Earnings Call Transcript - TECK Q3 2024

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to Teck's Third Quarter 2024 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 Thursday, October 24, 2024. I would now like to turn the conference 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, Damien. Good morning, everyone, and thank you for joining us for Teck's third quarter 2024 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 can be found in our MD&A and the latest press release on our website. Turning to the agenda on slide 3. Jonathan Price, our CEO, will begin today's call with an overview of our third quarter results. Crystal Prystai, our CFO, will follow with additional color on the quarter, and Jonathan will conclude today's start with closing remarks, followed by a Q&A session.

Jonathan Price, CEO

Thank you, Fraser, and good morning, everyone. Starting on slide 5. Our transition to a company focused solely on energy transition metals was highlighted by the sale of our remaining stake in the steelmaking coal business on July 11th. At that time, we received $7.3 billion in cash and announced our plans for the proceeds, which include the largest shareholder return in the company's history. Throughout the rest of the third quarter, we made progress in using these proceeds, returning $720 million to shareholders through dividends and share buybacks during the quarter. This brings our total shareholder returns to over $1.3 billion year-to-date as of yesterday, alongside a $1.5 billion reduction in debt, resulting in a net cash position of $1.8 billion as of September 30th. We are also funding our valuable near-term projects in preparation for our next phase of copper growth. Additionally, we achieved several operational milestones this quarter, continuing to increase our copper production and setting another production record as QB ramps up. Our operational focus led to increased zinc and concentrate production at Red Dog compared to the previous year. We are nearing the completion of the QB ramp-up, having finished the QB2 project in the quarter and demobilized the construction workforce. Almost all our claims were resolved, and we expect to remain within our project capital guidance range of $8.6 billion to $8.8 billion. Our well-funded, capital-efficient copper growth portfolio continues to progress, with near-term projects moving toward possible approval in 2025. Overall, we made substantial advancements in executing our value-driven strategy. Moving to slide 6, we maintain our commitment to safety, health, and sustainability leadership. We are deeply saddened by an employee's fatality at Antamina during a container assembly operation in the warehouse area on July 24th. In response, the management team at Antamina, supported by our joint venture partners, conducted a thorough investigation to identify the causes and implement any necessary actions, sharing insights across the industry to help prevent future incidents. Over the third quarter, our high-potential incident frequency rate remained low at 0.10, marking a 33% decrease from the same period last year. We continue to implement mental health first aid training for frontline leaders across our operations, aiming for 50% completion by year-end and full completion by the end of next year. Earlier this month, we were honored to be included on Forbes' list of the world's best employers for 2024, a recognition that highlights employee feedback across multinational companies and institutions from over 50 countries. Now, regarding the ramp-up of QB operations on Slide 7. Copper production at QB improved from 51,300 tonnes in Q2 to 52,500 tonnes in this quarter. However, production was affected by lower-grade ore mined, which was anticipated due to geotechnical issues limiting our access to higher-grade materials. The grade has remained consistent with previous quarters at 0.58%. Based on the throughput and recovery achieved, our production could have reached 56,000 tonnes. The localized geotechnical issue identified last quarter has now been resolved, with controls implemented as we continue to execute the mine plan. We expect to see higher grades in the fourth quarter, although normal growth variability is to be anticipated. Mill throughput rates increased quarter-over-quarter, illustrating the effectiveness of our plant design. As depicted in the chart on the left, throughput has been steadily increasing towards nameplate capacity and is currently close to design throughput rates. We anticipate reaching design throughput rates by the end of this year. Additionally, we have observed our capacity to operate above design throughput rates. Our efforts to optimize the mill aim to enhance performance beyond nameplate capacity while addressing debottlenecking. Recoveries continue to improve, as illustrated in the chart on the right, with increases noted quarter-over-quarter and enhanced stability. Nevertheless, there was a slight decline in our monthly copper production in September due to planned and