarter. All of that is really positive for us, momentum is building, and we're having a very good month right now in April. When you talk about volumes of production during the first couple of months of ramp-up, let me just give you some color on what that looks like on the ground. You start this equipment and start putting load-in, rock in it. The first thing you do is you turn it off and adjust folds and check tolerances and clearances and those kinds of things, and you turn it back on and put more rock in it. One of the next things that you do is adjust the shoots that all have to be custom fit and formed as you get the larger volumes of material going in there. It’s really a herky-jerky up-down shakeout process that you go through. We’re very comfortable with where we're headed in the fourth quarter and just are not going to make guesses about how that up-down, up-down goes in the first couple of months, getting this thing really tightened up and fine-tuned and ready to run for decades.

Don Lindsay, President and CEO

And then Real is on the line for the coal.

Real Foley, Chief Operating Officer

Yes. Thanks for the question, Carlos. So on coal sales to China for 2022, we're expecting it'll be between 25% and 30%. Keep in mind that we always reserve tons for spot sales, and we'll be placing these tons in markets where we achieve the best returns.

Lucas Pipes, Analyst

And Don, I have a higher high-level question. So QB2, kind of home stretch there, much lower CapEx next year. You're generating an incredible amount of free cash flow in the coal business here in Q2 and possibly longer given the global backdrop. I'm reminded of the book never rest on your ore. So what are your priorities?

Don Lindsay, President and CEO

I'd like to buy the whole company back myself. We think we're in a great position. We think the company is in really strong shape. We have great optionality to continue to grow the copper business. There are seven different projects, three of which were are, as I just mentioned, reasonably near term, and they can be developed on a capital-light basis, right? That's our objective. That's one of the reasons why we want to partner and so on. If we keep going down that path, that's going to put us in a very good position to continue to return capital to shareholders, whether it's by buybacks or dividends, it gets decided at the time. That's a pretty clean strategy, easy for people to understand: great cash flows from our steelmaking coal business and our energy business now and zinc business, and that cash going into the copper growth, which reflects what's going on in the world. We've got a very serious global commitment to decarbonization which means electrification, which means copper. We believe we keep executing. As you can tell from listening to Red Conger in his color on the project, as the project is in very good hands. The whole team is pulling together here. We think the next few years are going to be very exciting.

Lucas Pipes, Analyst

And my second question is higher level on the coal side. I'd say the one area where the greatest concerns from investors announcements in China with regards to increased coal production. Do you have expectations for your success in alleviating some of the coal pressures? And what this could mean for global coking coal prices in the quarters to come?

Don Lindsay, President and CEO

Yes. I'll turn that over to Real. But I'd make sort of this big picture observation. Throughout the years, there have been different announcements and events in different markets, China included. It's one thing to make announcements; it’s another thing to see what actually happens. If you track the steelmaking production in China over the last year, it's pretty stable.

Real Foley, Chief Operating Officer

Yes. Thanks, Lucas. So yes, China increased overall coal production during the quarter. When you look at it just for coking coal, the increase is very small. Local consultants in China are expecting that the increase in production this year could be maybe up to 4 million tons, bringing it up to about 494 million tons compared to 490 million tons last year. Now I say up to 4 million because there are several challenges with safety inspections that are continuing. There's also the 20th party Congress that will take place in October and November this year. Those increased safety inspections at the coal mines are expected to go on from now right through to the 20th party Congress. So there's going to be pressure to maintain even production at the level that it's at right now.

Brian MacArthur, Analyst

Can I just follow up on Slide 26? You talked about the $2 billion decrease in capital next year, which is obviously very positive. But then you go on to say sustaining capital, capitalized stripping all coming back down. If I just eyeball that, maybe around $500 million of that. The other $1.5 billion decrease, some of that's QB2 obviously, but are there other growth projects built-in there? Where I'm going with it a little bit is, obviously, the QB2 cash is different from the corporate cash, just given your relative percentage ownership. So I'm just trying to figure out what else is in there if you can give us any color.

