If all goes according to plan in northern Chile, Teck Resources (TSX: TECK.B; NYSE: TECK) and its partners Sumitomo Metal Mining and Sumitomo will start commissioning and ramping up their Quebrada Blanca Phase 2 (QB2) copper project in the fourth quarter of 2021, with full production to follow in the second half of 2022.
The QB2 project, one of the world’s largest undeveloped copper resources, will cost an estimated US$4.74 billion to build, and, once completed, will be a tier-one asset in Teck’s portfolio, sporting an initial 28-year mine life, based on only a quarter of its reserves and resources.
The supergene orebody — or near-surface deposit — was mined during the first phase of the Quebrada Blanca mine, which produced 25,500 tonnes copper cathode in 2018, and could produce between 20,000 and 23,000 tonnes this year.
But QB2 will see the development of the deeper sulphide resource underlying the existing operation in an open-pit, with a maximum 720-metre pit depth.
QB2 is effectively pre-stripped, so initial capex will mainly go towards building a concentrator plant — with a production capacity of 140,000 tonnes per day — as well as a tailings facility and a desalination plant. (QB2 will be the first large-scale use of desalinated water in Chile’s Tarapaca Region.)
Capex will also help build concentrate and water supply pipelines, a concentrate filtration plant, and port facilities to load the concentrate onto ships headed to international markets. The mine will also employ an autonomous haulage fleet.
Teck owns 60% of QB2 after selling a 30% stake in the project to its Japanese partners in December 2018. Enami, a Chilean state-owned company, owns the other 10% (and non-funding) interest.
Upon closing, Sumitomo Metal Mining Co. and Sumitomo Corp., which Teck refers to collectively as Sumitomo, contributed US$966 million to the project, and Teck says Sumitomo will add another US$307 million over the rest of the year.
After the sale, Teck’s share of the US$4.74-billion capital cost estimate was lowered to US$693 million, and its first contributions are not required until late 2020.
On Teck’s first-quarter conference call on April 23, CEO Donald Lindsay said the company continues to ramp up field activities and award major contracts for QB2.
“Earthworks activities are fully underway, utilizing the existing mine fleet and third-party contractors,” Lindsay told analysts and investors on the call. “Engineering, contracting and procurement activities are currently 85%, 91% and 82% complete.”
At the end of May, Teck and its partners signed a US$2.5-billion limited resource financing facility to fund QB2’s development.
Teck expects QB2 will churn out copper-equivalent for the first five full years of its mine life at all-in sustaining costs of US$1.38 per lb., and C1 cash costs of US$1.28 per pound.
QB2 has a 28-year mine life and includes 199 million tonnes of inferred resources within the life-of-mine plan. Most of the inferred resource will be mined late in the mine life, displacing lower-grade economic material within the pit.
Taking the inferred resource into account, QB2 will produce 316,400 tonnes copper-equivalent per year in the first five full years, 306,900 tonnes annually in the first 10 full years, and 278,500 tonnes a year over the life-of-mine.
Excluding inferred resources, QB2 would produce 313,100 tonnes copper-equivalent per year in the first five full years, 303,000 tonnes per year in the first 10 full years, and 256,300 tonnes over the life-of-mine.
Copper-equivalent production was calculated using a US$3 per lb. copper price, US$10 per lb. molybdenum price and US$18-per-ounce silver price.
If inferred resources are included in the mine plan, Teck’s unlevered internal rate of return on QB2 is 19% at US$3 per lb. copper, and rises to 24% at US$3.50 per lb. copper.
The company notes that developing QB2 delivers on management’s growth strategy for copper, and will rebalance Teck’s portfolio over time to make the contribution from copper similar to its met coal division.
Lindsay noted on the conference call that QB2 could come online soon, after a structural deficit in copper begins to “really get some traction” around 2022.
In addition, Teck is launching a scoping study to asset development options that could double production or more in a subsequent scenario it is calling QB3.
The deposit is open in several directions and has resource expansion potential, the company says.
Teck’s liquidity at the end of the first quarter stood at $8.7 billion, including $2.5 billion in cash, of which $1.3 billion is in Chile for the development of QB2, Teck’s senior vice-president of finance and chief financial officer, Ronald Milos, said on the conference call.
In addition, the company does not have any significant debt due before 2024. In other news, four credit agencies upgraded Teck to investment grade during the first three months of the year, and the company cancelled $1.1 billion letters of credit. Teck’s board also directed the repurchase of Class B shares another $600 million on May 30, 2019, bringing the total share buyback announced since November 2018 to $1 billion.
At press time, Teck shares traded at $28.26 per share in a 52-week range of $23.89 to $34.20.
Last line of your article should be revised. In your top 10 mining companies article, you highlight;
3. Teck Resources
Market capitalization: $17 billion