unplanned maintenance. We proactively scheduled downtime in preparation for planned testing on the grinding and flotation circuits to ensure better continuity during this period. The tests were successful, which resulted in improved grind size along with selective reagents that enhance the processing of ore in the transition zone with higher clay content. Consequently, we anticipate better recovery moving forward. We also faced unplanned downtime due to a failure in the mill feed conveyor, which limited our tonnes milled. Our goals remain focused on increasing recovery and operational time. We expect to see improvements following the completion of the test work, along with minor equipment modifications aimed at increasing reliability scheduled for the first half of 2025. This is expected to gradually enhance molybdenum recovery, copper class stability, and equipment reliability in that timeframe. Overall, as we finalize the QB project and progress towards full ramp-up to design throughput rates, we anticipate generating substantial cash flows starting in 2025 and beyond. We have updated some guidance targets for 2024, summarized on Slide 8. You will see that we have improved our net cash unit cost guidance by $0.10 per pound, now ranging from $0.45 to $0.55 per pound, thanks to strong operational performance. This reduction was partly due to improved operating costs, which also enabled us to lower our total cash unit costs to $0.65 to $0.75 per pound, a $0.05 decrease. There has been no change in refined production guidance. We've reduced our refined zinc guidance for trial operations to 240,000 to 250,000 tons due to a localized fire incident at one of the units in the electrolytic zinc plant in late September. We are exploring options to operate other sections to recover some of the production loss, but this evaluation is still ongoing. In terms of copper, our production guidance has been narrowed, with the lower end reduced by 15,000 tons due to lower anticipated production from high-grade ore. Our updated guidance is now 420,000 to 455,000 tons, adjusted from the previous range of 435,000 to 500,000 tons. Production guidance for Antamina and Carmen de Andacollo remains unchanged. Regarding QB, we have narrowed our production guidance for 2024 to 200,000 to 210,000 tons, a reduction from the previous 200,000 to 235,000 tons, reflecting a slower ramp-up this year. Furthermore, we’ve provided our 2025 production guidance for QB at 240,000 to 280,000 tons, down from 290,000 to 310,000 tons, reflecting planned efforts to enhance copper recovery and equipment reliability through the first half of 2025. Full-year production at Highland Valley is projected to be between 97,000 to 105,000 tons, down from 112,000 to 125,000 tons due to delays in accessing higher-grade pits in Q3. For Molybdenum, our production guidance has been reduced to 3,000 to 4,000 tons from 4,300 to 5,500 tons, in line with changes to our copper production guidance. We have lowered our QB molybdenum production guidance to 800 to 1,200 tons for 2024 and to 4,000 to 5,500 tons for 2025, down from 1,800 to 2,400 tons and 5,000 to 6,400 tons, respectively. Despite the lower total molybdenum production guidance, our total copper unit cost guidance remains unchanged, reflecting our focus on cost management across our operations. Turning to slide 9. As we move forward with our near-term copper projects for potential approval in 2025, all are subject to permitting and other processes. At QB, the ramp-up is ongoing, and we are working on defining near-term optimization and debottlenecking opportunities to enhance throughput and recovery. Highland Valley's revised environmental assessment and permitting negotiation for the mine life extension were accepted in July, and we are making progress through the permitting process. We anticipate substantial completion of engineering and project execution planning in Q2 2025, making the project ready for a sanction decision at that time if permits are received. The joint venture of San Nicolas is also proceeding with the permitting application, and engagement with governments and stakeholders continues. A project sanction decision is expected after the completion of the feasibility study and the receipt of necessary permits in the latter half of 2025. We are closely monitoring the evolving political situation in Mexico. While we have received the main environmental permit needed, we are exercising discipline in advancing project works and progressing detailed engineering. We seek more clarity on construction and associated capital before sanctioning the project. We continue to develop the construction permit application through Q3 2025, aiming for a potential sanctioning in late 2025, pending the receipt of construction permits and completion of detailed engineering. We look forward to generating additional value for our shareholders through these capital-efficient, high-returning copper projects. I'll now turn it over to Crystal for more details on our third-quarter results.