Jonathan Price, CFO

Yes. Thanks for the question there. We will see a reduction in sustaining capital year-over-year into 2023. We've guided this year to $1.4 billion sustaining. We think a longer-term sustainable level is closer to $1 billion, including QB2, but we're not going to get all the way there by 2023. So you'll see some step down in sustaining capital. We'll also see a step down in capitalized stripping, as you mentioned. With respect to QB2, it's important to note that all of these numbers are on a 100% basis for QB2 because we consolidate that. If you look at our guidance in terms of to-go capital, you'll see there's a reasonable amount of capital carried over into the first half of next year, and that could be $600 million or $700 million. So that explains why you don't see a cliff in the QB2 capital year-over-year. I'd also say if you look at our guidance for this year, we've guided to $300 million in other growth across the business, and that goes to a bunch of studies that we're doing across many of our base metals assets, which we expect to continue as well. As Don mentioned, we have this pipeline of projects ahead of us. We're readying a number of those for near-term development decisions, and therefore, the studies and pre-execution work continues to ramp up. There's a lot of growth activity still in the portfolio in 2023, both QB2 and future options, which explains why the number perhaps isn't falling as much as you might assume.

Don Lindsay, President and CEO

If you want further breakdown on that, just contact Fraser, and he can help with the numbers.

Brian MacArthur, Analyst

That's very helpful. That's exactly what I was trying to get at. Can I just ask if QB working capital counts in that $700 million carryover?

Jonathan Price, CFO

No. The working capital is not included in there.

Jackie Przybylowski, Analyst

I just want to follow up on the question Orest asked earlier in the call on the share buyback. Can you talk a little about how quickly you expect to complete this new USD 500 million in share buyback? And can you just remind us if you finished the CAD 100 million that you announced in February and also the 40 million share NCIB that was approved in November? Where are you at in all of those programs?

Don Lindsay, President and CEO

Yes, sure. The November announcement is the annual announcement of the renewal of the NCIB, and you pick a total possible number, and there is a regulated maximum. So we put 40 million shares there, which is a big number. That doesn't guarantee that you're going to do all 40 million shares, but it gives you the room to start. Of course, you have to authorize a dollar amount. The Board gives myself and Jonathan an amount to work with. When we were doing the special dividend and increasing the base dividend, we just started with a small amount to get the NCIB going. We completed that amount a while back. We just reloaded last night. As we had said in February, the Board will be reviewing it regularly. So USD 500 million gives us something to work with. I couldn't tell you how long it's going to take to execute; that really depends on market conditions and so on. The Board will review it again. Our next meeting is at the end of May. Generally, we would review it at a scheduled board meeting. But if Jonathan and I feel that we want to reset sooner, we can call a quick call or something. It will be reviewed regularly.

Jonathan Price, CFO

Just for context, we bought back CAD 100 million through to April, and that was 2 million shares, and the NCIB is 40, so there's plenty of headroom under that right now, even accounting for the USD 500 million that was authorized yesterday.

Jackie Przybylowski, Analyst

And then maybe I could just ask about the QB mill expansion. I know you mentioned in the release that you've got a pre-feasibility that you're working on. Can you talk a little about what level of detail you're expecting to include in that pre-feasibility study?

Don Lindsay, President and CEO

I'll hand that over to Red Conger, please.

Red Conger, Chief Operating Officer

We're really excited about this development. We've checked roughly 12 key calculations for fatal flaws. One example would be can the tailing dam that we currently have constructed accommodate the rate of rise that we would incur from increasing the capacity by 50%. We’ve gone through those calculations, and have positive engineering results on all of them. That’s what's really triggered us to be bullish about this particular approach. We're combining the elements of the feasibility study into the work we're doing right now to fast track this thing, so we're trying to get all that in place to do permitting, etc. here at the end of the year.

Operator, Operator

This concludes today's question-and-answer session. I would like to turn the meeting back over to Mr. Lindsay.

Don Lindsay, President and CEO

Okay. Well, thanks all for attending today. We're very excited about the position we're in and very pleased with the results in Q1. Q2 is looking even better. We look forward to discussing that with you at the next call in July. Thanks very much.

Operator, Operator

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