Teck Resources’ QB2 to cost up to US$500M more than planned

Shares in Teck Resources (TSX: TECK.A/TECK.B; NYSE: TECK), Canada’s largest diversified miner, tumbled on Friday after it warned that Covid-19-related costs of its massive Quebrada Blanca Phase 2 (QB2) expansion project in Chile could rise by up to US$500 million.

The Vancouver-based company now expects the pandemic to impact the project cost by between US$900 million and US$1.1 billion, up from its previous estimate of US$600 million. It said the increase was mostly tied to inflationary cost pressures, particularly in diesel prices and supplies, as well as absenteeism and labour inefficiencies related to the pandemic.

Non-Covid-19 cost pressures related to weather and subsurface conditions also required an additional contingency of up to 5% of the QB2 capital estimate of US$5.26 billion, the miner said.

Teck  anticipates that it will spend a total of US$1.73 billion to US$1.96 billion on developing QB2 in 2022, including Covid-19 capital.

QB2 is Teck’s key growth project. It is slated to begin operations in the second half of the year, doubling the company’s copper production by 2023. 

The almost-finished expansion will extend the ageing deposit’s life by 28 years and substantially boost production to 300,000 tonnes of copper a year from 23,400 tonnes in 2017. 

The mining giant is already studying a Phase 3 for the mine, which will double its capacity to 600,000 tonnes of copper a year. The potential extension will make the mine Chile’s second-largest copper operation, after Escondida. It will also situate Quebrada Blanca among the world’s top five copper mines. 

In terms of costs, Phase 3 would need a $5 billion investment, as it would have to include the installation of a new concentrator. 

Copper is one of four business units at Teck, besides steelmaking coal, oil and zinc, and is considered a company priority. 

B.C. extreme weather

The miner, with several steelmaking coal and copper operations in British Columbia, the most western province in Canada, was affected by extreme weather conditions in the region. Floods and freezing temperatures caused interruptions and substantial reductions to rail service and port activities.

Coal sales for the fourth quarter reached 5.1 million tonnes, below the 5.2 million to 5.7 million tonnes estimated in its revised guidance issued in December.

Elk Valley wasn’t affected by record rainfall in B.C. during November as inventories were low at the time, but cold weather disruptions have led to near-record inventories and the company may have to slow down production if there are further transportation interruptions.

Shares in the company fell on opening in both Toronto and New York and were down around 5% in both bourses by early afternoon today, leaving the company with a market capitalization of $21.69 billion.