Crystal Prystai, CFO

Thanks, Jonathan. Good morning, everyone. Starting slide 11 with financial performance in the quarter of 2024. As Jonathan noted, we began to deploy the proceeds received from the sale of our remaining interest in the steelmaking coal business to shareholders through significant cost reductions, reducing debt and strengthening our balance sheet. We returned a total of $720 million to shareholders in the quarter, including $322 million in dividends and $398 million share buyback. In total, we have returned over $1.3 billion to shareholders year-to-date as of yesterday, and we continue to execute our previously announced share buyback program of $3.25 billion. As a result of the completion of the sale of our remaining interest in the steelmaking coal business on July 1, CVR results have been presented as discontinued operations for all periods reported in our Q3 financial statements and MD&A. We had strong financial performance in the quarter, with our adjusted EBITDA more than doubling and our adjusted EPS nearly quadrupling compared to the same period in the previous year, due to strong copper and zinc prices, as well as increased sales volumes, reflecting the benefits of the ramp-up of QB operations. In Q3, we had higher finance expenses and depreciation and amortization compared to the same period last year, as most of the QB assets were considered available for use at the end of 2023, and depreciation starts in 2024. Additionally, we are no longer capitalizing interest on the QB2 project. Our third quarter financial results were impacted by a non-cash after-tax impairment charge of $828 million on our trail operations. As required under IFRS, we regularly assess whether impairment indicators are present and impairment usage is required. The impairment at Trail is a result of a challenging environment for treatment charges due to a global age of concentrate, which led to continued operating losses combined with the recent fire in the electrolytic zinc plant, which is expected to affect fourth quarter operations. Importantly, we remain committed to our Trail operations as a core part of our strategy of providing critical minerals, particularly given its strong integration with Red Dog. Trail remains an important asset in our portfolio, and we remain highly focused on improving its profitability and cash generation through a range of initiatives that are currently being deployed. Overall, excluding the impairment charge, we saw significant improvement in our financial performance in the third quarter compared with the same period last year. Slide 12 summarizes the key drivers of our financial performance in the third quarter. The increase in adjusted EBITDA in the quarter compared to the same period last year was primarily driven by strong copper and zinc pricing, as well as higher copper sales volumes. Operating costs increased due to the inclusion of TV operating costs this year. In Q3 last year, Q2 costs were generally included in capitalized ramp-up costs. We continue to focus on managing our controllable costs across our business. Looking at each of our reporting segments in greater detail, we start with copper on Slide 13. Our gross profit before depreciation and amortization from our copper segment more than doubled compared to the same period last year to $604 million, as we realized the benefit of the QB ramp-up. The increase was driven by higher sales volumes, higher prices and an increase in byproduct credits, partially offset by the inclusion of QB operating costs this year. We had another consecutive record quarter of copper production, with increased production across all our operations. The QB ramp-up continues to support increased quarterly copper production. Higher copper production at Antamina was driven by increased copper-only ore as expected in the mine plan, as well as higher mill recoveries. Water availability at Promontory improved, resulting in higher mill throughput and production. While Highland production increased, it was lower than expected due to delays in accessing the Lornex Pit, which has higher grades. This delay was attributed to lower haul truck availability and challenges with labor availability on the autonomous system of new haul trucks. This has been largely resolved, and we expect to process more high-grade ore in the fourth quarter. Our cost of sales was higher year-over-year as expected, reflecting the ramp-up of QB and depreciation of its operating assets. Excluding Hub, our net cash unit costs remained the same as in Q3 last year at $1.87 per pound. As Jonathan outlined, we have updated our annual copper production guidance to 420,000 to 455,000 tonnes from 435,000 to 500,000 tonnes. We have reduced our total molybdenum production guidance to 3,000 to 4,000 tons from 4,300 to 5,500 tons. Despite the reduction in our annual copper and molybdenum production guidance, our copper net cash unit cost guidance remains unchanged. Turning now to our segment on Slide 14. Overall, our gross profit before depreciation and amortization from our zinc segment was $358 million, an increase of 49% in the quarter compared to the same quarter last year, reflecting higher zinc prices and substantially higher silver and lead byproduct revenues, as well as lower treatment charges. Red Dog had another very strong quarter of operating performance. Higher zinc and lead production was driven by higher mill throughput, reflecting our operational focus to improve mill availability and minimize unplanned maintenance. Zinc sales volumes were strong and in line with our guidance, despite difficult weather conditions. In September, we achieved a monthly record for concentrate loaded onto vessels, reflecting the close integration between our operations and commercial teams. The shipping season has continued into the fourth quarter with shipments dependent upon weather conditions, and we expect to complete our shipping season as planned. Our zinc net cash unit costs improved compared to the same period last year, reflecting strong operating performance, lower smelter processing charges and higher solar and lead product credits. At Trail operations, while we did record an impairment in the third quarter, our new chipset operated well and achieved near-record online time and throughput. However, our refining production was impacted by the fire in the electrolytic zinc plant in September. Looking forward, we expect the concentrate sales from Red Dog of 155,000 to 185,000 tonnes in the fourth quarter, reflecting the normal seasonal output. For the full year, we've improved our full-year guidance range for net cash unit costs by $0.10 per pound to $0.45 to $0.55 per pound from $0.55 to $0.65 per pound. A portion of this reduction is driven by improved operating costs. As a result, we've also improved our total cash unit cost guidance by $0.05 per pound to $0.65 to $0.75 per pound from $0.70 to $0.80 per pound. Our guidance for zinc and concentrate production is unchanged, and our guidance for refined zinc production has been lowered to 240,000 to 250,000 tons from 275,000 to 290,000 tons due to the fire in the electrolytic zinc plant at Trail. Turning now to slide 15 and our resilient balance sheet. Since the close of the EVR transaction on July 11th, we've made significant progress in deploying the transaction proceeds to strengthen our balance sheet and to return to shareholders. We've reduced our debt by US$1.5 billion to date, including a cash tender offer for US$1.4 billion of our outstanding term notes, repayment of US$120 million of short-term loans at Carmen de Andacollo, and open market repurchases of an additional US$9 million of term notes. Overall, we strengthened our balance sheet in the third quarter, and we are in a net cash position of CAD1.8 billion as of September 30th. Our finance income increased in the quarter due to interest earned on our higher cash balance, which is currently CAD7.8 billion. The quality of our balance sheet, along with confidence in our business outlook and a focus on lowering our financing costs, resulted in us reducing the size of our sustainability-linked revolving credit facility by US$1 billion last week to US$3.0 billion. In the quarter, we returned significant cash to shareholders through the payment of our regular base quarterly dividend of $0.125 per share and a supplemental dividend of $0.50 per share for a total of $322 million, and a purchase of 6.3 million Class B shares for $398 million under our normal course issuer bid. We have currently returned over $1.3 billion to shareholders year-to-date, including a purchase of 13.6 million Class B shares. This builds on our strong track record of shareholder returns, which totaled over $5 billion since 2019. With our resilient balance sheet, we are strongly positioned to execute our growth strategy and create value for our shareholders. With that, I'll turn it back over to Jonathan.

Jonathan Price, CEO

Thanks, Crystal. To wrap up, starting with slide 17. As we shift to a pure-play energy transition metals company, we remain true to our purpose and values, guided by our capital allocation framework that balances growth with cash returns to shareholders. Our strategy is focused around four key pillars, which drive our growth, responsible practices, and value creation. On slide 18, we are delivering on our strategy. Completing the sale of EVR means that we now have a portfolio that is 100% focused on energy transition metals. We continue to focus on driving operational performance. Our copper production continues to grow. We've closed out the QB2 project and are progressing towards the final stages of the ramp-up of QB operations as the key driver of our near-term copper growth. Our focus on operational performance enabled a reduction in our full-year guidance range for zinc net cash unit costs. We continue to balance cash returns to shareholders with our highly competitive copper growth opportunities. So far this year, we've returned over $1.3 billion to shareholders and deployed $302 million towards advancing our portfolio of growth projects. We significantly strengthened our resilient balance sheet in the third quarter. With the EVR sales proceeds, we've paid down US$1.5 billion of debt and had a net cash position of $1.8 billion as of September 30. To conclude with slide 19. As an energy transition metals company, our focus remains on creating value for our shareholders. We will drive strong operational and financial performance embedded by our commitment to operational excellence. We are progressing towards the final stages of the QB ramp-up, which should set us up for strong cash generation and financial performance. We are maintaining the balance between growth and shareholder returns. We continue to provide record returns to shareholders with $3.25 billion authorized by the Board this year. With our resilient balance sheet, we are well positioned to continue to advance our well-funded capital plan for near-term copper projects for potential sanctioning in 2025. Thank you. With that, operator, please open the line to questions.

Operator, Operator

Certainly. Our first question is from Orest Wowkodaw with Scotiabank. Please go ahead.

Orest Wowkodaw, Analyst

Hi. Good morning. My question is on QB2. So, this marks the second consecutive quarter of guidance cuts here for 2024. You've now cut 2025 by 12%. At this point, can you share what gives you any confidence that these numbers are achievable in 2025, just given all the cuts we've seen this year? And I'm curious about how much of that improvement over 2024 is driven by throughput versus grades versus recoveries?

Jonathan Price, CEO

Good morning, Orest. Thanks for the question. To start with some context around 2024 and the reduction to guidance, and then I will address your question about 2025. As I said, the design at QB is robust, and we have continued to make very good progress on mill throughput. This improvement is visible quarter-over-quarter. We expect to be operating at design throughput rates by the end of 2024. The key for us here is to ensure that we achieve these design rates more consistently by maximizing our online time. For recovery, we anticipated some challenges in Q3 as we transitioned through higher amounts of clay in those areas between supergene and hypogene materials. Despite that, we made progress through higher recovery rates quarter-over-quarter. As I mentioned, we completed testing of dosage and reagent mixes, which demonstrated both improved recoveries and better stability in the plant. We will continue this work through the fourth quarter of this year and into 2025. Another consideration aside from throughput and recovery is grade, and we're seeing a good level of accuracy in the grade of material we mine versus what we expect in our plans. We expected lower grades in Q3, but we anticipate an improvement in grade into Q4. If we had the same grade in Q3 as we had in Q1 and Q2 and operated with the throughput and recoveries achieved in Q3, we would have produced 56,000 tonnes rather than 52,000 tonnes. So, the lower production in Q3 relative to expectations is primarily attributed to grades. It’s also important to note that the geotechnical issues we encountered are under control, which gives us confidence to revise the mine plan. We're optimistic about the ongoing improvements in throughput and recoveries, although they are still a work in progress. This will extend into 2025, as we continue to work on recovery and dosing. Some additional work planned in the plant will occur in the first half of 2025, which will entail some downtime but should translate into stronger and more consistent recovery performance throughout the year. The throughput has been encouraging; we see periods where we're operating above nameplate capacity. Modifications to different areas of the plant will be made towards the end of this year and into the first half of 2025. We've given full consideration to all operational performance drivers and believe the 2025 guidance is very much achievable, but you'll note that the range presented is relatively broad to reflect ongoing uncertainty associated with an asset that is still in the ramp-up phase.

Orest Wowkodaw, Analyst

Just as a follow-up, in your presentation slide, page 7, you show design recoveries of 86% to 92%. Is that a revised life-of-mine assumption, or do you still believe you can achieve 92% on a consistent basis?

Jonathan Price, CEO

Yes, there's no revision there, Orest. That has been designed, and we still think that's achievable here. I'll hand over to Shehzad to provide more color on recovery specifically, as that’s a crucial point.

Shehzad Bharmal, COO

Thanks, Jonathan. We have achieved commendable recoveries with our typical ore types but have encountered challenges with some transition ores that contain higher clay content. Our performance has been around 83% to 84% in recent quarters, although we are seeing better results now. Importantly, with the introduction of a more effective circuit, we are adapting reagents based on recent tests, which will be implemented in late October and November. We'll continue fine-tuning the process well into the first half of 2025. The recovery range you mentioned of 86% to 92% will depend on the ore types being processed. We expect some transition ores to affect performance in the first half of 2025, but longer-term variability is expected.

Orest Wowkodaw, Analyst

Thank you.

Operator, Operator

The next question is from Bryce Adams with CIBC. Please go ahead.

Bryce Adams, Analyst

Thanks, all. Appreciate the presentation. I wanted to ask about San Nicolas and open pit mining in Mexico. Jonathan, I think you mentioned that you're monitoring the situation. Is there anything you could add to that? Recently, it looks like the tone has shifted towards being more positive. Would you agree with that? Could the asset be reconsidered as an underground operation? Is that something that's been evaluated?

Jonathan Price, CEO

Bryce, thanks for the question. We are still monitoring the situation in Mexico. I believe the tone has moved to a slightly more positive perspective. We've done extensive work to determine the optimal path for development of this asset. I understand your question regarding potential avoidance of open pit mining; we still believe that the open pit design will yield the best returns for our assets. We are continuing the permitting process based on that methodology and are hopeful for positive resolution concerning open cut mining for San Nicolas in due course. However, we must remain realistic about the existing uncertainties in the current environment.

Bryce Adams, Analyst

That's all for me. Appreciate the extra color on a few details in the last few minutes. Thank you.

Operator, Operator

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

Carlos De Alba, Analyst

Yes. Thank you very much. Good morning. Two questions. One on San Nicolas and another on QB. San Nicolas, could you remind us if you already have an open pit mining concession for the project? Or do you have only an exploration license? What exactly do you have? Yesterday, one of the biggest local corporate producers mentioned that for one of their projects, they are not worried about any changes in the legislation because they already have concession. So I wanted to understand exactly what we have.

Jonathan Price, CEO

Yes, we believe that we do have protection under the concession associated with San Nicolas. Whether those rights will transition into a permit to develop as infinite is still an open question. We are in active engagement with both our partners and the Mexican authorities to understand the best path forward for this project.

Carlos De Alba, Analyst

Alright, that makes sense. On QB, how many days in September was the operation down for maintenance that you mentioned in the release? I believe you indicated that there will also be some downtime in the first half of next year. Can you provide more details on which months or how many days the operation will be down during those months?

Jonathan Price, CEO

Yes. I'll pass you to Shehzad for that. As you know, we've had a cadence of major shutdowns every quarter. Additionally, some more opportunistic shutdowns have been taken on specific areas of plant equipment. Shehzad, please comment on September and next year's outlook.

Shehzad Bharmal, COO

Carlos, in September, we took an extra three days to perform maintenance tasks, including some belt changes and other minor adjustments needed ahead of the test work. Also, there were some limitations related to water issues and recovery from the thickener during that time. These issues have been resolved, though. Our focus is consistently addressing the reliability of components— we found that some components did not last as planned, so we made material changes to ensure better durability moving forward. There are no fatal flaws here, just a commitment to improving the design life of our components. For Q1, expect a small percentage below our target on availability. We believe this affects the guidance for 2025.

Carlos De Alba, Analyst

Okay. Thank you very much. I’ll follow-up with more questions later. Thank you.

Jonathan Price, CEO

Thanks, Carlos.

Operator, Operator

Next question is from Chris LaFemina with Jefferies. Please go ahead.

Chris LaFemina, Analyst

Thanks, operator. Hi, it's Chris LaFemina. Thank you for taking my question. I wanted some follow-up on the QB ramp-up and how to consider incremental costs in 2025, particularly since production guidance is lower. When I hear about work in mining, I think costs. So how should we think about the cost impact in 2025? Also, is project CapEx now done? Or is everything flowing through asset-level-based operating expenses and CapEx now?

Jonathan Price, CEO

Thanks for the question, Chris. Yes, the project CapEx is essentially complete within the US$8.6 to 8.8 billion range. We have resolved claims, and we fully demobilized. The work we'll carry out next year is minor in the grand scheme, essentially preventive maintenance or minor improvements around the site, and thus we don't expect significant capital or cost increases. With the project closed, all expenditures will now run through the operation. Whenever capital expense for sustaining work arises, those will be capitalized, but other operating costs in the normal course will be recognized in the P&L.

Crystal Prystai, CFO

Chris, just to confirm our guidance for 2025— while we haven’t released specifics, we anticipate seeing lower costs than 2024 due to different factors associated with ramp-up and alternative shipping arrangements, including the impact of reduced moly production on our net cash unit cost. We will provide further guidance as we usually do in January.

Jonathan Price, CEO

Regarding project sanctioning, the remaining work we have to do on QB, as Shehzad mentioned, will be taken care of in the first half of next year. We'll focus on optimizing the circuit for better online time and improved recoveries. These will start in the first half of the year. Even if we achieve all the needed permits on our expected timeline, we won’t be sanctioning any projects until the second half of next year in any case. We remain confident in the total ramp-up of QB in H1 and will continue with other projects towards sanctioning as quickly as possible.

Chris LaFemina, Analyst

Great. Thanks again. Good luck.

Jonathan Price, CEO

Thanks, Chris.

Operator, Operator

The next question is from Liam Fitzpatrick with Deutsche Bank. Please go ahead.

Liam Fitzpatrick, Analyst

Good morning, Jonathan. I wanted to clarify whether the updates today are regarding the other assets for your 2025 guidance, or will we be providing further revisions in November or January?

Jonathan Price, CEO

Yes, the only updates made for 2025 are the ones we communicated today, specifically at QB. As we progress through the planning process, we'll amend our guidance for other assets in January.

Liam Fitzpatrick, Analyst

On the growth strategy, are you still convinced that pursuing greenfield projects is the right decision for tech?

Jonathan Price, CEO

We indeed believe that pursuing our planned projects is the right strategy for several reasons. Firstly, these upcoming projects are significantly smaller in scale and complexity than QB, and we are conducting thorough de-risking efforts before sanctioning. The low capital intensity of these projects should yield good returns, making it a more attractive strategy than pursuing M&A. We've learned a lot from the ramp-up at QB that will benefit our future project development efforts. We remain committed to advancing these greenfield projects, even though they are by no means simple.

Liam Fitzpatrick, Analyst

Thank you. Lastly, regarding working capital, there was a build-up of around $0.5 billion in Q3. Any guidance on how and when that will unwind?

Jonathan Price, CEO

Much of the working capital build relates to QB operations. I'll pass it over to Ian, our Chief Commercial Officer, to provide more insight on the production versus sales profile.

Ian Anderson, Chief Commercial Officer

Thank you for the question, Liam. Sales and production don't always align because of cutoff periods, inventory in transit, and scheduling issues. Currently, we have a few shipments of cargo at the port scheduled to load imminently with no excess inventory. The difference in the working capital reflects material at the mine built up during the transition. This material is now moving to the filtration plants for loading and sales, with a significant portion expected to be reconciled by Q4 and the remainder in Q1.

Crystal Prystai, CFO

It's important to note that we had strong bulk copper and zinc sales in September. So you'll see some of that built into the ARR, which we expect to normalize as we move into Q4.

Liam Fitzpatrick, Analyst

Thank you.

Jonathan Price, CEO

Thanks, Liam.

Operator, Operator

The next question is from Myles Allsop with UBS. Please go ahead.

Myles Allsop, Analyst

Thank you for taking my question. Could you provide a sense of whether you maxed out on the buyback during Q3? Should we expect similar rates in Q4 and in 2025, around $400 million a quarter?

Jonathan Price, CEO

We're not maxed out—our approach is value-driven. At lower share prices, we're buying back more shares; in higher share prices, we're buying back less. We see no indicators that we can't sustain our Q3 buying rate in Q4; in fact, we may accelerate it since we weren't buying back shares during the blackout period that began in July. Therefore, we can expect a larger buyback in Q4 compared to Q3.

Myles Allsop, Analyst

Going back to QB, could you clarify the question regarding optimization and debottlenecking in terms of guidance? When can we expect this to be factored into your projections? Is it wise to consider throughput beyond 143,000 tons a day?

Jonathan Price, CEO

At our Investor Day in a couple of weeks, we'll discuss the future path for the QB asset in more detail. For now, it's best to stick with nameplate capacity while we prove consistency in performance. We've indicated an opportunity for optimization above that, which has the potential to increase throughput by up to 10% within current permits. Beyond that, further debottlenecking may deliver another 15% improvement, but those studies are ongoing, and we should have more clarity by year-end. Details will be shared at the upcoming Investor Day.

Myles Allsop, Analyst

Thank you.

Operator, Operator

The next question is from Lucas Pipes with B. Riley Securities. Please go ahead.

Lucas Pipes, Analyst

Thank you for taking my question. I specialize in labor needs at Highland Valley on November 5. I wanted to ask regarding Trail—what will it take CapEx-wise to improve performance there?

Jonathan Price, CEO

We’ve seen improvement recently at Trail. We successfully brought the KIVCET boiler back online, which is performing well. I'll let Shehzad provide more insights on our operational changes.

Shehzad Bharmal, COO

We've made leadership changes at Trail with a renewed focus on cash generation. We are also doing metallurgical work to enhance recoveries from the residues, yielding good success. This should allow us to process different feeds while maintaining margins. Our focus on cost reductions will also help us return to profitability.

Lucas Pipes, Analyst

Thank you for the insights. I also wanted to ask about the balance sheet—Crystal, can you remind us how much more you're looking to allocate towards capital returns and debt reduction while preparing for growth? What do you think you need in terms of cash to run the business and support growth?

Crystal Prystai, CFO

To date, we have allocated US$2 billion towards debt reduction, with over US$1.5 billion executed thus far through note buybacks and short-term loan repayment. We have about US$400 million remaining for debt reduction, which we are still evaluating regarding project financing and lease commitments. Regarding shareholder returns, we initiated a $3.25 billion buyback program and have executed $882 million to date. This will take another 12 to 18 months. The capital allocation framework allows for returning excess cash to shareholders while maintaining around 30% for operational needs. Our Proceeds are earmarked for growth projects, with numbers under review as we advance detailed engineering work. We should be ready to capture excellent cash flow from QB in 2025, and should there be cash above operational needs, we will return it to shareholders.

Lucas Pipes, Analyst

Thank you for the color. I look forward to seeing you in November.

Jonathan Price, CEO

Thank you, Lucas. We'll see you then.

Operator, Operator

Our next question is from Timna Tanners with Wolfe Research. Please go ahead.

Timna Tanners, Analyst

Hey, good morning. Just had two questions I hadn't heard addressed. One is on the updated economics of Semi and Safran. It's been a while since I've seen a cost estimate since pre-COVID. Will we hear about the updated timing in November or later?

Jonathan Price, CEO

Yes, Timna. We will provide updates on those projects in November.

Timna Tanners, Analyst

Great, we'll stay tuned. My other question concerns the zinc market— any color on your outlook and the sustainability of current strength would be appreciated.

Jonathan Price, CEO

Ian, please provide some details on that.

Ian Anderson, Chief Commercial Officer

Sure, Timna. Both the zinc and copper concentrate markets are experiencing structural deficits. However, the zinc market is particularly challenged by chronic shortages and underinvestment. We are reliant on a few mines to improve this situation, particularly Kipushi, Ozernoye, and Antara. Kipushi has been slow to ramp up, while we have uncertainties regarding Ozernoye. The market expectations around treatment charges for 2025 remain low despite reported strength in finished metal prices. So, we remain optimistic about zinc in 2025.

Jonathan Price, CEO

Thanks, Timna.

Operator, Operator

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

Jonathan Price, CEO

Thank you, operator, and thanks again to everyone for joining us today. We look forward to seeing many of you in person in Vancouver in a couple of weeks for our Strategy Day and the Highland Valley site visit. All of those presentations will be posted to our website at teck.com shortly after the event. Thank you once again. And as ever, if you have any further questions, please reach out to Fraser and our IR team. Enjoy the rest of your day.

Operator, Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating.