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Horizons
2017 Annual Report
Teck Resources Limited
Suite 3300, 550 Burrard Street
Vancouver, British Columbia, Canada
V6C 0B3
+1.604.699.4000 Tel
+1.604.699.4750 Fax
www.teck.com
Setting Possibilities in Motion
Our Business
Teck is a diversified resource company committed to responsible mining and mineral
development with business units focused on steelmaking coal, copper, zinc and energy.
Headquartered in Vancouver, British Columbia (B.C.), Canada, we own or have interests in
12 operating mines, one large metallurgical complex, an oil sands mining and processing
operation, and several major development projects in Canada, the United States, Chile
and Peru. We have expertise across a wide range of activities related to exploration,
development, mining and minerals processing, including smelting and refining, health and
safety, environmental protection, materials stewardship, recycling and research.
Our corporate strategy is focused on exploring for, developing, acquiring and operating
world-class, long-life assets in stable jurisdictions that operate through multiple price
cycles. We maximize productivity and efficiency at our existing operations, maintain a
strong balance sheet, and are nimble in recognizing and acting on opportunities. The pursuit
of sustainability guides our approach to business, and we recognize that our success
depends on our ability to establish safe workplaces for our people and collaborative
relationships with communities.
Mineral reserve and resource estimates for our properties are disclosed in our most recent Annual Information Form, which is
available on our website at www.teck.com, on the Canadian Securities Administrators website at www.sedar.com (SEDAR), and on
the EDGAR section of the United States Securities and Exchange Commission (SEC) website at www.sec.gov.
Forward-Looking Statements
This annual report contains forward-looking statements. Please refer to the “Cautionary Statement on Forward-Looking Statements”
on page 61.
All dollar amounts expressed throughout this report are in Canadian dollars unless otherwise noted.
In This Report
Our Business
2017 Highlights
Letter from the Chairman
Letter from the CEO
Responsibility
Management’s Discussion and Analysis
Steelmaking Coal
Copper
1
2
3
5
7
9
12
17
Zinc
Energy
Exploration
Financial Overview
Consolidated Financial Statements
Board of Directors
Officers
Corporate Information
22
26
29
30
63
125
126
127
Corporate Information
2017 Share Prices and Trading Volume
Class B subordinate voting shares–TSX–CAD$/share
Q1
Q2
Q3
Q4
$
$
$
$
Class B subordinate voting shares–NYSE–US$/share
Q1
Q2
Q3
Q4
Class A common shares–TSX–CAD$/share
Q1
Q2
Q3
Q4
$
$
$
$
$
$
$
$
Stock Exchanges
Our Class A common shares and Class B subordinate voting
shares are listed on the Toronto Stock Exchange under the
symbols TECK.A and TECK.B, respectively.
Our Class B subordinate voting shares are also listed on the
New York Stock Exchange under the symbol TECK.
Dividends Declared on Class A and B Shares
Amount per share
$0.10
$0.05
$0.45
Payment Date
June 30, 2017
September 29, 2017
December 29, 2017
These dividends are eligible for both the Canadian federal and
provincial enhanced dividend tax credits. The December 29,
2017 dividend included $0.05 per share for the regular quarterly
dividend and $0.40 per share as a supplemental dividend,
in accordance with our announced dividend policy.
Shares Outstanding at December 31, 2017
Class A common shares
Class B subordinate voting shares
7,777,304
565,506,055
Shareholder Relations
Amanda Robinson, Corporate Secretary
Annual Meeting
Our annual meeting of shareholders will be held at 11:00 a.m.
on Wednesday, April 25, 2018, in the British Columbia Ballroom,
Fairmont Hotel Vancouver, 900 West Georgia Street, Vancouver,
British Columbia.
Transfer Agents
Inquiries regarding change of address, stock transfer, registered
shareholdings, dividends or lost certificates should be directed
to our Registrar and Transfer Agent:
High
34.60
32.18
31.92
33.76
High
26.45
24.07
25.67
26.80
High
35.14
32.84
32.49
33.56
$
$
$
$
$
$
$
$
$
$
$
$
Low
25.90
19.27
22.05
25.89
Low
19.20
14.56
17.20
20.15
Low
26.73
20.00
22.81
26.35
$
$
$
$
$
$
$
$
$
$
$
$
Close
Volume
29.08
22.48
26.27
32.87
166,166,974
143,220,254
147,983,981
116,086,280
573,457,489
Close
21.90
17.33
21.09
26.17
Volume
62,353,965
63,534,363
57,356,207
64,493,390
247,746,925
Close
Volume
30.15
23.00
26.60
33.05
513,953
219,158
167,392
204,367
1,104,870
AST Trust Company (Canada)
1600 – 1066 West Hastings Street,
Vancouver, British Columbia V6E 3X1
AST Trust Company (Canada) provides an AnswerLine Service
for the convenience of shareholders:
Toll-free in Canada and the United States
+1.800.387.0825
Outside Canada and the United States
+1.416.682.3860
Email: inquiries@astfinancial.com
American Stock Transfer & Trust Company, LLC
6201 – 15th Avenue,
Brooklyn, New York 11219
+1.800.937.5449 or +1.718.921.8124
Email: info@amstock.com
Website: www.amstock.com
TTY: +1.866.703.9077 or +1.718.921.8386
Auditors
PricewaterhouseCoopers LLP
Chartered Professional Accountants
Suite 700, 250 Howe Street,
Vancouver, British Columbia V6C 3S7
Annual Information Form
We prepare an Annual Information Form (AIF) that is filed with
the securities commissions or similar bodies in all the provinces
of Canada. Copies of our AIF and annual and quarterly reports
are available on request or on our website at www.teck.com, on
the Canadian Securities Administrators website at www.sedar.
com (SEDAR), and on the EDGAR section of the United States
Securities and Exchange Commission (SEC) website at www.sec.gov.
On the cover: haul truck on the horizon at Greenhills Operations.
Corporate Information
127
1
2
1
1
2
2
3
1
*
Steelmaking Coal
We are the world’s second-largest seaborne
exporter of steelmaking coal, with six operations
in Western Canada that have significant
high-quality steelmaking coal reserves.
Copper
We are a significant copper producer in the Americas, with
four operating mines in Canada, Chile and Peru, and copper
development projects in North and South America.
Zinc
We are one of the world’s largest producers of mined zinc,
and operate one of the world’s largest fully integrated zinc
and lead smelting and refining facilities.
Energy
We have an interest in a large producing oil sands mining
and processing operation in Alberta, as well as oil sands
development assets.
Operations and Major Projects:
Steelmaking Coal
1 Cardinal River
Zinc
1 Red Dog
2 Steelmaking coal sites in B.C.
2 Trail Operations
· Fording River
· Greenhills
· Line Creek
· Elkview
· Coal Mountain
Copper
1 Highland Valley Copper
2 Antamina
3 Quebrada Blanca (including
Quebrada Blanca Phase 2 project)
4 Carmen de Andacollo
5 NuevaUnión
3 Pend Oreille
Energy
1 Fort Hills
2 Frontier
Corporate Head Office
* Vancouver
Operation
Project
2
3
5
4
Our Business
1
2017 Highlights
Safety
• Achieved Teck’s best safety performance to date
• Realized year-over-year reductions in Total Recordable Injury Frequency of 12%, Lost-Time Disabling Injury Frequency
and High-Potential Incident Frequency of 14%, and we had no fatalities
Financial
• Record revenues of $12.0 billion and cash flow from operations of $5.1 billion
• EBITDA of $5.6 billion, and gross profit before depreciation and amortization of $6.1 billion
• Reduced our outstanding debt by $2.0 billion
• Extended the maturity dates on our US$3.0 billion and US$1.2 billion revolving credit facilities to October 2022 and
October 2020, respectively
• Ended the year with $1.0 billion of cash and $4.7 billion of liquidity
Operating and Development
• Produced first oil at Fort Hills on January 27, 2018; Fort Hills remains on track to reach 90% of nameplate capacity
by the end of 2018
Sustainability
• Named to Dow Jones Sustainability World Index (DJSI) for the eighth consecutive year, named to Canada’s Top 100
Employers by Mediacorp. for the first time, and ranked as one of the Best 50 Corporate Citizens in Canada by media
and investment research firm Corporate Knights
• On track towards meeting our sustainability strategy short-term goals out to 2020, and long-term goals stretching
out to 2030
Revenue
($ in billions)
Adjusted Profit Attributable to Shareholders
($ in billions)
Cash Flow from Operations
($ in billions)
2017
2016
2015
2014
2013
$2.6
$12.0
$9.3
$8.3
$8.6
$9.4
2017
2016
2015
2014
2013
$0.2
$0.5
$1.1
$1.0
2017
2016
2015
2014
2013
$5.1
$3.1
$2.0
$2.3
$2.9
Note: EBITDA, gross profit before depreciation and amortization, and adjusted profit attributable to shareholders are non-GAAP financial measures.
See “Use of Non-GAAP Financial Measures” section on page 53 for further information.
2
Teck 2017 Annual Report | Horizons
Letter from the Chairman
Dr. Norman B. Keevil
Chairman of the Board
To the Shareholders
It was a very good year for your company.
The improvement in prices for most mined products that began in 2016, and led to record fourth quarter profits a year
ago, continued through 2017. Revenues were at a record $12 billion and earnings of $2.5 billion were the second highest
in Teck’s history. We were able to reduce debt by a further $2 billion and ended the year with $4.7 billion in liquidity.
Encouragingly, the strong year was the result of broadly-spread synchronous economic growth in much of the world,
with China still growing substantially but no longer being the sole driver as had been the case for much of the last
decade. The prognosis in the near term continues to be good.
Teck produces steelmaking coal from six mines in Western Canada, copper from four mines in Canada, Peru and Chile
and zinc from two mines in the US, as well as operating zinc and lead metallurgical plants at Trail, British Columbia.
The results from these ongoing operations are covered in the body of this annual report.
But a successful mining company can never rest on its ore reserves. To be sustainable, it must continuously replenish
what has been mined through economically-effective new mine development or acquisitions, and this too is a key part
of Teck’s business.
Construction of the first producing line at the Fort Hills oil sands joint venture in Alberta was largely complete by
year-end, with the first oil being produced on January 27, 2018. As we approach nameplate capacity a year from now,
Teck’s share of annual bitumen production is expected to be approximately 14 million barrels, with a mine life that can
be measured in decades.
We also plan to develop a major new copper mine in Chile, based upon primary sulphide ore that underlies the supergene
Quebrada Blanca mine built by Teck and Cominco in the 1990s. This is another operation that, when placed into production,
is expected to last for decades. Permitting and engineering is progressing well, and a production commitment is
expected to be sanctioned in 2018.
Our NuevaUnión copper project, also in Chile, is a 50/50 joint venture with Goldcorp, combining its El Morro copper-gold
property with our Relincho copper deposit into a planned single operation. Although the mines themselves are 40 km
apart, developing them jointly, with a single milling plant at Relincho, makes sense economically and socially. The partners
are currently well-advanced in environmental impact surveys and engineering planning.
Also on the drawing boards are a number of potential mines in a company unit known as Project Satellite. These include
two copper deposits in British Columbia, a copper-zinc project in Mexico and a copper project in Peru, as well as several
other properties. The team is advancing each as part of a pipeline of prospects that can be considered for continuing
new mine development at the appropriate time.
Letter from the Chairman
3
Readers of this letter over the years will recognize three things I have always stressed as fundamental to our business.
One is the importance of solid, responsible engineering and management everywhere we operate; second is the need
to develop new mines effectively and consistently to replace and augment older ones; and third is to at all times
maintain a strong balance sheet, recognizing that cyclical ups and downs are a natural occurrence that should never
surprise and that, dealt with smartly, can even be taken advantage of.
Which brings me to a book. Some years ago I was asked to speak at a Fraser Institute event and told a few stories about
how this company evolved. Several listeners suggested I should write a book, which was the farthest thing from my mind.
But, after musing about it for a year or so I actually started and, perhaps more surprisingly, finished it.
Published last October as part of McGill Queen’s University Press’s Footprints Series, Never Rest on Your Ores;
Building a Mining Company, One Stone at a Time relates some of the key events of the first 95 years of the Teck story.
Beginning with a gold discovery at Kirkland Lake, it continued with copper, silver, zinc, niobium, coal and oil discoveries,
all in Canada, the building of new metal mines from Alaska in the north to Peru and Chile in the south, and the occasional
diversion to keep life interesting.
Some say the book is “a good read”. That aside, it does tell the tale of how a group of like-minded geologists, engineers
and “numbers men” managed to build a very good mining company, while encountering a few odd characters, missteps,
trials and tribulations along the way.
Did we always know what was coming next as we moved ahead? No more so than Deng Xiaoping did when asked in
1981 how he expected to quadruple China’s GDP in 20 years. He said: “We will cross the river by feeling the stones”.
It is a good plan.
In closing, on behalf of your Board I would like to express our appreciation for the efforts of our strong management
team led by Don Lindsay, which never stops working and which, like Deng and those who went before it in Teck, asks
itself at all times: “How can we make this a better company?”
And it has been a pleasure to work with an exceptional Board of Directors in recent years. It is diverse in many respects
including talent and experience, ranging from finance through to engineering and construction of large projects. At the
upcoming annual meeting Ms. Sheila Murray, an accomplished mining and securities lawyer who is currently President
of CI Financial Corp., will be nominated to join your Board, and is expected to add further to this strong team.
Thank you all for your support.
Dr. Norman B. Keevil, O.C.
Chairman
Vancouver, B.C., Canada
February 14, 2018
4
Teck 2017 Annual Report | Horizons
Letter from the CEO
Donald R. Lindsay
President and Chief Executive Officer
To the Shareholders
Teck finished 2017 in a strong financial position. We achieved record revenues of $12.0 billion and record cash flow from
operations of $5.1 billion in 2017, thanks to continued strong prices for our products and solid operating results, despite
some challenges during the year. This exceeds the record we set in 2011, when commodity prices for steelmaking coal
and copper were significantly higher, and it serves to reinforce the results of our ongoing focus on cost control at our core
assets. Most importantly, we set this record while also significantly improving our safety and environmental performance.
Our people can take pride that we achieved our best-ever safety performance in 2017. We continued to focus our safety
efforts on reducing incidents that have the potential to cause serious or fatal injuries and we are seeing real results.
Total Recordable Injury Frequency was down by 12% compared to the previous year, Lost-Time Disabling Injury
Frequency and High-Potential Incident Frequency both declined by 14%, and we had no fatalities. At the same time,
we know there is still more to do. That’s why we continued to roll out the new phase of our Courageous Safety
Leadership (CSL) program to further strengthen our culture of safety at Teck. Fully 85% of our operational employees
and contractors completed their latest CSL training in 2017, and we are on track to have 100% completion this year.
Global market conditions were relatively strong for our key commodities in 2017 — although, as in 2016, we continued
to see price volatility, particularly in steelmaking coal. Weather-related supply disruptions in Australia saw steelmaking
coal prices in the second quarter spike above US$300 per tonne for the fourth time since 2008. Prices corrected back in
the US$140–$150 per tonne range and subsequently increased steadily during the second half of the year. In response
to this volatility, steel mills and the majority of steelmaking coal producers agreed in April 2017 on an index-linked pricing
mechanism based on the average of key premium steelmaking coal spot price assessments to replace the negotiated
quarterly benchmark. Overall, our annual average realized price for steelmaking coal in 2017 rose by 53% over 2016
levels to US$176 per tonne. Average prices for copper and zinc rose by 27% and 38%, respectively, compared to 2016.
Earlier this year we reached a significant milestone for our energy business unit, achieving first oil at Fort Hills on
January 27, 2018. The first train is currently in production and we are pleased with its performance to date. The remaining
two trains are expected to begin producing in the first half of the year and we remain on track to reach 90% capacity by
the end of 2018. Fort Hills is a long-life asset that will generate significant value for our company for decades to come.
Also of note from an environmental perspective is that the life cycle carbon intensity for the Fort Hills product is
projected to be lower than approximately half of the oil currently refined in North America. We will be emphasizing how
the project significantly outperforms the generally perceived carbon intensity of the oil sands in our communications
regarding the project.
Our operations continued to perform very well, generating significant free cash flow in 2017 — particularly from our
steelmaking coal operations. Our gross profit before depreciation and amortization in 2017 was $6.1 billion, compared
with $3.8 billion in 2016, with the increase due mainly to higher commodity prices. We reduced our outstanding debt
by $2.0 billion in 2017, bringing our net debt down to $5.4 billion at year-end. Our financial position and liquidity remain
strong, as we have extended the maturity date on our US$3.0 billion and US$1.2 billion revolving credit facilities to
October 2022 and October 2020, respectively.
Letter from the CEO
5
We also reached an agreement to sell our two-thirds interest in the Waneta Dam and related transmission assets to
BC Hydro for $1.2 billion cash. This transaction — anticipated to close in 2018 — will further strengthen our balance
sheet, and will provide significant new capital that can be reinvested to grow our overall business. Under the agreement,
Teck will be granted a 20-year lease on Waneta to produce power for our Trail Operations, with an option to extend by a
further 10 years, providing long-term access for the operation to power at reasonable rates.
In April, we announced a new dividend policy that reflects our commitment to return cash to shareholders, taking into
account the cyclical nature of our industry and investments needed to strengthen our business. The policy is anchored
by an annual base dividend of $0.20 per share, and in the fourth quarter annually, our Board of Directors will consider
declaring a supplemental dividend based on free cash flow generated by the business, the outlook for business
conditions, and priorities regarding capital allocation. Our Directors approved a supplemental dividend in 2017 of $0.40
per share, and with the base dividend, we returned $344 million to shareholders. We also bought back 5.9 million Class
B subordinate voting shares for $175 million of the $230 million that our Directors authorized management to repurchase
through March 31, 2018 under Teck’s previously announced normal course issuer bid program.
We continued to improve our sustainability performance. Among these accomplishments, Teck was selected as one
of Canada’s Top 100 Employers by Mediacorp. in recognition of our human resources programs and forward-thinking
workplace policies. We continued efforts to increase the diversity of our workforce, with a focus on women and Indigenous
Peoples. Teck was also named to the Dow Jones Sustainability World Index (DJSI) for the eighth consecutive year, and
ranked as one of the Best 50 Corporate Citizens in Canada by media and investment research firm Corporate Knights.
In 2017, we were focused on continuing to build on our strong project pipeline, including advancing permitting on our
Quebrada Blanca Phase 2 project (QB2). QB2 has the potential to be a top 15 global copper producer and would
significantly grow our copper business if sanctioned. We also continue to advance our NuevaUnión joint venture project
in Chile and anticipate completion of a prefeasibility study in the first quarter of 2018. Work is proceeding on our Project
Satellite initiative, focused on surfacing value from five substantial base metals assets located in stable jurisdictions in
the Americas.
Turning to our people, Greg Waller, Senior Vice President, Investor Relations and Strategic Analysis, retired in 2017 after
more than 30 years at Teck. I would like to thank Greg for his many contributions to our company and for his work in
building strong relationships with the investment community. In 2017, we welcomed several new members to our senior
management team, including Fraser Phillips, who is taking over Greg’s role, and Scott Maloney, Vice President, Environment,
succeeding Michael Davies who has begun a phased retirement. Recent promotions in 2017 included Jeff Hanman,
Vice President, Corporate Affairs and Kalev Ruberg, Vice President, Teck Digital Systems and Chief Information Officer.
I would also like to congratulate our Chairman, Dr. Norman B. Keevil, on the publication of his book, Never Rest on
Your Ores. Covering 100 years of Canadian mining and business history, it is an illuminating history that is entertaining,
candid and filled with wisdom. It is truly a must-read for anyone interested in mining, leadership and how to build a
resilient, thriving business in an increasingly volatile world.
With a successful 2017 behind us, we now look ahead to opportunities on the horizon in 2018 to further strengthen
our business, support communities where we operate, and create value for our shareholders.
Donald R. Lindsay
President and Chief Executive Officer
Vancouver, B.C., Canada
February 14, 2018
6
Teck 2017 Annual Report | Horizons
Responsibility
Health and Safety
At Teck, we believe it is possible to work without fatalities,
serious injuries or occupational diseases — a belief that
is at the core of our safety vision of everyone going home
safe and healthy every day. That belief challenges us to
continually improve our safety performance through
programs that identify and mitigate health and safety
risks, and strengthen our culture of safety.
In 2017, we continued to see improvements in our safety
performance. We had zero fatalities, and High-Potential
Incidents were 14% lower, year over year. Additionally,
Total Recordable Injury Frequency decreased by
approximately 12% and Lost-Time Disabling Injury
Frequency decreased by 14% in comparison to 2016.
Throughout the year, we continued to focus on strategies
to reduce incidents that have the potential to cause
serious or fatal injuries. This included further embedding
our High-Potential Risk Control strategy at our operations
and implementing the fourth phase of our Courageous
Safety Leadership (CSL) program across our operations.
By the end of 2017, 85% of operational employees and
contractors had received CSL phase four training, and
we expect to complete training company-wide in 2018.
We also advanced our efforts to reduce workplace
exposures that could result in occupational diseases.
We built on our Occupational Health and Hygiene strategy
and developed exposure reduction plans. Our focus in
2018 will be on implementing these exposure reduction
plans at our operations.
In 2018, we will also continue to build on our High-
Potential Risk Control strategy by advancing quality in
risk management and hazard identification training.
Our People
Our nearly 10,000 employees and contractors worldwide
are essential to our success as a company. Their expertise
and ability in a range of activities — from exploration
to environmental stewardship — are essential to our
success as a company. We know that by working to
strengthen our culture of safety, employee engagement
and support for diversity, we can improve our performance
and enhance our ability to continue to recruit and retain
the best people.
In 2017, we continued to work towards strengthening
diversity across Teck. We believe that a range of
backgrounds and perspectives allows for better decision-
making and, ultimately, a stronger company. Following the
establishment of a formal Inclusion and Diversity Policy
in 2016, we implemented initiatives and training programs
in 2017 to further enhance our inclusion and diversity
practices. These initiatives included training for senior
managers to become more gender-intelligent and
inclusive, and to learn to identify gender blind spots that
influence mindsets. We also continued our efforts to
attract and recruit more women and Indigenous Peoples.
In 2017, Teck was named as one of Canada’s Top 100
Employers by Mediacorp., which recognizes companies
for exceptional human resources programs and forward-
thinking workplace policies.
Sustainability
The materials we produce are essential to building a
modern, sustainable society, and to improving the
quality of life for people living around the world. We are
focused on creating value in a manner that is socially and
environmentally responsible, and that meets the needs
of our company, our shareholders and our communities
of interest.
In 2017, all of our operations, projects and exploration
sites continued to demonstrate a high level of social and
environmental performance. We continued to implement
our sustainability strategy, and are on track to meet our
short-term goals out to 2020 and long-term goals
stretching out to 2030. These goals cover the six areas
of focus representing the most significant sustainability
issues and opportunities facing our company: Water,
Biodiversity, Energy and Climate Change, Air, Our People,
and Community.
Our achievements in these areas resulted in Teck being
named to the Dow Jones Sustainability World Index for
the eighth consecutive year, and we were ranked as one
of the Best 50 Corporate Citizens in Canada by media and
investment research firm Corporate Knights.
Our 2017 Sustainability Report, to be released in April
2018, will detail our goals and performance on our most
material sustainability topics, including Water Management,
Relationships with Communities, Energy and Climate
Change, Relationships with Indigenous Peoples, Health
and Safety, Diversity and Employee Relations, and Ethics
and Human Rights.
Responsibility
7
Sustainability (continued)
We are advancing piloting and implementation of a range
of new technologies and innovations that have the
potential to improve our performance in the areas of
safety, sustainability and productivity. These include data
analytics, artificial intelligence, autonomous vehicles and
advanced sensors that could significantly improve
efficiency and reduce both our costs and our environmental
footprint. In addition, we are continuing to take action in
the area of climate change through reducing the carbon
footprint associated with our activities, analyzing the
business risks and opportunities associated with climate
change, and advocating for policies that help reduce
greenhouse gas emissions, while maintaining the
competitiveness of our industry.
Our governance of sustainability takes into consideration
the evolving expectations of our communities and broader
society. Through our membership and involvement with
various external industry and civil society organizations,
we work to contribute to, and engage with others on, the
development of best practices in sustainability performance.
We are a member of the International Council on Mining
and Metals (ICMM), a global industry association that
represents leading international mining and metals
companies. As a member, we implement their 10
Sustainable Development Framework Principles, align our
practices with their Position Statements, produce an
externally verified sustainability report using Global
Reporting Initiative (GRI) Standards, and follow the ICMM
Assurance Procedure. We are also committed participants
in the United Nations Global Compact and the Mining
Association of Canada’s Towards Sustainable Mining
initiative, and we are working to support progress on the
United Nations Sustainable Development Goals (SDGs).
More information on our sustainability governance and
performance can be found at www.teck.com/responsibility.
8 Teck 2017 Annual Report | Horizons
Management’s Discussion
and Analysis
Our business is exploring for, acquiring, developing and producing natural resources. We are organized into business
units focused on steelmaking coal, copper, zinc and energy. These are supported by our corporate offices, which
manage our corporate growth initiatives and provide marketing, administrative, technical, financial and other services.
Through our interests in mining and processing operations in Canada, the United States (U.S.), Chile and Peru, we
are the world’s second-largest seaborne exporter of steelmaking coal, an important producer of copper and one of
the world’s largest producers of mined zinc. We also produce lead, silver, molybdenum and various specialty and
other metals, chemicals and fertilizers. In addition, we own an interest in the Fort Hills oil sands mining and processing
operation, as well as interests in other oil sands assets in the Athabasca region of Alberta. We actively explore for
copper, zinc and gold.
This Management’s Discussion and Analysis of our results of operations is prepared as at February 14, 2018 and
should be read in conjunction with our audited consolidated financial statements as at and for the year ended
December 31, 2017. Unless the context otherwise dictates, a reference to Teck, Teck Resources, the Company, us,
we or our refers to Teck Resources Limited and its subsidiaries, including Teck Metals Ltd. and Teck Coal Partnership.
All dollar amounts are in Canadian dollars, unless otherwise stated, and are based on our consolidated financial
statements that are prepared in accordance with International Financial Reporting Standards (IFRS). In addition, we
use certain financial measures, which are identified throughout the Management’s Discussion and Analysis in this
report, that are not measures recognized under IFRS and do not have a standardized meaning prescribed by IFRS. See
“Use of Non-GAAP Financial Measures” on page 53 for an explanation of these financial measures and reconciliation
to the most directly comparable financial measures under IFRS.
This Management’s Discussion and Analysis contains certain forward-looking information and forward-looking
statements. You should review the cautionary statement on forward-looking statements under the heading
“Cautionary Statement on Forward-Looking Statements” on page 61, which forms part of this Management’s
Discussion and Analysis, as well as the risk factors discussed in our most recent Annual Information Form.
Additional information about us, including our most recent Annual Information Form, is available on our website at
www.teck.com, on the Canadian Securities Administrators website at www.sedar.com (SEDAR), and on the EDGAR
section of the United States Securities and Exchange Commission (SEC) website at www.sec.gov.
Management’s Discussion and Analysis
9
Business Unit Results
The table below shows a summary of our production of our major commodities for the last five years and estimated
production for 2018.
Five-Year Production Record and Our Estimated Production in 2018
Units in 000’s
(excluding steelmaking coal and molybdenum)
2013
2014
2015
2016
2017
estimate
2018 (3)
Principal Products
Steelmaking coal
Copper (1)
Zinc
Contained in concentrate
Refined
Energy (bitumen) (2)
Other Products
Lead
Contained in concentrate
Refined
Molybdenum contained
in concentrate
million
tonnes
tonnes
tonnes
tonnes
million
barrels
tonnes
tonnes
million
pounds
25.6
364
623
290
26.7
333
660
277
25.3
358
658
307
27.6
324
662
312
26.6
287
659
310
26.5
278
658
308
–
–
–
–
–
8.3
97
86
123
82
124
84
128
99
116
87
97
70
8.3
5.9
4.4
7.7
11.2
6.8
Notes:
(1) We include 100% of the production and sales from Quebrada Blanca and Carmen de Andacollo mines in our production and sales volumes, even
though we own 76.5% and 90%, respectively, of these operations, because we fully consolidate their results in our financial statements. We
include 22.5% of production and sales from Antamina, representing our proportionate equity interest in Antamina. Copper production includes
cathode production at Quebrada Blanca. Zinc contained in concentrate production includes co-product production from our copper business unit.
(2) Guidance for Teck’s share of production in 2018 is at our estimated working interest of 21.3%. It is based on Suncor’s outlook for 2018 Fort Hills
production which was provided at their previous working interest of 53.06% and is 20,000 to 40,000 barrels per day in Q1, 30,000 to 50,000 barrels
per day in Q2, 60,000 to 70,000 barrels per day in Q3, and 80,000 to 90,000 barrels per day in Q4. Production estimates for Fort Hills could be
negatively affected by delays in or unexpected events involving the ramp-up of production from the project.
(3) Production estimate for 2018 represents the mid-range of our production guidance.
10 Teck 2017 Annual Report | Horizons
Average commodity prices and exchange rates for the past three years, which are key drivers of our profit, are
summarized in the following table.
US$
CAD$
2017 % chg 2016 % chg 2015
2017 % chg 2016 % chg 2015
Steelmaking coal
(realized — $/tonne)
176 +53%
115 +24%
93
229 +50%
153 +31%
Copper (LME cash — $/pound)
2.80 +27%
2.21
-11%
2.49
3.64 +24%
2.94
-8%
Zinc (LME cash — $/pound)
1.31 +38%
0.95
+9%
0.87
1.70 +35%
1.26 +14%
117
3.19
1.11
Exchange rate (Bank of Canada)
US$1 = CAD$
CAD$1 = US$
1.30
0.77
-2%
1.33
+4%
1.28
+2%
0.75
-4%
0.78
Our revenues, gross profit before depreciation and amortization, and gross profit by business unit for the past three
years are summarized in the following table.
Revenues
Gross Profit Before
Depreciation and Amortization(1)
Gross Profit (Loss)
($ in millions)
2017
2016
2015
2017
2016
2015
2017
2016
2015
Steelmaking coal
$ 6,152 $ 4,144 $ 3,049 $ 3,769 $ 2,007 $
906 $ 3,044 $ 1,379 $ 200
Copper
Zinc
Energy
Total
2,400
2,007
2,422
1,154
788
3,496
3,147
2,784
1,173
984
–
2
4
–
2
931
805
3
618
967
–
190
830
426
655
(3) (2)
$ 12,048 $ 9,300 $ 8,259 $ 6,096 $ 3,781 $ 2,645 $ 4,629 $ 2,396 $ 1,279
Note:
(1) Gross profit before depreciation and amortization is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for
further information.
Management’s Discussion and Analysis
11
Steelmaking Coal
In 2017, our six steelmaking coal operations in Western Canada produced 26.6 million tonnes of steelmaking coal,
with sales of 26.8 million tonnes. The majority of our sales are to the Asia-Pacific region, with lesser amounts going
primarily to Europe and the Americas. Our long-term production capacity is approximately 27 million tonnes, and we
have total proven and probable reserves of 922 million tonnes of steelmaking coal.
Progress continued on two projects at Elkview and Fording River operations in 2017. The Baldy Ridge Extension
project allows Elkview to extend the current life of mine and increase its production of high-quality coal. Mining this
area commenced in the first quarter of 2017, with first coal release expected in 2020. Mining in the Swift area at
Fording River commenced in the first quarter of 2017 and the project is expected to sustain the operations’ current
production levels in the future. Construction will continue in 2018, and further mine development is expected to
continue until 2022.
Coal Mountain Operations will operate as planned until mid-2018, before transitioning to closure as reserves are
depleted in the current mining area. Coal Mountain produces approximately 2.5 million tonnes of steelmaking coal
annually. The Elk Valley operations continue to work to replace Coal Mountain’s production with coal from other mines.
A new five-year collective agreement was reached at Cardinal River Operations in 2017. With this agreement in place,
all of the unionized employees within the steelmaking coal business unit are under contract until at least May 31, 2019.
In 2017, our steelmaking coal business unit accounted for 51% of revenue and 62% of gross profit before depreciation
and amortization.
($ in millions)
Revenues
Gross profit before depreciation and amortization(1)
Gross profit
Production (million tonnes)
Sales (million tonnes)
2017
2016
2015
$
$
$
6,152
3,769
3,044
$
$
$
26.6
26.8
4,144
2,007
1,379
27.6
27.0
$
$
$
3,049
906
200
25.3
26.0
Note:
(1) Gross profit before depreciation and amortization is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for further information.
12 Teck 2017 Annual Report | Horizons
Operations
Gross profit before depreciation and amortization increased in 2017, primarily due to higher steelmaking coal prices.
Gross profit was $3.0 billion, a 121% increase over 2016, primarily due to higher coal prices.
Our average realized selling price in 2017 increased to US$176 per tonne, compared with US$115 per tonne in 2016
and US$93 per tonne in 2015. Effective April 1, 2017, steel mills and most steelmaking coal producers agreed on an
index-linked pricing mechanism based on the average of key premium steelmaking coal spot price assessments to
replace the negotiated quarterly benchmark.
Sales volumes were 26.8 million tonnes in 2017, slightly lower than our record sales volumes in 2016. This was mainly
due to lower sales in the first quarter of 2017 as a result of logistics issues and customers delaying purchasing as they
reduced inventories built in the fourth quarter of 2016. Concurrently, customers further delayed purchases due to
rapidly correcting steelmaking coal prices.
Our 2017 production of 26.6 million tonnes declined by 1.0 million tonnes from 2016, primarily due to difficult weather
conditions, higher employee turnover and geotechnical issues experienced in the first half of the year.
The cost of product sold in 2017, before transportation and depreciation, was $52 per tonne, compared with $43 per
tonne in 2016 (excluding one-time collective agreement settlement charges). This cost increase was a result of lower
first quarter sales volumes and logistics issues at Westshore Terminals that led to plant shutdowns as mine site
storage was full. In addition, material movement fell below plan due to difficult weather conditions, higher employee
turnover and geotechnical issues at Cardinal River and Line Creek operations. These issues, combined with a number
of operations mining in recently permitted areas with higher strip ratios, led to a drawdown in raw coal during the first
three quarters of 2017. Contract miners were mobilized to maintain production levels, resulting in higher costs per tonne.
Capital spending in 2017 included $112 million for sustaining capital, $55 million for major enhancements to maintain
long-term production capacity and $506 million on stripping activities.
Elk Valley Water Management
As previously disclosed, we continue to implement the water quality management measures required by the Elk Valley
Water Quality Plan (the Plan), which was approved in the fourth quarter of 2014 by the British Columbia (B.C.) Minister
of Environment. The Plan establishes short-, medium- and long-term water quality targets for selenium, nitrate,
sulphate and cadmium to protect the environment and human health, as well as a plan to manage calcite formation.
In accordance with the Plan, we have constructed the first water treatment facility contemplated by the Plan.
We had previously announced that we are working to address an issue regarding selenium compounds in effluent
from the first active water treatment facility (AWTF) at Line Creek Operations. We have successfully tested an
additional treatment step to address the issue, and are proceeding with construction of plant modifications, to be
completed in the third quarter of 2018 at a cost of approximately $17 million. We will commence construction of our
next AWTF at Fording River Operations in the second quarter of 2018, using the same treatment process as West
Line Creek and incorporating the additional design changes to address selenium compounds. In 2017, we constructed
our first saturated fill project at Elkview Operations, at a total cost of $41 million, and commissioned the project in
January 2018. This alternative treatment strategy has the potential to replace AWTFs in the future and/or to enhance
our ability to meet the objectives of the Elk Valley Water Quality Plan. We also completed the successful installation
and commissioning of our first calcite management system at Greenhills Operations to support our understanding of
calcite treatment and to prevent calcite precipitation in the environment downstream from our operations.
The capital spending on water treatment in 2018 is expected to be approximately $86 million, taking into account
facility design modifications, as well as the engineering and commencement of construction of the Fording River
AWTF. This compares to approximately $12 million of capital spending on water treatment in 2016, and $3 million of
capital spending on water treatment in 2017, which was included in our 2017 sustaining capital.
Based on our current plans, total capital spending on water treatment over the next five years, from 2018 to 2022, is
expected to be in the $850 to $900 million range. This contemplates completion of modifications to the Line Creek
AWTF, the construction of the Fording River AWTF and two other AWTFs elsewhere in the Elk Valley, as well as the
commencement of construction of a fifth AWTF. Delays in construction caused by the technical issues faced at the
Management’s Discussion and Analysis
13
Line Creek AWTF have required us to plan for the construction of more than one AWTF at a time, increasing annual
expenditures in the 2019 to 2022 period.
Based on current water quality modelling data and treatment technologies, up to four additional AWTFs will be
required in the 2023 to 2032 period. Annual capital expenditures in this 10-year period are expected to be lower and
more evenly distributed, at an annual average of approximately $65 million. Planned AWTFs have varying capacities
and capital costs.
In 2017, operating costs for Elk Valley water quality management were approximately $0.75 per tonne of clean coal
produced. Operating costs are expected to increase gradually over the next 15 years to the $5 to $6 per tonne range
as additional AWTFs come on stream.
If our Elkview saturated fill project performs as expected, there is potential for further saturated fills to subsequently
reduce capital and operating costs associated with active water treatment. We continue with research and development
on alternatives to active water treatment, which have the potential to significantly reduce capital costs for water
treatment. These include saturated rock fills, described above, which rely on biological processes in water collected in
former mining areas to improve water quality, as well as various forms of caps and other reclamation techniques, that
have the potential to reduce the quantity of water requiring treatment. These technologies, although unproven, have
the potential to significantly reduce active treatment costs over the long term.
All of the foregoing estimates are uncertain. Final costs of implementing the Plan will depend in part on the technologies
applied and on the results of ongoing environmental monitoring and modelling. The timing of expenditures will depend
on resolution of technical issues, permitting timelines and other factors. We expect that, in order to maintain water
quality, some form of water treatment will continue for an indefinite period after mining operations end. The Plan
contemplates ongoing monitoring to ensure that the water quality targets set out in the Plan are in fact protective of
the environment and human health, and provides for adjustments if warranted by monitoring results. This ongoing
monitoring, as well as our continued research into treatment technologies, could reveal unexpected environmental
impacts, technical issues or advances associated with potential treatment technologies that could substantially
increase or decrease both capital and operating costs associated with water quality management.
Rail
Rail transportation of product from our five steelmaking coal mines in southeast B.C. to Vancouver port terminals is
provided under a 10-year agreement with Canadian Pacific Railway (CP Rail) that expires March 31, 2021. Most
eastbound coal deliveries to North American customers are shipped pursuant to an arrangement with CP Rail. The
remaining eastbound coal deliveries are shipped via the BNSF Railway. Our Cardinal River Operations in Alberta is
served by Canadian National Railway (CN), which transports our product to ports on the west coast. Our agreement
with CN expired on December 31, 2017, and we are in discussion with CN with regard to a new contract.
Ports
We maintain access to terminal loading capacity in excess of our planned 2018 shipments. Engineering work continues
on the Neptune facility upgrade, which is expected to expand operations from 12.5 million tonnes per year to over
18.5 million tonnes per year. Construction activities at the terminal will commence in 2018.
In addition, our contract with Westshore Terminals provides us with 19 million tonnes of annual capacity through to
March 2021, and we have contracted capacity at Ridley Terminals near Prince Rupert to provide for steelmaking coal
shipments from our Cardinal River Operations in Alberta.
Sales
Our steelmaking coal marketing strategy is focused on maintaining and building relationships with our traditional
customers, while establishing new customers in markets where we anticipate long-term growth in steel production
and demand for seaborne steelmaking coal. In 2017, we continued to focus our marketing in areas with the greatest
demand growth, increasing sales volumes to areas such as Europe, India and Vietnam.
14 Teck 2017 Annual Report | Horizons
Markets
The year 2017 was characterized by significant volatility in steelmaking coal prices. Cyclone Debbie, which hit
Australia in late March 2017, caused steelmaking coal prices to spike above US$300 per tonne for the fourth time
since 2008. Prices subsequently corrected back to the US$140– $150 per tonne range, but increased steadily during
the second half of the year. The steady pace of price increases has been the result of numerous factors, including
strong steel pricing and demand in China, aided by ongoing closure of excess capacity, robust steel production and
pricing in the rest of the world, due to the improving global economy and reduced steel exports from China. In addition,
constrained steelmaking coal supply resulting from continuing logistics and production issues has affected key
Australian mines. Depletion and closure of some Eastern European domestic mines also created additional demand
from European steel mills for seaborne steelmaking coal.
Coincident with the cyclone-induced price spike in April, the pricing methodology for our quarterly contract sales
changed from a negotiated quarterly benchmark to an index-linked pricing mechanism based on the average of
key premium steelmaking coal price assessments, effective April 1, 2017. Quarterly priced sales represent
approximately 40% of our sales, with the balance of our sales priced at levels reflecting market conditions when
sales are concluded. Lower-grade semi-soft coals and pulverized coal injection (PCI) pricing continues to be
negotiated on a quarterly benchmark basis.
The following graphs show key metrics affecting steelmaking coal sales: spot price assessments and quarterly pricing,
hot metal production (each tonne of hot metal, or pig iron, produced requires approximately 650–700 kilograms of
steelmaking coal), and China’s steelmaking coal imports by source.
Daily Steelmaking Coal Assessments
Source: Argus
Hot Metal (Pig Iron) Production
Source: World Steel Association, National
Bureau of Statistics of China
China Steelmaking Coal Imports
Source: China’s Customs
$350
$300
$250
$200
$150
$100
$50
2012
2013
2014
2015
2016
2017
1997
2001
2005
2009
2010
2017
1,200
1,000
800
600
400
200
0
Tonnes
80
70
60
50
40
30
20
10
2009
2011
2013
2015
2017
0
Tonnes
Spot price assessments
(US$ per tonne FOB Australia)
Quarterly benchmark
(US$ per tonne FOB Australia)
Quarterly index-linked price
(US$ per tonne FOB Australia)
Rest of the world (tonnes in millions)
China (tonnes in millions)
Landborne (tonnes in millions)
Seaborne (tonnes in millions)
Management’s Discussion and Analysis
15
Outlook
Market expectations are that global steel production and demand for steelmaking coal will continue to increase in
2018. Competition in the steelmaking coal trade is expected to increase in 2018 as Australian exports recover and the
ongoing logistics issues are gradually resolved. While it is unclear how coal trade rebalancing will affect pricing, we are
well positioned to respond to changing markets.
Steelmaking coal production in 2018 is expected to be between 26 and 27 million tonnes. As in prior years, annual
production volumes can be adjusted to reflect market demand for our products, subject to adequate rail and port service.
Assuming that current market conditions persist, annual production from 2019 to 2021 is expected to be higher than
2018, despite the closure of Coal Mountain Operations mid-2018.
In January 2018, a significant pressure event interrupted operations in the coal dryer at Elkview Operations. The
preliminary damage assessment has determined that repairs to the dryer may take in the range of four to six weeks.
In the interim, Elkview is producing higher moisture steelmaking coals at approximately 80% of planned production
levels. In order to manage the overall moisture level of our product, we are coordinating production with our other
operations in the Elk Valley, and blending the higher moisture coal with dry finished coal inventory and dry coal from
other operations to the extent possible. We expect lost production in the range of 200,000 tonnes. Costs of repair to
the dryer are not expected to exceed $10 million.
We received permits to commence mining in new areas at the Fording River, Elkview and Greenhills mines, which will
extend the lives of these mines and allow us to increase production to compensate for the closure of Coal Mountain.
We are investing in the processing plants and have transferred mining assets from Coal Mountain in order to develop
the new mining areas at each of the sites. The strip ratios in these new areas will be higher in the near term, and we
have invested in some additional mining capacity to balance coal production targets.
We are expecting sales volumes in the first quarter of 2018 to be in the range of 6.3 to 6.5 million tonnes, reflecting
Westshore’s underperformance continuing through January and the potential impacts from the pressure event at our
Elkview mine coal dryer. With steel pricing and world economies remaining strong, indications are that demand for
steelmaking coal will continue to grow while supply issues, mainly in Australia, are also expected to continue
supporting prices.
Customers determine vessel nominations for the majority of our sales. Final sales and average prices for the quarter
will depend on product mix, market direction for spot priced sales, and timely arrival of vessels, as well as the
performance of the rail transportation network and port loading facilities. We are currently working with the logistics
service providers to accelerate moving excess mine inventories to ports.
With the additional mining development activity, we expect our site costs in 2018 to be in the range of $56 to $60 per
tonne (US$45 to US$48). This range is higher than in 2017, primarily as the result of the efforts described above
to maintain total production after the closure of Coal Mountain, which will require use of additional equipment,
diesel and labour.
Transportation costs in 2018 are expected to be approximately $35 to $37 per tonne (US$28 to US$30).
We plan to incur $275 million of sustaining capital in 2018, including approximately $185 million of sustaining capital
for operations and approximately $86 million of sustaining capital related to water treatment. Sustaining capital for
operations largely relates to reinvestment in our equipment fleets. In addition, $160 million will be invested in major
enhancement projects, which largely relate to the development costs of the new mining areas at our Elk Valley operations.
We also plan to make an equity investment of $85 million for port upgrades at Neptune Terminals in 2018. The
investment in the port will further improve the global competitiveness and responsiveness of our steelmaking coal
portfolio over the longer term.
16 Teck 2017 Annual Report | Horizons
Copper
In 2017, we produced 287,300 tonnes of copper from our Highland Valley Copper Operations in B.C., our 22.5% interest
in Antamina in Peru, and our Quebrada Blanca and Carmen de Andacollo operations in Chile. Copper production
declined 11% from 2016, primarily due to a temporary decline in grades and recoveries at Highland Valley Copper,
as anticipated in the mine plan.
In 2017, our copper operations accounted for 20% of our revenue and 19% of our gross profit before depreciation
and amortization.
Revenues
Gross Profit (Loss) Before
Depreciation and Amortization(1)
Gross Profit (Loss)
($ in millions)
2017
2016
2015
2017
2016
2015
2017
2016
2015
Highland Valley
Copper
Antamina
Carmen de
Andacollo
Quebrada Blanca
Duck Pond
Other
Total
$
733 $
750 $
999 $
213 $
268 $
449 $
18 $
86 $
936
627
634
670
409
412
566
305
278
304
549
182
–
–
401
229
–
–
442
288
53
6
222
50
–
(1)
86
24
–
1
86
(19)
(3)
6
142
(107)
–
(1)
9
(4)
(211) (141)
–
1
(17)
6
$ 2,400 $ 2,007 $ 2,422 $ 1,154 $
788 $
931 $
618 $
190 $
426
Note:
(1) Gross profit (loss) before depreciation and amortization is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for
further information.
(000’s tonnes)
2017
2016
2015
2017
2016
2015
Production
Sales
Highland Valley Copper
Antamina
Carmen de Andacollo
Quebrada Blanca
Duck Pond
Total
93
95
76
23
–
287
119
97
73
35
–
324
152
88
73
39
6
358
89
94
77
23
–
283
122
95
73
35
–
325
150
87
72
40
8
357
Management’s Discussion and Analysis
17
Operations
Highland Valley Copper
Highland Valley Copper Operations is located in south-central B.C. Gross profit before depreciation and amortization
was $213 million in 2017, compared to $268 million in 2016 and $449 million in 2015. Gross profit was $18 million in
2017, significantly lower than 2016 due to planned lower grades and recoveries resulting in a temporary decline in
production and a one-time labour settlement charge, partially offset by higher copper prices.
Highland Valley Copper’s 2017 copper production was 92,800 tonnes, compared to 119,300 tonnes in 2016 and
151,400 tonnes in 2015. The decrease in 2017 was primarily due to the expected lower copper grades and associated
lower recoveries in the first half of the year. Ore grades and recoveries improved from the third quarter of 2017 as we
mined through higher-grade areas of the mine. While we expect annual average grades to increase in 2018 over 2017
levels and result in an increase in production, the higher grades experienced in the fourth quarter of 2017 will not be
repeated in 2018 as we continue stripping activities and process ore from lower-grade sections of the Lornex pit and
the west wall of the Valley pit. Grades are expected to increase further in 2019 in the current life of mine plan.
Molybdenum production was 72% higher in 2017 at 9.3 million pounds, compared to 5.4 million pounds in 2016,
primarily due to higher grades.
Ore is currently mined from the Valley and Lornex pits. A higher-grade phase of the Valley pit was exhausted in 2016.
In 2017, significantly more lower-grade ore from the Lornex pit was processed in comparison to 2016. Mining in the
Highmont pit was substantially completed in the third quarter of 2017.
A new five-year collective labour agreement was reached with unionized employees at Highland Valley Copper in
2017, resulting in a one-time labour settlement charge of $13 million.
A $72 million project to install an additional ball mill to increase grinding circuit capacity started construction in
September 2017. The project is anticipated to increase overall mill throughput by 5% and copper recovery by over 2%,
and is expected to be completed by mid-2019.
Copper production in 2018 is anticipated to be between 95,000 and 100,000 tonnes, with a fairly even distribution
throughout the year, before returning to sustainable higher grades in 2019 and beyond. Annual copper production from
2019 to 2021 is expected to be between 120,000 and 140,000 tonnes per year, with lower production in 2019, then
gradually rising through to 2021. Copper production is anticipated to remain at about 140,000 tonnes per year after 2021,
through to the end of the current mine plan in 2028. Molybdenum production in 2018 is expected to be approximately
5.0 million pounds contained in concentrate, and annual production is expected to remain similar to this level in 2019
to 2021.
Antamina
We have a 22.5% share interest in Antamina, a copper-zinc mine in Peru. The other shareholders are BHP Billiton plc
(33.75%), Glencore plc (33.75%) and Mitsubishi Corporation (10%). In 2017, our share of gross profit before depreciation
and amortization was $670 million, compared with $409 million in 2016 and $412 million in 2015. Gross profit in 2017
was higher than 2016 due to substantially higher zinc production combined with higher zinc and copper prices.
Antamina’s copper production (100% basis) in 2017 was 422,500 tonnes, compared to 431,100 tonnes in 2016, with
the decrease primarily as a result of processing less copper-only ore, as expected in the mine plan. Zinc production
was a record 372,100 tonnes in 2017, nearly doubling 2016 production levels, primarily due to increased processing
of a higher portion of copper-zinc ores, and significantly higher zinc grades and recoveries. Molybdenum production
totalled 8.7 million pounds, 15% lower than 2016, due to processing less copper-molybdenum ore.
Pursuant to a long-term streaming agreement made in 2015, Teck has agreed to deliver an equivalent to 22.5% of
payable silver sold by Compañía Minera Antamina S.A., using a silver payability factor of 90%, to a subsidiary of
Franco-Nevada Corporation (FNC). FNC pays a cash price of 5% of the spot price at the time of each delivery, in
addition to an upfront acquisition price paid in a previous year. In 2017, approximately 3.7 million ounces of silver were
delivered under the agreement. After 86 million ounces of silver have been delivered under the agreement, the stream
will be reduced by one-third. A total of 10.1 million ounces of silver have been delivered under the agreement from
2015 to December 31, 2017.
18 Teck 2017 Annual Report | Horizons
Our 22.5% share of Antamina’s 2018 production is expected to be in the range of 90,000 to 95,000 tonnes of copper,
85,000 to 90,000 tonnes of zinc and approximately 1.8 million pounds of molybdenum in concentrate. Our share of
copper production is expected to be between 90,000 and 100,000 tonnes per year from 2019 to 2021. Zinc production
is expected to remain strong, as the mine is currently in a phase with high zinc grades and a higher proportion of
copper-zinc ore processed. Our share of zinc production is anticipated to average between 90,000 and 100,000 tonnes
per year from 2019 to 2021, although annual production will fluctuate due to feed grades and the amount of copper-zinc
ore processed, with the lower end of average zinc production expected in 2019. Our share of annual molybdenum
production is expected to be between 2.5 and 3.0 million pounds between 2019 and 2021.
Carmen de Andacollo
We have a 90% interest in the Carmen de Andacollo mine, which is located in the Coquimbo Region of central Chile.
The remaining 10% is owned by Empresa Nacional de Minería (ENAMI), a state-owned Chilean mining company.
Gross profit before depreciation and amortization was $222 million in 2017, compared to $86 million in 2016 and 2015.
Gross profit increased to $142 million from $9 million in 2016, primarily due to substantially higher copper prices.
Carmen de Andacollo produced 72,500 tonnes of copper contained in concentrate in 2017, 4% higher than 2016,
primarily due to improved grades. Copper cathode production was 3,500 tonnes in 2017, compared with 3,700 tonnes
in 2016. Gold production, on a 100% basis, of 54,500 ounces was similar to gold production in 2016, with 100% of
the gold produced for the account of RGLD Gold AG, a wholly owned subsidiary of Royal Gold, Inc. In effect, 100%
of gold production from the mine has been sold to Royal Gold, Inc., who pays a cash price of 15% of the monthly
average gold price at the time of each delivery, in addition to an upfront acquisition price paid in a previous year.
Consistent with the mine plan, copper grades are expected to decline towards reserve grades in 2018 and future
years. We continue to study and pilot projects that could help to partially offset these grade declines. Carmen de
Andacollo’s production in 2018 is expected to be in the range of 60,000 to 65,000 tonnes of copper in concentrate
and approximately 3,000 tonnes of copper cathode. Annual copper in concentrate production is expected to be
approximately 60,000 tonnes for the subsequent three-year period. Cathode production volumes are uncertain past
2018, although there is some potential to extend production.
Quebrada Blanca
Quebrada Blanca is located in the Tarapacá Region of northern Chile. We own a 76.5% interest in Quebrada Blanca.
The other shareholders are Inversiones Mineras S.A. (13.5%) and ENAMI (10%). ENAMI’s interest is a carried interest
and, as a result, ENAMI is generally not required to contribute further funding to Quebrada Blanca. The operation
mines ore from an open pit and leaches the ore to produce copper cathodes via a conventional solvent extraction and
electrowinning (SX-EW) process.
Quebrada Blanca’s gross profit before depreciation and amortization was $50 million in 2017, compared to $24 million
in 2016 and a gross loss before depreciation and amortization of $19 million in 2015. Quebrada Blanca incurred a gross
loss of $107 million, compared to $211 million in 2016. The improvement in 2017 was primarily due to higher copper
prices, lower operating costs and reduced depreciation expenses, partially offset by lower copper cathode production
and sales volumes.
Since the first quarter of 2017, all supergene ore mined has been sent directly to the dump leach circuit. This has
resulted in lower recovery and a longer leaching cycle at reduced operating costs, compared to the previous operations
of the heap leach circuit. As a result of these changes, and declining mine production as supergene ores are depleted,
Quebrada Blanca produced 23,400 tonnes of copper cathode in 2017, compared to 34,700 tonnes in 2016.
In February 2017, we extended two of the three labour agreements at Quebrada Blanca into the first quarter of 2019.
In December 2017, the third labour agreement, representing 24% of the workforce, was extended to the fourth
quarter of 2019.
We expect production of approximately 20,000 to 24,000 tonnes of copper cathode in 2018. The supergene deposit
is expected to be exhausted in the second quarter of 2018, although we currently anticipate cathode production to
continue through 2019 as leaching of the dump material and secondary extraction from old heap material will continue,
although at approximately half of current cathode production rates. Options to extend mining activities further into
2018, as well as extending cathode production beyond 2019, are being studied.
Management’s Discussion and Analysis
19
Quebrada Blanca Phase 2
Quebrada Blanca Phase 2 is expected to have an initial mine life of 25 years based on reserves, which make up
approximately 25% of the combined reserve and resource. Annual production capacity is expected to be 300,000
tonnes of copper equivalent per year for the first five years of mine life. Project activities in 2017 focused primarily on
completing an updated feasibility study, execution readiness activities, advancing detailed engineering and design, and
continuing progress on the social and environmental impact assessment (SEIA) regulatory approval process.
A decision to proceed with development will be contingent upon regulatory approvals and market conditions, among
other considerations. Given the timeline of the regulatory approval process, such a decision is not expected before the
second half of 2018. Work activities continue to focus on completing the regulatory approval process and advancing
detailed engineering, early procurement contracts and construction planning to ready the project for execution. Project
development expenditures for the first four months of 2018 are anticipated to be approximately US$100 million. Updates
on further expenditure plans during the remainder of 2018 will be provided at the end of first quarter.
NuevaUnión
Activities continued to advance a prefeasibility study in 2017, including environmental baseline studies and ongoing
community engagement. We expect to complete the prefeasibility study in the first quarter of 2018.
Project Satellite
In March 2017, we publicly launched our Project Satellite initiative, the focus of which is to surface value from five
substantial base metals assets — Zafranal, San Nicolás, Galore Creek, Schaft Creek, and Mesaba — all of which are
located in stable jurisdictions in the Americas.
The current focus is to complete environmental and social baseline studies, community engagement programs and
engineering and design work to prepare environmental impact assessments and development permit applications on
the Zafranal and San Nicolás assets.
At the Zafranal copper-gold project in southern Peru, the project team completed infill and geotechnical drilling programs,
hydrogeological studies, and environmental, social and archeological studies during 2017. A feasibility study commenced
in November 2017, along with expanded community engagement activities and permitting work necessary to prepare a
social and environmental impact assessment (SEIA). We expect to complete the feasibility study and submit the SEIA
by the fourth quarter of 2018. Planned spending in 2018 is $35 million, which is included in capital expenditures for new
mine development for our copper business unit.
At the San Nicolás copper-zinc project in Zacatecas, Mexico, environmental and social baseline studies, preliminary
hydrogeological studies, and project engineering programs were initiated in the third quarter of 2017 in support of
a prefeasibility study and an SEIA. In October 2017, we completed the acquisition of the 21% minority interest in
San Nicolás held by Goldcorp Inc. for cash consideration of US$50 million, taking our ownership of the asset to 100%.
We expect to complete the prefeasibility study in the second half of 2019. Planned spending in 2018 is $30 million,
which is included in capital expenditures for new mine development for our copper business unit.
Field programs, including mapping, sampling, drilling, environmental and social baseline studies, and focused
engineering work, will be carried out on each of the Galore Creek (copper-gold), Schaft Creek (copper-molybdenum-
gold) and the Mesaba (copper-nickel) projects in 2018. Planned spending in 2018 for the three projects is $15 million,
which will be included in exploration expense.
Markets
Copper prices on the London Metal Exchange (LME) averaged US$2.80 per pound in 2017, up US$0.59 per pound
or 27% from the average of 2016.
According to Wood Mackenzie, a commodity research consultancy, global demand for copper metal grew by 2.0%
in 2017, in comparison to 2.7% in 2016, to reach an estimated 23.0 million tonnes. Demand improved in Asia, with
Chinese demand growth estimated at 3.2% over 2016, much higher than initial projections at the beginning of the
year. Demand growth in Europe and North America was up slightly at 0.3% and 0.7% respectively, while demand in
20 Teck 2017 Annual Report | Horizons
developing regions is estimated to have dropped by less than 0.1%. Wood Mackenzie estimates the refined global
copper market was effectively balanced in 2017.
Copper stocks on the LME fell by 37% to 201,725 tonnes in 2017, while Shanghai stocks rose by 2.7% to 150,500
tonnes and COMEX warehouse stocks increased 141% to 182,000 tonnes. Combined exchange stocks decreased by
10,800 tonnes during 2017 and ended the year at 533,400 tonnes. Total reported global stocks — including producer,
consumer, merchant and terminal stocks — stood at an estimated 22 days of global consumption versus the 25-year
average of 28 days.
In 2017, global copper mine production decreased 0.7% in 2017, with total production estimated at 19.9 million tonnes.
The industry faced several disruptions to production in the first half of 2017, mostly attributable to labour disputes.
Wood Mackenzie is forecasting a 1.1% increase in global mine production in 2018 to 20.2 million tonnes.
Copper scrap availability improved with strengthening copper prices throughout the year. Scrap and unrefined copper
imports into China, including blister and anode, were up over 11% in 2017. Scrap supply towards the end of 2017
began to tighten in China as new environmental standards on the importation of low-grade scrap were published,
which could impact the short-term availability of copper scrap units.
Fundamentals remain positive over the medium to long term, with supply constrained by lower grades and a lack of
investment in new projects over the past six years due to the downtrend in copper prices. With Wood Mackenzie
forecasting global copper metal demand to increase by 2.1% in 2018, and with projected supply expected to be below
forecast demand, the refined copper market is anticipated to be in deficit in 2018.
Copper Price and LME Inventory
Source: LME
Global Demand for Copper
Source: ICSG, Wood Mackenzie
Global Copper Inventories
Source: ICSG, LME, COMEX, SHFE
1,400
1,200
1,000
800
600
400
200
0
Tonnes
$5.00
$4.00
$3.00
$2.00
$1.00
$0.00
700
600
500
400
300
200
100
25
20
15
10
5
35
30
25
20
15
10
5
2012
2013
2014
2015
2016
2017
0
Tonnes
1997
2001
2005
2009
2013
2017
0
0
Tonnes Days
2012
2013
2014
2015
2016
2017
LME inventory (tonnes in thousands)
Copper price (US$ per pound)
Rest of the world (tonnes in millions)
China (tonnes in millions)
Inventories (tonnes in thousands)
Days of global consumption
25-year average days inventory
Outlook
We expect 2018 copper production to be in the range of 270,000 to 285,000 tonnes, slightly lower than 2017
production levels. The lower production is primarily due to lower grades at Carmen de Andacollo while we work on
throughput improvement options, partially offset by higher production at Highland Valley Copper.
In 2018, we expect our copper unit costs to be in the range of US$1.80 to US$1.90 per pound before margins from
by-products and US$1.35 to US$1.45 per pound after by-products based on current production plans, by-product
prices and exchange rates.
We expect copper production to be in the range of 270,000 to 300,000 tonnes per year from 2019 to 2021.
Management’s Discussion and Analysis
21
Zinc
We are one of the world’s largest producers of mined zinc, primarily from our Red Dog Operations in Alaska, as a
co-product from the Antamina copper mine in northern Peru, and from our Pend Oreille mine in Washington state. Our
metallurgical complex in Trail, B.C. is one of the world’s largest integrated zinc and lead smelting and refining operations.
In 2017, we produced 658,700 tonnes of zinc in concentrate, while our Trail Operations produced 310,100 tonnes of
refined zinc.
In 2017, our zinc business unit accounted for 29% of revenue and 19% of gross profit before depreciation and amortization.
Revenues
Gross Profit (Loss) Before
Depreciation and Amortization(1)
Gross Profit (Loss)
($ in millions)
2017
2016
2015
2017
2016
2015
2017
2016
2015
Red Dog
$ 1,752 $ 1,444 $ 1,220 $
971 $
749 $
600 $
874 $
668 $ 537
Trail Operations
2,266
2,049
1,847
Pend Oreille
Other
105
8
77
7
47
7
Inter-segment
(635)
(430)
(337)
209
19
(26)
–
241
205
–
(6)
–
(9)
9
–
131
(12)
(26)
–
178
124
(10) (15)
(6)
–
9
–
Total
$ 3,496 $ 3,147 $ 2,784 $ 1,173 $ 984 $
805 $
967 $
830 $ 655
Note:
(1) Gross profit (loss) before depreciation and amortization is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for
further information.
Production
Sales
(000’s tonnes)
2017
2016
2015
2017
2016
2015
Refined zinc
Trail Operations
Contained
in concentrate
Red Dog
Pend Oreille
Copper business unit(1)
Total
310
312
307
309
312
308
542
33
84
659
583
34
45
662
567
31
60
658
534
32
85
651
600
34
43
677
613
31
62
706
Note:
(1) Includes zinc production from Antamina and Duck Pond (closed in 2015).
22
Teck 2017 Annual Report | Horizons
Operations
Red Dog
Red Dog Operations, located in northwest Alaska, is one of the world’s largest zinc mines. Red Dog’s gross profit
before depreciation and amortization in 2017 was $971 million, compared with $749 million in 2016 and $600 million
in 2015. Gross profit increased from a year ago, primarily due to higher zinc and lead prices, partially offset by lower
sales volumes and higher royalty expenses.
In 2017, zinc production at Red Dog decreased to 541,900 tonnes compared to 583,000 tonnes in 2016, primarily due
to poor mill performance in the first half of the year and lower zinc grades. As planned, ore from the higher-grade
Qanaiyaq pit was introduced to supplement declining-grade ore from the Aqqaluk pit. However, mill performance was
adversely affected, as this ore is metallurgically complex and weathered, particularly during the early stages of pit
development. As we gained processing experience with this ore, and deepened the pit to access less weathered ore,
the amount of Qanaiyaq ore in the mill feed blend increased to 20% during the fourth quarter. We expect to maintain
this feed ratio of Qanaiyaq ore in 2018.
Lead production in 2017 declined to 111,300 tonnes, compared to 122,300 tonnes in 2016, primarily due to lower
lead recoveries.
In the third quarter, we initiated a mill upgrade project that is expected to increase average mill throughput by about
15% over the remaining mine life, helping to offset lower grades and harder ore in the Aqqaluk pit. This project is
expected to be complete by the end of 2019 at a capital cost of US$110 million. Because the upgrade project will
permit lower-grade material to be processed, the current mine life, based on existing developed deposits, will remain
unchanged through to 2031.
Red Dog’s location exposes the operation to severe weather and winter ice conditions, which can significantly affect
production, sales volumes and operating costs. In addition, the mine’s bulk supply deliveries and all concentrate
shipments occur during a short ocean shipping season that normally runs from early July to late October. This short
shipping season means that Red Dog’s sales volumes are usually higher in the last six months of the year, resulting
in significant variability in its quarterly profit, depending on metal prices.
In accordance with the operating agreement between Teck and NANA Regional Corporation, Inc. (NANA) governing
the Red Dog mine, we pay a royalty on net proceeds of production each quarter. This royalty increases by 5% every
fifth year to a maximum of 50%. The most recent increase occurred in October 2017, bringing the royalty to 35%.
The NANA royalty charge in 2017 was US$324 million, compared with US$213 million in 2016. NANA has advised us
that it ultimately shares approximately 63% of the royalty, net of allowable costs, with other Regional Alaska Native
corporations pursuant to section 7(i) of the Alaska Native Claims Settlement Act.
A payment in lieu of taxes (PILT) agreement between Teck Alaska and the Northwest Arctic Borough (the Borough)
expired on December 31, 2015. Early in 2017, Teck Alaska and the Borough agreed on a new 10-year PILT agreement,
which was subsequently signed during the second quarter of the year. Under the new agreement, PILT payments to
the Borough, based on the assessed property value of the mine, increase by approximately US$4 million to between
US$14 million and US$18 million per year. In addition, Teck Alaska will make annual payments to a separate fund aimed
at social investment in villages in the region. These payments, based on mine profitability, will be between US$4 million
and US$8 million per year, with US$11 million invested in the first year.
Red Dog’s production of contained metal in 2018 is expected to be in the range of 525,000 to 545,000 tonnes of zinc
and 95,000 to 100,000 tonnes of lead. From 2019 to 2021, Red Dog’s production of contained metal is expected to be
in the range of 475,000 to 525,000 tonnes of zinc and 85,000 to 100,000 tonnes of lead per year, respectively.
Trail Operations
Our Trail Operations in southern B.C. is one of the world’s largest fully integrated zinc and lead smelting and refining
complexes. It also produces a variety of precious and specialty metals, chemicals and fertilizer products.
Trail Operations contributed $209 million to gross profits before depreciation and amortization in 2017, compared with
$241 million in 2016 and $205 million in 2015. Gross profit was $131 million in 2017, a decrease of 26% in comparison
Management’s Discussion and Analysis
23
to 2016. The decrease in 2017 from 2016 was primarily due to higher operating costs and a one-time labour settlement
charge of $26 million.
During the second quarter of 2017, we announced an agreement to sell our two-thirds interest in the Waneta Dam and
related transmission assets for $1.2 billion cash to Fortis Inc. (Fortis). During the third quarter of 2017, BC Hydro exercised
its right of first offer in respect of this transaction, electing to acquire the dam on the terms agreed with Fortis. Under
the agreement, we will be granted a 20-year lease with an option to extend for an additional 10 years to use the
two-thirds interest in Waneta, which entitles us to power for our Trail Operations. The closing of the transaction with
BC Hydro is subject to customary conditions, including receipt of regulatory approvals and certain consents, and we
do not expect to close before the third quarter of 2018. During the third quarter of 2017, we paid a break fee of
$28 million to Fortis.
Refined zinc production in 2017 was 310,100 tonnes, compared with 311,600 tonnes the previous year. Refined lead
production was 87,100 tonnes, down from 99,200 tonnes in 2016, primarily due to treating material with lower metal
units and reduced lead concentrate treatment in the fourth quarter following mechanical difficulties in a fuming furnace.
Silver production declined to 21.4 million ounces in 2017 from 24.2 million ounces in 2016.
Our recycling process treated 47,000 tonnes of material during the year, and we plan to treat about 39,000 tonnes in
2018. Our focus remains on treating lead acid batteries and cathode ray tube glass, plus small quantities of zinc alkaline
batteries and other post-consumer waste through our recycling program.
In November 2016, we announced that we would invest $174 million in the installation of a second new acid plant to
improve efficiency and environmental performance at Trail Operations. Construction started in the first quarter of 2017,
and we expect the plant to become operational in the second quarter of 2019.
A new five-year collective agreement was reached with employees at Trail Operations in 2017, incurring a one-time
labour settlement charge of $26 million.
In 2018, we expect Trail Operations to produce 305,000 to 310,000 tonnes of refined zinc, approximately 70,000 tonnes
of refined lead and approximately 16 to 18 million ounces of silver. Zinc production from 2019 to 2021 is expected to
increase to 310,000 to 315,000 tonnes per year, while annual lead production is expected to rise to 95,000 to 105,000
tonnes. Silver production is dependent on the amount of silver contained in the purchased concentrates.
Pend Oreille
Pend Oreille, located in Washington state, achieved zinc production of 33,100 tonnes in 2017, compared to 34,100 tonnes
in 2016.
Current mine planning efforts are focused on sustaining the operation and there is still significant potential to extend
the mine life further.
We expect production in 2018 to be approximately 35,000 tonnes of zinc in concentrate. Production rates beyond 2018
are uncertain, although the potential exists to extend the mine life at similar rates for several more years.
Markets
Zinc prices on the LME averaged US$1.31 per pound for the year, up US$0.36 per pound or 38% from the 2016 average.
Wood Mackenzie, a commodity research consultancy, estimates that the global zinc metal market remained in a deficit
of 0.8 million tonnes in 2017. Global refined zinc demand was up 2.4% year over year, rising to 14.4 million tonnes. Global
demand for refined zinc remained strong in 2017, with global galvanized steel production up 3.2% year over year.
Despite an increase of 6.3% to global mine production in 2017, mine production remains below the level seen in 2015,
while smelter capacity continued to grow. This left global refined zinc production constrained by a lack of concentrates.
In China, environmental and safety inspections continue to restrict production at mines and at smelters. According to
CNIA, a Chinese statistical agency, mine production in China in 2017 was down 9% and smelter production was down
0.7%. The tightness in the global concentrate market is reflected in the historically low spot treatment charges being
settled in 2017 and progressing into 2018. Wood Mackenzie estimates that global refined zinc production was
constrained in 2017 and only rose 0.2% year over year, totalling 13.6 million tonnes. Although Wood Mackenzie is
24 Teck 2017 Annual Report | Horizons
expecting increases to mine and smelter production into 2018, these increases will be insufficient to meet growing
metal demand, and they are forecasting the market will continue to draw down stocks by close to 0.5 million tonnes
into 2018.
LME stocks fell by 245,800 tonnes in 2017, a 58% decline from 2016 levels, finishing the year at 182,050 tonnes. We
estimate that total reported global stocks — which include producer, consumer, merchant and terminal stocks — fell by
approximately 345,200 tonnes in 2017 and, at year-end, were 0.75 million tonnes, representing an estimated 20 days of
global demand, compared to the 25-year average of 41 days.
Global zinc mine production is expected to grow to 13.8 million tonnes in 2018, largely attributable to a number of new
mines beginning or restarting production in 2018. Wood Mackenzie estimates that refined zinc production will see a
5.2% increase in 2018 over 2017 levels, to 14.3 million tonnes, with some of this growth coming from an increase in
the secondary recovery of zinc. The total increase in supply will still be below the growth in global metal demand of
2.5% to 14.8 million tonnes, so that the refined metal market will continue in deficit into 2018.
Zinc Price and LME Inventory
Source: LME
Global Demand for Zinc
Source: ILZSG, Wood Mackenzie
Global Zinc Inventories
Source: ILZSG, LME, SHFE
$1.60
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
2012
2013
2014
2015
2016
2017
1,400
1,200
1,000
800
600
400
200
0
Tonnes
20
16
12
8
4
60
50
40
30
20
10
1997
2001
2005
2009
2013
2017
0
Tonnes Days
0
2012
2013
2014
2015
2016
2017
2,200
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Tonnes
LME inventory (tonnes in thousands)
Zinc price (US$ per pound)
Rest of the world (tonnes in millions)
China (tonnes in millions)
Inventories (tonnes in thousands)
Days of global consumption
25-year average days inventory
Outlook
We expect zinc in concentrate production in 2018, including co-product zinc production from our copper business unit,
to be in the range of 645,000 to 670,000 tonnes.
For the 2019 to 2021 period, we expect annual zinc in concentrate production to be in the range of 575,000 to 625,000
tonnes, excluding Pend Oreille, which has an uncertain production profile beyond 2018.
Management’s Discussion and Analysis
25
Energy
Located in the Athabasca oil sands region of northeastern Alberta, our energy assets include an interest in the Fort Hills
oil sands mining and processing operation, a 100% interest in the Frontier oil sands project and a 50% interest in
various other oil sands leases in the exploration phase, including the Lease 421 Area.
Our share of proved and probable reserves totalled 594 million barrels from Fort Hills, and our best estimate of
unrisked contingent bitumen resources totalled 3.2 billion barrels from Frontier at the end of 2017. These valuable
long-term assets are located in a politically stable jurisdiction and are expected to be mined using conventional
technologies that build on our core skills in large-scale truck and shovel operations.
We recognize that there are concerns over the potential environmental effects of developing oil sands projects. We
are researching methods to improve extraction and processing to enhance the sustainability of our projects. We are
proud to be one of the founding members of Canada’s Oil Sands Innovation Alliance (COSIA) and are encouraged by
the progress of the industry towards improving environmental performance, reducing water consumption, improving
tailings management, and increasing land reclamation and revegetation. In addition, the greenhouse gas intensity for both
the Fort Hills and Frontier oil sands projects is predicted to be among the lowest on a life cycle basis of any Canadian oil
sands production, with a lower carbon intensity than about half of the oil currently refined in the United States.
The disclosure regarding our oil sands assets includes references to reserves and contingent bitumen resource estimates.
Further information about these resource estimates, and the related risks and uncertainties, and contingencies that
prevent the classification of resources as reserves, is set out on page 62 under the heading “Contingent Resource
Disclosure”. For further information about these reserve estimates, see our most recent Annual Information
Form, which is available on our website at www.teck.com, on the Canadian Securities Administrators website at
www.sedar.com (SEDAR), and under cover of Form 40-F on the EDGAR section of the Securities Exchange Commission
(SEC) website at www.sec.gov.
Fort Hills
The Fort Hills oil sands mining and processing operation is located in northern Alberta. As at December 31, 2017,
we held a 20.89% interest in the Fort Hills Energy Limited Partnership (Fort Hills Partnership), which owns Fort
Hills, with Total E&P Canada Ltd. (Total) and Suncor Energy Inc. (Suncor) holding the remaining interest. An affiliate
of Suncor is the operator of the project.
Suncor and Teck increased their respective interests in Fort Hills after an agreement was reached in December 2017,
in which Total reduced its interest. In January 2018, our interest has continued to increase as a result of ongoing dilution
of Total’s interest and depending on the final project cost and our future funding elections we expect that our interest
will ultimately increase to approximately 21.3%.
During 2017, the mine, primary extraction, utilities and froth assets were commissioned. The Fort Hills plant initiated
froth production in the third quarter in order to accelerate commissioning. Froth production requires operating the mine,
ore preparation, primary extraction, tailings and utilities areas of the Fort Hills plant. Fort Hills has completed five
26 Teck 2017 Annual Report | Horizons
successful froth production runs and produced a total of 1.4 million barrels of froth. Froth produced at Fort Hills is then
trucked to Suncor’s base plant facilities for further processing. Proceeds from the froth production have been used to
offset construction costs.
Our share of new mine development for 2017 was $858 million. We expect our share of the capital cost to complete
the project to be approximately $170 million. Our share of Fort Hills’ major enhancement capital expenditures is
expected to be $90 million and sustaining capital expenditures are expected to be $40 million in 2018. Fort Hills’ major
enhancement and sustaining capital is expected to remain elevated in 2019 at approximately $13.50 per barrel, primarily
due to tailings and equipment ramp-up spending, before sustaining capital declines to $3-5 per barrel on average over
the life of mine. Major enhancement capital is variable over the life of mine due to phasing of tailings and other
development spending.
Oil production from the first of three secondary extraction trains commenced on January 27, 2018. The other two
secondary extraction trains are scheduled to be completed and commissioned in the first half of 2018, and production
is expected to reach 90% of nameplate capacity of 194,000 barrels per day by the end of 2018.
Frontier Project
We hold a 100% interest in the Frontier project, which is located in northern Alberta. The regulatory application review
of Frontier is ongoing, with a joint federal-provincial panel reviewing information filed to date. The regulatory review
process is expected to continue through 2018, making 2019 the earliest a federal decision statement is expected. Our
expenditures on Frontier are limited to supporting this process. We continue to evaluate the future project schedule
and development options as part of our ongoing capital review and prioritization process.
As of December 31, 2017, our best estimate of unrisked contingent bitumen resources for the Frontier project is
approximately 3.2 billion barrels. The project has been designed for a total nominal production of approximately
260,000 barrels per day of bitumen. The Frontier contingent resources have been subcategorized as “development
pending” and “economically viable”. There is uncertainty that it will be commercially viable to produce any portion
of the resources.
Lease 421 Area
We hold a 50% interest in the Lease 421 Area, which is located east of the Fort Hills project in northern Alberta.
To date, a total of 89 core holes have been completed in the Lease 421 Area.
Markets
Prices for our heavy blend will be market based, and determined through a combination of global and Canadian heavy
blend benchmark indices. The New York Mercantile Exchange (NYMEX) average contract price for light sweet crude
oil (WTI) in 2017 was US$51 per barrel, a 17% improvement versus the 2016 average. The Canadian heavy blend
differential, which is deducted against WTI prices, averaged US$12 per barrel, a 14% improvement versus the
2016 average.
According to the U.S. government’s Energy Information Administration, global demand for crude oil and associated
liquids grew by 1.50% in 2017, to reach an estimated 98.39 million barrels per day. Demand growth was mostly
apparent in non-OECD developing countries (1.08 million barrels per day), with the Asia-Pacific region accounting for
slightly above 50% of global growth.
We have developed a comprehensive blended bitumen sales and logistics strategy, based on diverse market access.
Our share of Fort Hills bitumen production is expected to be approximately 38,000 barrels per day on an annualized
basis, assuming a 21.3% project interest. To meet pipeline requirements, we will purchase approximately 11,500 barrels
per day of diluent blend-stock, and sell approximately 49,500 barrels per day of blended bitumen.
The Fort Hills bitumen produced using the paraffinic froth treatment process requires less blending diluent to meet
pipeline specifications. Further, it will be among the lowest life cycle carbon intensity of any Canadian oil sands
production, with a lower carbon intensity than about half of the oil currently refined in the U.S.
The Fort Hills partners will differentiate our Fort Hills product in the market using the name Fort Hills Reduced Carbon
Life Cycle Dilbit Blend (FRB).
Management’s Discussion and Analysis
27
The Fort Hills partners have jointly entered into long-term take-or-pay agreements with regional pipelines, terminals
and blend facilities. These agreements relate to:
• Hot bitumen transportation from Fort Hills to the East Tank Farm on the Northern Courier Pipeline, operated by
TransCanada
• Diluent transportation from Edmonton to the East Tank Farm on the Norlite Pipeline, operated by Enbridge
• Use of diluent and bitumen blending facility at the East Tank Farm, operated by the Thebacha partnership, a joint
venture between Suncor and regional First Nations (Fort McKay First Nation and Mikisew Cree First Nation)
• Blended bitumen transportation from the East Tank Farm to the market hub at Hardisty, Alberta on the Wood
Buffalo Pipeline, operated by Enbridge
We have separately contracted a 425,000-barrel working-capacity storage tank for our share of blended bitumen
at Hardisty, Alberta, and 100,000 barrels of diluent storage capacity at Fort Saskatchewan, Alberta. Our tankage at
Hardisty is connected to major export pipelines, including the Enbridge common-carrier pipeline, the existing Keystone
pipeline and the Express crude oil pipeline. Our tankage is also connected to a large unit train loading facility.
We have entered into a long-term agreement on the existing Keystone pipeline to ship 10,000 barrels per day of blended
bitumen to the U.S. Gulf Coast. We have also contracted 12,000 barrels per day on Kinder Morgan’s Trans Mountain
Pipeline expansion project for delivery to Burnaby, B.C. The balance of our production will be sold at Hardisty,
shipped to customers via the Enbridge common carrier pipeline or transported by rail if required.
Outlook
Market expectations for 2018 are that the crude oil supply/demand balance is tightening, with continued strong demand
growth of 1.5 million barrels per day, and reduced inventories. Downside risk is evident as North American crude oil
supply growth is expected to accelerate, particularly from U.S. shale producers, as prices increase. OPEC and Russian
production curtailments are expected to continue throughout 2018 to balance non-OPEC supply growth of approximately
1.7 million barrels per day. Canadian heavy oil production continues to increase, and with a chronic shortfall of pipeline
capacity, price differentials are expected to widen versus industry benchmarks.
28 Teck 2017 Annual Report | Horizons
Exploration
Throughout 2017, we conducted exploration around the world through our seven regional offices. Expenditures of
$58 million in 2017 were focused on copper, zinc and gold.
Exploration plays three critical roles at Teck: discovery of new orebodies through early stage exploration and acquisition;
pursuit, evaluation and acquisition of development opportunities; and delivery of geoscience solutions and services to
create value at our existing mines and development projects.
Our copper exploration is focused primarily on porphyry copper deposits and, during 2017, we continued to advance
porphyry copper projects in Canada, Chile, Peru, the United States, Mexico and Turkey. Significant exploration work
focused in and around our existing operations and advanced projects in 2017. In 2018, we plan to drill several early
stage copper projects, and we will continue to explore around our existing operations and advanced projects.
Zinc exploration remains focused on four areas: the Red Dog mine district in Alaska, western Canada, northeastern
Australia, and Ireland. In Alaska, Australia and Canada, the targets are large, high-grade, sediment-hosted deposits
similar to major world-class deposits such as Red Dog in Alaska and Century or McArthur River in Australia. We
continued to drill on 100% state-owned lands near our existing Red Dog mine, where we completed 14.2 kilometres
of drilling in 2017. We have identified an exploration target for Aktigiruq in the range of 80 million tonnes to 150 million
tonnes of mineralization at a grade of between 16% combined zinc plus lead and 18% combined zinc plus lead (12%
zinc + 4% lead and 14% zinc + 4% lead, respectively), based on drill data disclosed via news release in September
2017. If realized, this would make the Aktigiruq zinc deposit one of the world’s top undeveloped zinc deposits. Current
drill hole spacing is not sufficient for a mineral resource estimate. The potential quantity and grade of the Aktigiruq
exploration target is conceptual in nature. There has been insufficient exploration to define a mineral resource and it is
uncertain if further exploration will result in the target being delineated as a mineral resource.
In the first quarter of 2017, we acquired the remaining interest in the Reward Project (Teena Deposit) located in
Australia. Teena hosts an Inferred Resource of 58 million tonnes at 11.1% zinc and 1.5% lead (at a 6% zinc+lead
cut-off), estimated in compliance with the Joint Ore Reserves Committee (JORC) Code, and we continue to advance
drilling and studies on this deposit. Exploration programs will continue in these regions in 2018.
We have ongoing exploration for, and partnerships in, gold opportunities. Our plan is to explore, find and advance gold
resources through targeted exploration in select jurisdictions. Once an opportunity has been recognized, the strategy
is to optimize that opportunity or asset through further definition drilling and engineering studies, then capture value
through periodic divestitures. Our current exploration efforts and drill testing for gold are primarily focused in Turkey,
Canada and Peru.
In addition to exploring for copper, zinc and gold, we continue to support our steelmaking coal operations by providing
exploration and geoscience services to our existing operations and projects.
Management’s Discussion and Analysis
29
Financial Overview
Financial Summary
($ in millions, except per share data)
2017
2016
2015
Revenues and profit
Revenues
Gross profit before depreciation and amortization(1)
Gross profit
EBITDA(1)
Profit (loss) attributable to shareholders
Cash flow
Cash flow from operations
Property, plant and equipment expenditures
Capitalized production stripping costs
Investments
Balance sheet
Cash balances
Total assets
Debt, including current portion
Per share amounts
Profit (loss) attributable to shareholders
Dividends declared per share
$ 12,048
$
$
$
$
$
$
$
$
6,096
4,629
5,626
2,509
5,066
1,621
678
309
$
$
$
$
$
$
$
$
$
9,300
3,781
2,396
3,350
1,040
3,056
1,416
477
114
$
$
$
$
$
$
$
$
$
8,259
2,645
1,279
(1,633)
(2,474)
1,962
1,581
663
82
$
952
$
1,407
$
1,887
$ 37,058
$ 35,629
$ 34,688
$
6,369
$ 8,343
$
9,634
$
$
4.34
0.60
$
$
1.80
0.10
$
$
(4.29)
0.20
Note:
(1) Gross profit before depreciation and amortization and EBITDA are non-GAAP financial measures. See “Use of Non-GAAP Financial Measures”
section for further information.
Our revenue and profit depend on the prices for the commodities we produce, sell and use in our production processes.
Commodity prices are determined by the supply of and demand for those commodities, which are influenced by
global economic conditions. We normally sell the products that we produce at prevailing market prices or, in the case
of steelmaking coal, through an index-linked pricing mechanism or on a spot basis. Prices for our products can
fluctuate significantly and that volatility can have a material effect on our financial results.
Foreign exchange rate movements can also have a significant effect on our results and cash flows, as a substantial
portion of our operating costs are incurred in Canadian and other currencies, and most of our revenue and debt are
30 Teck 2017 Annual Report | Horizons
denominated in United States (U.S.) dollars. We determine our financial results in local currency and report those
results in Canadian dollars and, accordingly, our reported operating results and cash flows are affected by changes in
the Canadian dollar exchange rate relative to the U.S. dollar, as well as the Peruvian sol and Chilean peso.
In 2017, our profit attributable to shareholders was $2.5 billion, or $4.34 per share. This compares with $1.0 billion
or $1.80 per share in 2016 and a loss of $2.5 billion or $4.29 per share in 2015, which included $2.7 billion of after-tax
asset impairment charges. The changes are mainly due to varying commodity prices, sales volumes, exchange rate
movements and the after-tax impairment charges.
Our profit over the past three years has included items that we segregate for presentation to investors so that the
ongoing profit of the company may be more clearly understood. Our adjusted profit, which takes these items into
account, was $2.6 billion in 2017, $1.1 billion in 2016 and $188 million in 2015, or $4.45, $1.91 and $0.33 per share,
respectively. These are described below and summarized in the table that follows.
In 2017, due to the improvement in steelmaking coal prices and future operating cost estimates, we recorded a
$207 million non-cash pre-tax reversal of an impairment charge that we took against our steelmaking coal operations
in 2015. This was partially offset by a non-cash pre-tax asset impairment of $44 million recorded against our Quebrada
Blanca assets that will not be recovered through use. We also recorded an $82 million charge related to increased
provincial tax rates in British Columbia (B.C.), and the recently enacted reduction in tax rates in the United States
resulted in a $101 million non-cash credit to our 2017 tax expense. We also incurred a $216 million pre-tax loss on the
repurchase of certain of our outstanding notes in the first half of the year.
In 2016, we recorded an impairment of our investment in the Fort Hills oil sands project due to increased development
costs. We also recorded asset impairments relating to a project at our Trail Operations and our interest in the Wintering
Hills Wind Power Facility, which was sold in 2017. These non-cash charges totalled $294 million on a pre-tax basis and
$217 million on an after-tax basis.
In 2015, we recorded asset and goodwill impairment charges on a number of our operating assets, including our
investment in the Fort Hills oil sands project, Carmen de Andacollo Operations, Pend Oreille Operations and a number
of our steelmaking coal operations, as a result of lowered expectations for commodity prices in both the short and
long term. These non-cash charges totalled $3.6 billion on a pre-tax basis and $2.7 billion on an after-tax basis.
The table below shows the effect of these items on our profit.
($ in millions, except per share data)
2017
2016
2015
Profit (loss) attributable to shareholders as reported
$
2,509
$
1,040
$
(2,474)
Add (deduct) the after-tax effect of:
Asset sales and provisions
Foreign exchange (gains) losses
Debt repurchase gains
Debt prepayment options gain
Collective agreement charges
Environmental provisions
Impairment charges (reversals)
Tax items and other items
Break fee in respect of Waneta Dam sale
(29)
(4)
159
(38)
29
60
(100)
(41)
24
(53)
(45)
(44)
(84)
42
–
217
30
–
Adjusted profit(1)
$
2,569
$
1,103
Adjusted earnings per share (1)
$
4.45
$
1.91
(107)
80
–
–
10
–
2,691
(12)
–
$
$
188
0.33
Note:
(1) Adjusted profit and adjusted earnings per share are non-GAAP financial measures. See “Use of Non-GAAP Financial Measures” section for
further information.
Management’s Discussion and Analysis
31
Cash flow from operations in 2017 was a record $5.1 billion, compared with $3.1 billion in 2016 and $2.0 billion in
2015. The changes in cash flow from operations are mainly due to varying commodity prices and sales volumes,
offset to some extent by changes in foreign exchange rates.
At December 31, 2017, our cash balance was $952 million. Total debt was $6.4 billion and our net-debt to net-debt-plus-
equity ratio was 22% at December 31, 2017, compared with 28% at December 31, 2016 and 32% at the end of 2015.
Gross Profit
Our gross profit is made up of our revenue less the operating expenses at our producing operations, including depreciation
and amortization. Income and expenses from our business activities that do not produce commodities for sale are
included in our other operating income and expenses or in our non-operating income and expenses.
Our principal commodities are steelmaking coal, copper and zinc, which accounted for 51%, 17% and 20% of revenue
respectively in 2017. Silver and lead are significant by-products of our zinc operations, accounting for 5% and 4%,
respectively, of our 2017 revenue. We also produce a number of other by-products, including molybdenum, various
specialty metals, and chemicals and fertilizers, which in total accounted for 3% of our revenue in 2017.
Our revenue is affected by sales volumes, which are determined by our production levels and by demand for the
commodities we produce, commodity prices and currency exchange rates.
Our revenue was $12.0 billion in 2017, compared with $9.3 billion in 2016 and $8.3 billion in 2015. The increase in 2017
revenue was mainly due to higher steelmaking coal, copper and zinc prices, partially offset by lower sales volumes of
steelmaking coal and a slightly weaker average U.S. dollar exchange rate. Average prices for steelmaking coal, copper
and zinc were 53%, 27% and 38% higher in 2017 than 2016. The increase in 2016 over 2015 was mainly due to higher
steelmaking coal and zinc prices, higher sales volumes of steelmaking coal and zinc, and a stronger U.S. dollar.
Our cost of sales includes all of the expenses required to produce our products, such as labour, energy, operating
supplies, concentrates purchased for our Trail Operations’ refining and smelting activities, royalties, and marketing and
distribution costs required to sell and transport our products to various delivery points. Our cost of sales also includes
depreciation and amortization expense. Due to the geographic locations of many of our operations, we are highly
dependent on third parties for the provision of rail, port and other distribution services. In certain circumstances, we
negotiate prices and other terms for the provision of these services where we may not have viable alternatives to
using specific providers, or may not have access to regulated rate-setting mechanisms or appropriate remedies for
service failures. Contractual disputes, demurrage charges, rail and port capacity issues, availability of vessels and
railcars, weather problems and other factors can have a material effect on our ability to transport materials from our
suppliers and to our customers in accordance with schedules and contractual commitments.
Our costs are dictated mainly by our production volumes, by the costs for labour, operating supplies and concentrate
purchases, and by strip ratios, haul distances, ore grades, distribution costs, commodity prices, foreign exchange
rates, and costs related to non-routine maintenance projects. Production volumes mainly affect our variable operating
and our distribution costs. In addition, production affects our sales volumes and, when combined with commodity
prices, affects profitability and, ultimately, our royalty expenses.
2017 Revenue by Business Unit
2017 Gross Profit by Business Unit
(Before depreciation and amortization)
2017 Revenue by Commodity
51%
Steelmaking
Coal
29%
Zinc
20%
Copper
62%
Steelmaking
Coal
32 Teck 2017 Annual Report | Horizons
19%
Zinc
17%
Copper
51%
Steelmaking
Coal
19%
Copper
20%
Zinc
5%
Silver
3%
Other
4%
Lead
Our cost of sales was $7.4 billion in 2017, compared with $6.9 billion in 2016 and $7.0 billion in 2015. Our cost of sales
was higher in 2017 than 2016 due to a number of factors, including difficult weather conditions early in the year, higher
employee turnover rates and geotechnical issues at our coal operations, all of which affected material movement.
Our Highland Valley Copper Operations was mining lower-grade ore as planned, which results in higher unit operation
costs. At Red Dog, we had some challenges early in the year that affected production and costs. A new metallurgically
complex, highly oxidized, higher-grade ore from the Qanaiyaq pit was introduced to the mill early in the year, impacting
recoveries. As we gained processing experience with this ore and deepened the pit to access less-weathered ore,
recoveries improved and allowed us to increase the amount of Qanaiyaq ore, which resulted in a significant improvement
in metal production in the second half of the year. Despite higher sales volumes, our cost of sales decreased in 2016
from 2015, primarily due to our cost reduction program, partly offset by the stronger U.S. dollar and its effect on costs
at our foreign operations.
Other Expenses
($ in millions)
General and administration
Exploration
Research and development
Asset impairments (reversals)
Other operating expense (income)
Finance income
Finance expense
Non-operating expense (income)
Share of losses (income) of associates
2017
2016
2015
$
116
$
58
55
(163)
230
(17)
229
151
(6)
99
51
30
294
197
(16)
354
(239)
(2)
$
108
76
47
3,631
335
(5)
316
89
2
$
653
$
768
$
4,599
We must continually replace our reserves as they are depleted in order to maintain production levels over the long
term. We try to do this through our exploration and development programs and through acquisition of interests in new
properties or in companies that own them. Exploration for minerals, steelmaking coal and oil is highly speculative and
the projects involve many risks. The vast majority of exploration projects are unsuccessful and there are no assurances
that current or future exploration programs will find deposits that are ultimately brought into production.
Our research and development expenditures are primarily focused on advancing our proprietary CESL hydrometallurgical
technology, the development of internal and external growth opportunities, and the development and implementation
of process and environmental technology improvements at operations.
In 2017, due to the improvement in steelmaking coal prices and future operating cost estimates, we recorded a
$207 million reversal of an impairment charge that we took against our steelmaking coal operations in 2015. This was
partially offset by an impairment of $44 million recorded on our Quebrada Blanca assets that will not be recovered
through use.
During 2016, we recorded an impairment of our investment in the Fort Hills oil sands project as a result of increased
development costs. We also recorded asset impairments relating to a project at our Trail Operations and our interest in
the Wintering Hills Wind Power Facility. These charges, primarily related to Fort Hills, totalled $294 million on a pre-tax
basis and $217 million on an after-tax basis.
In 2015, we recorded asset and goodwill impairment charges on a number of our operating assets, including our
investment in the Fort Hills oil sands project, Carmen de Andacollo Operations, Pend Oreille Operations and a number
of our steelmaking coal operations. These charges totalled $3.6 billion on a pre-tax basis and $2.7 billion on an
after-tax basis. The write-downs were triggered primarily by lowered expectations for commodity prices in both the
short and long term.
Management’s Discussion and Analysis
33
The key inputs used in determining the magnitude of asset impairments and reversals are outlined on pages 45 to 49
in this Management’s Discussion and Analysis.
The impairment charges and (reversals) were as follows:
($ in millions)
2017
2016
2015
Steelmaking coal operations
Copper — Carmen de Andacollo
Zinc — Pend Oreille
Energy — Fort Hills
Other
$
(207)
$
–
–
–
44
–
–
–
222
72
$
2,032
506
31
1,062
–
$
(163)
$
294
$
3,631
Other operating income and expenses include items we consider to be related to the operation of our business, such
as final pricing adjustments (which are further described in the following paragraph), share-based compensation, gains
or losses on commodity derivatives, gains or losses on the sale of operating or exploration assets, and provisions for
various costs at our closed properties. Significant items in 2017 included $190 million of positive pricing adjustments,
$186 million for environmental costs, $125 million for share-based compensation, an $81 million charge for take-or-pay
contracts and a $28 million break fee related to the sale of the Waneta Dam that was paid to Fortis. Significant items
in 2016 included a $171 million expense for share-based compensation, $153 million of positive pricing adjustments,
a $48 million charge for take-or-pay contracts and $144 million for environmental costs. Significant items in 2015
included $280 million of negative pricing adjustments, $49 million of environmental costs and $13 million for share-
based compensation.
Sales of our products, including by-products, are recognized in revenue when there is persuasive evidence that all of
the following criteria have been met: the significant risks and rewards of ownership pass to the customer, neither
continuing managerial involvement nor effective control remains over the goods sold, the selling price and costs to sell
can be measured reliably, and it is probable that there are economic benefits associated with the sale. All of these
criteria are generally met by the time the significant risks and rewards of ownership pass to the customer, which
generally occurs upon loading of the customer’s vessel. The majority of our cathode and metal concentrates are sold
under pricing arrangements where final prices are determined by quoted market prices in a period subsequent to sale.
Revenue is recognized on a provisional basis at the date of sale based on current market prices. Steelmaking coal is
sold under spot or average pricing contracts. For all steelmaking coal sales under average pricing contracts, revenue
is recognized on a provisional basis at the date of sale based on estimated prices.
Adjustments are made to customer receivables in subsequent periods based on movements in quoted market prices
or published price assessments (for steelmaking coal) up to the date of final pricing. These pricing adjustments result
in gains in a rising price environment and losses in a declining price environment, and are recorded as other operating
income or expense. The extent of the pricing adjustments also takes into account the actual price participation terms
as provided in certain concentrate sales agreements. It should be noted that these effects arise on the sale of
concentrates, as well as on the purchase of concentrates at our Trail Operations.
The following table outlines our outstanding receivable positions, which were provisionally valued at December 31,
2017 and 2016, respectively.
(payable pounds in millions)
Pounds
US$/lb.
Pounds
US$/lb.
Copper
Zinc
138
197
3.26
1.50
114
231
2.50
1.17
Outstanding at
December 31, 2017
Outstanding at
December 31, 2016
34 Teck 2017 Annual Report | Horizons
Our finance expense includes the interest expense on our debt, financing fees and amortization, the interest
components of our pension obligations, and accretion on our decommissioning and restoration provisions, less any
interest that we capitalize against the cost of our development projects. Debt interest expense decreased in 2017,
mainly due to the reduction in our outstanding notes and higher amounts of interest capitalized against our
development projects. These items were partially offset by additional fees from an increase in our outstanding letters
of credit, and the effect of accretion on our decommissioning and restoration provisions. Further detail is provided in
Note 8 to our 2017 annual consolidated financial statements.
Non-operating income (expense) includes items that arise from financial and other matters and includes such items
as foreign exchange gains or losses, debt refinancing costs, gains or losses on the revaluation of debt prepayment
options, and realized gains or losses on marketable securities. In 2017, other non-operating expenses included
$51 million of gains on debt prepayment options, $5 million of foreign exchange gains, $9 million of gains on sale of
investments and a $216 million charge on debt repurchased during the year. In 2016, other non-operating expenses
included $113 million of gains on debt prepayment options, $46 million of foreign exchange gains, $49 million of gains
on debt repurchases and $34 million of gains on sale of investments. In 2015, other non-operating expenses included
$21 million for provisions on marketable securities and $76 million of foreign exchange losses.
Income and resource taxes were $1.4 billion, or 36% of pre-tax profits. This effective tax rate is higher than the
Canadian statutory income tax rate of 26% as a result of resource taxes, higher rates in foreign jurisdictions and a
deferred tax charge of $82 million due to the enacted increase to the B.C. provincial income tax rate from 11% to
12%. Offsetting the deferred tax charge from the B.C. rate increase is a deferred tax recovery of $101 million from the
enactment of the U.S. tax reform, net of other items. Due to available tax pools, we are currently shielded from cash
income taxes, but not resource taxes, in Canada. We remain subject to cash taxes in foreign jurisdictions.
Profit attributable to non-controlling interests relates to the ownership interests that are held by third parties in our
Quebrada Blanca, Carmen de Andacollo and Elkview operations, and Compañia Minera Zafranal S.A.C.
Financial Position and Liquidity
Our financial position and liquidity has improved from our strong position at the beginning of the year. At December 31,
2017, we had $952 million of cash and a US$3.0 billion unused line of credit, providing us with $4.7 billion of liquidity.
Our outstanding debt was $6.4 billion at December 31, 2017, compared with $8.3 billion at the end of 2016 and
$9.6 billion at the end of 2015. The decrease is due primarily to the US$1.3 billion of notes that we repurchased and
retired in the first half of 2017. A further US$50 million matured and was repaid in 2017. In total, since September
2015, our term notes have been reduced by US$2.4 billion, reducing the principal outstanding to US$4.8 billion.
Management’s Discussion and Analysis
35
Our debt positions and credit ratios are summarized in the following table:
Term notes face value
Unamortized fees and discounts
Other
Total debt (US$ in millions)
Canadian $ equivalent(1)
Less cash balances
Net debt
Debt to debt-plus-equity ratio(2)(3)
Net-debt to net-debt-plus-equity ratio(2)
Average interest rate
December 31, December 31, December 31,
2017
2016
2015
$
4,831
$
6,141
$ 6,900
(40)
286
(50)
122
(61)
122
$
5,077
$
6,213
$
6,961
$
6,369
$ 8,343
$
9,634
(952)
(1,407)
(1,887)
$
5,417
$
6,936
$
7,747
25%
22%
5.7%
32%
28%
5.7%
37%
32%
4.8%
Notes:
(1) Translated at period end exchange rates.
(2) Non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for further information.
(3) Our revolving credit facility requires us to maintain a debt to debt-plus-equity ratio not greater than 50%.
At December 31, 2017, the weighted average maturity of our consolidated indebtedness is approximately 15 years and
the weighted average coupon rate is approximately 5.7%.
Our primary sources of liquidity and capital resources are our cash and temporary investments, cash flow provided
from operations, and funds available under our committed and uncommitted bank credit facilities, of which approximately
US$3.4 billion is currently available. Further information about our liquidity and associated risks is outlined in Notes 18
and 28 to our 2017 annual consolidated financial statements.
Cash flow from operations was a record $5.1 billion in 2017. Our cash position decreased from $1.4 billion at the
end of 2016 to $952 million at December 31, 2017. Significant outflows included $2.3 billion of capital expenditures,
$1.9 billion primarily to purchase and cancel US$1.3 billion of notes, $344 million on returns to shareholders through
dividends, $175 million on share buybacks and $405 million of interest on our outstanding debt.
We maintain various committed and uncommitted credit facilities for liquidity and for the issuance of letters of credit.
Our US$3.0 billion revolving credit facility matures in October 2022 and has a letter of credit sub-limit of US$1.5 billion.
There are currently no drawings on this facility in 2017 and it remains fully available as at February 13, 2018.
We also have a US$1.2 billion facility that matures in October 2020. As at December 31, 2017, there are US$809 million
of letters of credit issued on this facility.
Borrowing under our primary committed credit facilities is subject to our compliance with the covenants in the
agreement and our ability to make certain representations and warranties at the time of the borrowing request.
In addition to our two primary revolving committed credit facilities, we maintain uncommitted bilateral credit facilities
with various banks and with Export Development Canada for the issuance of letters of credit, stand-alone letters of
credit and surety bonds, all primarily to support our future reclamation obligations. At December 31, 2017, we had
$1.27 billion of letters of credit issued on the $1.46 billion of bilateral credit facilities that we have, outstanding
stand-alone letters of credit of $336 million and outstanding surety bonds of $350 million to support our future
reclamation obligations.
The cost of funds under certain of our credit facilities depends on our credit ratings. Our current credit ratings from
Moody’s, S&P and Fitch are Ba2, BB+ and BB+, respectively. The Moody’s and S&P ratings have stable outlooks
and Fitch’s outlook is positive.
36 Teck 2017 Annual Report | Horizons
Under the terms of the silver streaming agreement relating to Antamina, if there is an event of default under the
agreement or Teck insolvency, Teck Base Metals Ltd., our subsidiary that holds our interest in Antamina, is restricted
from paying dividends or making other distributions to Teck to the extent that there are unpaid amounts under
the agreement.
Operating Cash Flow
Cash flow from operations was a record $5.1 billion in 2017, compared with $3.1 billion in 2016 and $2.0 billion in
2015. The increase in 2017 compared to 2016 was mainly due to the higher average commodity prices. The increase
in 2016 compared to 2015 was mainly due to generally higher commodity prices and sales volumes, offset to some
extent by changes in currency exchange rates.
Investing Activities
Capital expenditures were $2.3 billion in 2017, as summarized in the table on page 43.
The largest components of sustaining capital included $117 million at Trail Operations, $58 million for our share of
spending at Antamina, $35 million at Red Dog Operations and $112 million at our steelmaking coal operations.
Major enhancement expenditures included $55 million at our steelmaking coal operations to start developing the
Baldy Ridge pit at Elkview Operations and Swift pit at Fording River Operations.
New mine development included $149 million for the Quebrada Blanca Phase 2 project, $858 million for our share of
spending on the Fort Hills oil sands project and $37 million on our Project Satellite.
Investments in 2017 and 2016 were $309 million and $114 million, respectively. For 2017, this included $121 million
for a 0.89% increase in our share of Fort Hills; $43 million on our NuevaUnión copper project; $63 million to acquire
Goldcorp’s minority 21% interest in the San Nicolás copper project; and $13 million to acquire 70% of AQM Copper
Inc., giving us an 80% interest in the Zafranal copper-gold project located in southern Peru. Included in 2016 was our
$33 million purchase of the remaining 2.5% minority interest in Highland Valley Copper Operations.
Cash proceeds from the sale of assets and investments were $109 million in 2017, $170 million in 2016 and $1.2 billion
in 2015. Significant items in 2017 were proceeds of $59 million from the sale of our 49% interest in the Wintering Hills
Wind Power Facility and $30 million from the sale of marketable securities and various royalty interests. In addition,
we announced the sale of our two-thirds interest in the Waneta Dam and related transmission assets for $1.2 billion,
which we do not expect to close before the third quarter of 2018, subject to the receipt of regulatory approvals and
other customary conditions.
Financing Activities
In 2017, we purchased US$1.3 billion aggregate principal amount of our outstanding notes pursuant to cash tender offers,
make-whole redemptions and open market purchases. The principal amount of notes purchased was US$278 million
of 3.00% notes due 2019, US$280 million of 4.50% notes due January 2021, US$650 million of 8.00% notes due
June 2021, US$28 million of 4.75% notes due 2022 and US$24 million of 3.75% notes due 2023. The total cost of
the purchases, which was funded from cash on hand, including the premiums, was US$1.36 billion. We recorded a
pre-tax accounting charge of $216 million ($159 million after-tax) in non-operating income (expense) in connection
with these purchases.
In October 2017, we extended the maturity dates of our two committed revolving credit facilities and made certain
non-material amendments to the facilities. The maturity date of the US$3.0 billion facility (undrawn at December 31, 2017)
was extended from July 2020 to October 2022 and the maturity date of the US$1.2 billion facility (US$809 million drawn
for letters of credit at December 31, 2017) was extended from June 2019 to October 2020. Our obligations under these
agreements are guaranteed on a senior unsecured basis by certain Teck subsidiaries.
In April 2017, our Board announced a new dividend policy reflecting our commitment to return cash to shareholders in
balance with the needs and opportunities to invest in, and the inherent cyclicality of, our underlying businesses. The
policy is anchored by an annual base dividend of $0.20 per share, to be paid $0.05 on the last business day of each
quarter beginning in the third quarter of 2017. Each year the Board will review the free cash flow generated by the
Management’s Discussion and Analysis
37
business, the outlook for business conditions and priorities regarding capital allocation, and determine whether a
supplemental dividend should be paid. Any supplemental dividends declared are expected to be paid on the last business
day of the calendar year. If declared, supplemental dividends may be highly variable from year to year, given the
volatility of commodity prices and the potential need to conserve cash for certain project capital expenditures or other
corporate priorities. As always, the payment of dividends is at the discretion of the Board who will review the dividend
policy regularly. During 2017, we paid $344 million of eligible dividends, of which approximately $230 million, or $0.40
per share, was for the supplemental dividend.
In October 2017, we received approval for a normal course issuer bid allowing us to purchase up to 20 million Class B
shares during the period starting October 10, 2017 and ending October 9, 2018. In 2017, we repurchased approximately
5.9 million Class B subordinate voting shares for cancellation pursuant to the normal course issuer bid at a cost of
$175 million in 2017 of the $230 million that our Board directed management to purchase. We did not repurchase
any shares in 2016.
Quarterly Earnings and Cash Flow
($ in millions except per share data)
2017
2016
Revenue
Gross profit
EBITDA(1)
Profit (loss) attributable
to shareholders
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
$ 3,207 $ 3,129 $ 2,818 $ 2,894
$ 3,557 $ 2,305 $ 1,740 $ 1,698
1,284
1,092
1,066
1,187
1,577
1,580
1,389
1,323
1,334
1,561
452
804
212
468
155
517
760
600
577
572
697
234
15
94
Basic earnings per share
$ 1.32 $ 1.04 $ 1.00 $ 0.99
$ 1.21 $ 0.41 $ 0.03 $ 0.16
Diluted earnings per share
$ 1.30 $ 1.02 $ 0.98 $ 0.97
$ 1.19 $ 0.40 $ 0.03 $ 0.16
Cash flow from operations
$ 1,464 $ 901 $ 1,408 $ 1,293
$ 1,490 $ 854 $ 339 $ 373
Note:
(1) EBITDA is a non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for further information.
Gross profit in the fourth quarter from our steelmaking coal business unit was $638 million compared with $1.2 billion
a year ago. Gross profit before depreciation and amortization in the fourth quarter declined by $522 million from a
year ago, primarily due to a US$37 per tonne decrease in the average steelmaking coal price and partly due to lower
sales volumes.
Fourth quarter production was 6.9 million tonnes, 4% below our record production in the same period a year ago. This
strong performance was primarily attributable to higher available raw coal in the fourth quarter of 2016, which enabled
us to respond to tight supply and robust demand after the downturn in the prior quarters. Mine productivity challenges
at two of our smaller operations continued to affect our ability to access some coal reserves and contributed to the
slightly lower production when compared to the same quarter a year ago.
Fourth quarter sales of 6.4 million tonnes were 8% lower than a year ago and were negatively affected by two
CP mainline derailments in November, coupled with underperformance at Westshore Terminals in the fourth quarter.
Fourth quarter sales volumes in 2016 represented record volumes for that period.
Gross profit from our copper business unit for the quarter was $296 million compared with $52 million a year ago.
Gross profit before depreciation and amortization increased by $199 million in the fourth quarter compared with a year
ago. This was primarily due to higher copper production combined with higher realized copper and zinc prices, and
additional zinc sales from Antamina as a result of continued strong zinc production during the quarter.
Copper production in the fourth quarter increased by 8% from a year ago primarily due to higher ore grades at Highland
Valley Copper. As anticipated, production was affected by lower grades in the first half of 2017, which improved as the
year progressed, with a strong finish in the final quarter. Our cash unit costs in the fourth quarter before by-products
increased by 3% to US$1.77 per pound compared to US$1.72 per pound during the same period a year ago. Significantly
38 Teck 2017 Annual Report | Horizons
higher production of zinc and molybdenum combined with substantially higher zinc prices resulted in cash unit costs
after by-products decreasing to US$1.27 per pound compared to US$1.45 per pound during the same period last year.
Gross profit from our zinc business unit was $350 million in the fourth quarter compared with $348 million a year ago.
Gross profit before depreciation and amortization increased by $17 million as higher zinc and lead prices were partially
offset by lower zinc concentrate sales volumes and higher royalty expenses.
Refined zinc production at our Trail Operations was similar to the same period a year ago. At Red Dog, zinc production
was 13% higher than in the same period a year ago as a year-end inventory correction was recorded during the fourth
quarter of 2016 that reduced reported zinc production.
Our profit attributable to shareholders was $760 million, or $1.32 per share, in the fourth quarter compared with
$697 million, or $1.21 per share, a year ago.
Cash flow from operations was $1.5 billion in the fourth quarter, the same as a year ago.
Outlook
Foreign Exchange and Debt Revaluation
The sales of our products are denominated in U.S. dollars, while a significant portion of our expenses are incurred in
local currencies, particularly the Canadian dollar and the Chilean peso. Foreign exchange fluctuations can have a
significant effect on our operating margins, unless such fluctuations are offset by related changes to commodity prices.
Our U.S. dollar denominated debt is subject to revaluation based on changes in the Canadian/U.S. dollar exchange
rate. As at December 31, 2017, $5.2 billion of our U.S. dollar denominated debt is designated as a hedge against our
foreign operations that have a U.S. dollar functional currency. As a result, any foreign exchange gains or losses
arising on that amount of our U.S. dollar debt are recorded in other comprehensive income, with the remainder being
charged to profit.
Commodity markets are volatile. Prices can change rapidly and customers can alter shipment plans. This can have a
substantial effect on our business and financial results. Demand for our products remains strong and prices for our
products have risen substantially during 2017 compared with a year ago, which has contributed additional revenues
and cash flows. Production disruptions in the coal producing region of Australia caused by weather and other events in
the past few years has also had an effect on available supplies and market prices. Variable growth rates in expanding
the economies of China, India and other emerging markets have affected both demand and prices for some of our
products. In addition, government policy changes, particularly in China, may have a significant positive or negative
effect on the various products we produce. Price volatility will continue, but over the long term, the industrialization
of emerging economies, as well as infrastructure replacement in developed economies, will continue to be a major
factor in the demand for the commodities we produce.
While price volatility remains a significant factor in our industry, we have taken significant steps to insulate our
company from its effects. We have improved operations, reduced unit costs and are now enjoying significant gross
profit cash margins. We have strengthened our balance sheet and credit ratings by reducing debt, and we completed
our capital-intensive Fort Hills project in early 2018. Further, the current supply and demand balance for our products
is favourable. Combined, these factors provide a significant positive outlook for the company.
In December 2017, the U.S. enacted significant changes in its income tax laws, including a broad rate reduction,
which we expect to result in a significant reduction in the effective tax rate applicable to our U.S. operations.
At current levels of profitability, we generally expect that our effective U.S. tax rate will be reduced from the
approximate 32% rate we have experienced recently to a range between 25% and 26%, and that this will reduce
current taxes in the U.S. by approximately US$40 million per year.
The capitalization of interest ceases once major development projects reach commercial production. We expect our
finance expense to increase substantially when Fort Hills reaches commercial production in 2018 as planned, partially
offset by an increase in capitalized interest attributable to Quebrada Blanca Phase 2.
Management’s Discussion and Analysis
39
Commodity Prices and 2018 Production
Commodity prices are a key driver of our profit and cash flows. On the supply side, the depleting nature of ore reserves,
difficulties in finding new orebodies, the permitting processes and the availability of skilled resources to develop projects,
as well as infrastructure constraints, political risk and significant cost inflation, may continue to have a moderating effect
on the growth in future production for the industry as a whole.
The sensitivity of our annual profit attributable to shareholders and EBITDA to changes in the Canadian/U.S. dollar
exchange rate and commodity prices, before pricing adjustments, based on our current balance sheet, our expected
2018 mid-range production estimates, current commodity prices and a Canadian/U.S. dollar exchange rate of $1.25,
is as follows:
2018 Mid-Range
Production
Estimates(1)
Estimated Effect
of Change
on Profit(2)
Change
Estimated
Effect on
EBITDA(2)
US$ exchange
CAD$0.01
$ 53 million
$ 82 million
Steelmaking coal (000’s tonnes)
26,500
US$1/tonne
$ 19 million
$ 30 million
Copper (tonnes)
Zinc (tonnes)(3)
277,500
US$0.01/lb.
$
5 million
$
7 million
965,000
US$0.01/lb.
$ 10 million
$ 13 million
Notes:
(1) All production estimates are subject to change based on market and operating conditions.
(2) The effect on our profit attributable to shareholders and on EBITDA of commodity price and exchange rate movements will vary from quarter to quarter depending
on sales volumes. Our estimate of the sensitivity of profit and EBITDA to changes in the U.S. dollar exchange rate is sensitive to commodity price assumptions.
(3) Zinc includes 307,500 tonnes of refined zinc and 657,500 tonnes of zinc contained in concentrate.
The increase in our estimated foreign exchange sensitivity from previous estimates is primarily due to the effect of higher
commodity prices, which are all denominated in U.S. dollars.
Our steelmaking coal production in 2018 is expected to be in the range of 26 to 27 million tonnes compared with
26.6 million tonnes produced in 2017. Our actual production will depend primarily on customer demand for deliveries
of steelmaking coal. Depending on market conditions and the sales outlook, we may adjust our production plans.
Our copper production for 2018 is expected to be in the range of 270,000 to 285,000 tonnes compared with 287,300
tonnes produced in 2017. Copper production at Highland Valley Copper is expected to rise modestly as a result of
slightly higher ore grades. Our share of production from Antamina is expected to remain similar to 2017 levels. Carmen
de Andacollo’s production is anticipated to decline as lower copper grades are expected in 2018 and in future years.
Our zinc in concentrate production in 2018 is expected to be in the range of 645,000 to 670,000 tonnes compared
with 658,700 tonnes produced in 2017. Red Dog’s production is expected to be approximately 535,000 tonnes,
slightly lower than 2017 production levels. Our share of Antamina’s zinc production is expected to be similar to
2017 levels. Refined zinc production in 2018 from our Trail Operations is expected to be in the range of 305,000 to
310,000 tonnes compared with 310,100 tonnes produced in 2017.
40 Teck 2017 Annual Report | Horizons
Guidance
Production Guidance
The table below shows our share of production of our principal products for 2017, our guidance for production in 2018
and our guidance for production for the following three years.
Units in 000’s tonnes
(excluding steelmaking coal, molybdenum and bitumen)
Principal Products
Steelmaking coal (million tonnes)
Copper (1) (2) (3)
Highland Valley Copper
Antamina
Carmen de Andacollo
Quebrada Blanca
Zinc (1) (2) (4)
Red Dog
Antamina
Pend Oreille
Refined zinc
Trail Operations
Bitumen (million barrels) (2) (5)
Fort Hills
Other Products
Lead (1)
Red Dog
Refined lead
Trail Operations
Molybdenum (million pounds)(1) (2)
Highland Valley Copper
Antamina
Refined silver (million ounces)
Trail Operations
2017
2018
Guidance
Three-Year
Guidance
2019–2021
26.6
26–27
26.5–27.5
93
95
76
23
95–100
90–95
63–68
20–24
120–140
90–100
60
–
287
270–285
270–300
542
84
33
525–545
85–90
35
475–525
90–100
–
659
645–670
575–625
310
305–310
310–315
n/a
7.5–9.0
14
111
95–100
85–100
87
9.2
2.0
11.2
70
95–105
5.0
1.8
6.8
4.0–5.0
2.5–3.0
6.5–8.0
21.4
16–18
–
Notes:
(1) Metal contained in concentrate.
(2) We include 100% of production from our Quebrada Blanca and Carmen de Andacollo mines in our production volumes, even though we own
76.5% and 90%, respectively, of these operations, because we fully consolidate their results in our financial statements. We include 22.5%
of production from Antamina, representing our proportionate equity interest in Antamina. We include 21.3% of production from Fort Hills,
representing our estimated proportionate equity interest in Fort Hills.
(3) Copper production includes cathode production at Quebrada Blanca.
(4) Total zinc includes co-product zinc production from our copper business unit.
(5) Guidance for Teck’s share of production in 2018 is at our estimated working interest of 21.3%. Guidance is based on Suncor’s outlook for 2018
Fort Hills production, which was provided at their previous working interest of 53.06%, and is 20,000 to 40,000 barrels per day in Q1, 30,000
to 50,000 barrels per day in Q2, 60,000 to 70,000 barrels per day in Q3, and 80,000 to 90,000 barrels per day in Q4. Judgment is required in
determining the date that property, plant and equipment is available for use at Fort Hills. Until such time, revenues and associated costs will be
capitalized. Management expects this date to be in the first half of 2018. Production estimates for Fort Hills and estimates of Fort Hills cash
operating costs could be negatively affected by delays in or unexpected events involving the ramp-up of production from the project. Three-year
production guidance is our share before any reductions resulting from major maintenance downtime.
Management’s Discussion and Analysis
41
Sales Guidance
The table below shows our sales for the last quarter and our sales guidance for the next quarter for selected primary
products.
Steelmaking coal (million tonnes)
Zinc (000’s tonnes) (1)
Red Dog
Note:
(1) Metal contained in concentrate.
Unit Cost Guidance
Q4 2017
Q1 2018
Guidance
6.4
6.3–6.5
181
110
The table below reports our unit costs for selected principal products for 2017 and our guidance for unit costs for
selected principal products in 2018.
(Per unit costs — CAD$/tonne)
Steelmaking coal (1)
Site cost of sales
Transportation costs
Unit cost of sales — CAD$/tonne
(Per unit net cash costs — US$/pound)
Copper(2)
Total cash unit costs
Net cash unit costs after by-product margins
Zinc (3)
Total cash unit costs
Net cash unit costs after by-product margins
(Cash operating cost in CAD$/barrel)
Bitumen (4)
Cash operating cost
$
$
$
$
$
$
2017
2018
Guidance
52
37
89
$
56–60
35–37
$
91–97
1.75
1.33
0.52
0.28
$ 1.80–1.90
$ 1.35–1.45
$ 0.50–0.55
$ 0.30–0.35
n/a
$ 35–40 (4)
Notes:
(1) Steelmaking coal unit costs are reported in Canadian dollars per tonne. Steelmaking coal unit cost of sales include site costs, transport costs, and
other, and does not include deferred stripping or capital expenditures. See “Use of Non-GAAP Financial Measures” section for further information.
(2) Copper unit costs are reported in U.S. dollars per payable pound of metal contained in concentrate. Copper total cash costs after by-product
margins include adjusted cash cost of sales, smelter processing charges and cash margin for by-products including co-products. Assumes a zinc
price of US$1.55 per pound, a molybdenum price of US$12 per pound, a silver price of US$16.50 per ounce, a gold price of US$1,325 per ounce
and a Canadian/U.S. dollar exchange rate of $1.25. See “Use of Non-GAAP Financial Measures” section for further information.
(3) Zinc unit costs are reported in U.S. dollars per payable pound of metal contained in concentrate. Zinc total cash costs after by-product margins are
mine costs including adjusted cash cost of sales, smelter processing charges and cash margin for by-products. Assumes a lead price of US$1.15
per pound, a silver price of US$16.50 per ounce and a Canadian/U.S. dollar exchange rate of $1.25. By-products include both by-products and
co-products. See “Use of Non-GAAP Financial Measures” section for further information.
(4) Bitumen unit costs are reported in Canadian dollars per barrel. Cash operating cost represents costs for the Fort Hills mining and processing operations
and does not include the cost of diluent, transportation, storage and blending. Guidance for Teck’s cash operating cost in 2018 is based on Suncor’s
outlook for 2018 Fort Hills cash operating costs per barrel of CAD$70–CAD$ 80 in the first quarter, CAD$40–CAD$50 in the second quarter,
CAD$30–CAD$40 in the third quarter, and CAD$20–CAD$30 in the fourth quarter. Judgment is required in determining the date that property, plant
and equipment is available for use at Fort Hills. Until such time, revenues and associated costs will be capitalized. Management expects this date to be
in the first half of 2018. Production estimates for Fort Hills and estimates of Fort Hills cash operating costs could be negatively affected by delays in or
unexpected events involving the ramp-up of production from the project. Bitumen cash operating costs is a non-GAAP financial measure.
42 Teck 2017 Annual Report | Horizons
Capital Expenditure Guidance
The table below reports our capital expenditures for 2017 and our guidance for capital expenditures in 2018.
(Teck’s share in $ millions)
Sustaining
Steelmaking coal (1)
Copper
Zinc
Energy (2)
Corporate
Major Enhancement
Steelmaking coal
Copper
Zinc
Energy (2)
New Mine Development
Copper(3)
Zinc
Energy (2)
Subtotal
Steelmaking coal
Copper
Zinc
Energy (2)
Corporate
Capitalized Stripping
Steelmaking coal
Copper
Zinc
Total
Steelmaking coal
Copper
Zinc
Energy (2)
Corporate
2017
2018
Guidance
$
$
$
$
$
$
112
126
168
34
4
444
$
$
$
$
55
8
15
–
78
186
36
877
$
1,099
$
$
$
167
320
219
911
4
275
180
230
40
5
730
160
70
95
90
415
185
35
195
415
435
435
360
325
5
$
1,621
$
1,560
$
$
$
$
506
147
25
678
$
$
673
467
244
911
4
390
145
25
560
825
580
385
325
5
$
2,299
$
2,120
Notes:
(1) For steelmaking coal, sustaining capital includes Teck’s share of water treatment charges of $3 million in 2017. Sustaining capital guidance includes Teck’s
share of water treatment charges related to the Elk Valley Water Quality Plan, which are approximately $86 million in 2018. Steelmaking coal guidance for
2018 excludes $85 million of planned 2018 spending for port upgrades at Neptune Terminals, as Neptune Terminals is equity accounted on our balance sheet.
(2) For energy, Fort Hills capital expenditures guidance is at our estimated working interest of 21.3%, and does not include any capitalized revenue
and associated costs. Judgment is required in determining the date that property, plant and equipment is available for use at Fort Hills. Until such
time, revenues and associated costs will be capitalized. Management expects this date to be in the first half of 2018. Major enhancement guidance
for 2018 includes tailings management and new mine equipment at Fort Hills. New mine development guidance for 2018 includes expected
spending at Fort Hills, assuming some further increase in our project interest and Frontier.
(3) For copper, new mine development guidance for 2018 includes Quebrada Blanca Phase 2, Zafranal and San Nicolás.
Management’s Discussion and Analysis
43
A further discussion of our capital and other commitments is in Note 26 to our 2017 annual consolidated financial
statements. We expect to fund our commitments from cash on hand and our credit facilities.
Other Information
Carbon Pricing Policies and Associated Costs
Following the adoption of the Paris Agreement in 2015, the Provinces of B.C. and Alberta completed reviews of their
climate change plans, including a re-examination of their primary carbon price policies, the carbon tax in B.C. and the
Specified Gas Emitters Regulation in Alberta. In 2017, the Province of B.C. announced a planned increase to the carbon
tax beginning in 2018, increasing by $5 per tonne of CO2-equivalent (CO2e) per year until reaching $50 per tonne of
CO2e. At the same time, the B.C. government made a commitment to addressing impacts on emissions-intensive,
trade-exposed industries to ensure that B.C. operations maintain their competitiveness and to minimize carbon leakage.
In 2017, the Province of Alberta also consulted on the Carbon Competitiveness Incentive Regulation, the industry-
specific carbon pricing policy set to replace the previous Specified Gas Emitters Regulation, which concluded in 2017.
In 2017, the Government of Canada continued its consultation on the national Pan-Canadian Framework that includes a
national floor price on carbon. Canadian provinces have until 2018 to implement a carbon price, starting with a minimum
price of $10 per tonne in 2018, increasing $10 per year to $50 per tonne by 2022.
We will continue to assess the potential implications of the updated policies on our operations and projects. In 2017, our
most material carbon pricing policy impacts were related to B.C.’s carbon tax. For 2017, our seven B.C.-based operations
incurred $52 million in provincial carbon tax, primarily from our use of coal, diesel fuel and natural gas.
Financial Instruments and Derivatives
We hold a number of financial instruments, derivatives and contracts containing embedded derivatives, which are
recorded on our consolidated balance sheet at fair value with gains and losses in each period included in other
comprehensive income (loss) in the year and profit for the period on our consolidated statements of income and
consolidated statements of other comprehensive income, as appropriate. The most significant of these instruments
are marketable securities, commodity swap contracts, metal-related forward contracts, settlements receivable and
payable, embedded debt prepayment options, and gold stream and silver stream embedded derivatives. Some of our
gains and losses on metal-related financial instruments are affected by smelter price participation and are taken into
account in determining royalties and other expenses. All are subject to varying rates of taxation, depending on their
nature and jurisdiction. Further information about our financial instruments, derivatives and contracts containing
embedded derivatives and associated risks is outlined in Note 28 to our 2017 annual consolidated financial statements.
Critical Accounting Estimates and Judgments
In preparing consolidated financial statements, management makes estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses across all reportable segments. Management makes estimates
and judgments that are believed to be reasonable under the circumstances. Our estimates and judgments are based
on historical experience and other factors we consider to be reasonable, including expectations of future events.
Critical accounting estimates and judgments are those that could affect the consolidated financial statements materially,
are highly uncertain and where changes are reasonably likely to occur from period to period. The judgments and other
sources of estimation uncertainty that have a risk of resulting in a material adjustment to the carrying amounts of
assets and liabilities within the next year are outlined below.
Impairment Testing
Judgment is required in assessing whether certain factors would be considered an indicator of impairment or impairment
reversal. We consider both internal and external information to determine whether there is an indicator of impairment
or impairment reversal present and, accordingly, whether impairment testing is required. When impairment testing is
required, discounted cash flow models are used to determine the recoverable amount of respective assets. These
models are prepared internally with assistance from third-party advisors when required. When market transactions for
comparable assets are available, these are considered in determining the recoverable amount of assets. Significant
44 Teck 2017 Annual Report | Horizons
assumptions used in preparing discounted cash flow models include commodity prices, reserves and resources, mine
plans, operating costs, capital expenditures, discount rates, foreign exchange rates and inflation rates. These inputs
are based on management’s best estimates of what an independent market participant would consider appropriate.
Changes in these inputs may alter the results of impairment testing, the amount of the impairment charges or reversals
recorded in the income statement and the resulting carrying values of assets.
We allocate goodwill arising from business combinations to the cash-generating unit (CGU) or group of CGUs acquired
that is expected to receive the benefits from the business combination. When performing annual goodwill impairment
tests, we are required to determine the recoverable amount of each CGU or group of CGUs to which goodwill has
been allocated. Our Quebrada Blanca CGU and steelmaking coal CGU have goodwill allocated to them. The recoverable
amount of each CGU or group of CGUs is determined as the higher of its fair value less costs of disposal and its
value in use.
Below is an overview of our asset and goodwill impairment testing for the years ended December 31, 2017 and 2016.
Asset Impairments and Impairment Reversals
Impairment (Impairment Reversal)
($ in millions)
Steelmaking coal CGU
Fort Hills oil sands project
Other
Total
Steelmaking Coal CGU
2017
2016
$
(207)
$
–
44
$
(163)
$
–
222
72
294
As at December 31, 2017, we recorded a pre-tax impairment reversal of $207 million (after-tax $131 million) related
to one of the mines in our steelmaking coal CGU. The estimated post-tax recoverable amount of this mine was
significantly higher than the carrying value. This impairment reversal arose as a result of changes in short-term and
long-term market participant price expectations for steelmaking coal and expected future operating cost estimates
included in our annual goodwill impairment testing.
Fort Hills Oil Sands Project
For the year ended December 31, 2017, we noted an impairment indicator at Fort Hills and the recoverable amount
of the CGU was estimated.
As at December 31, 2017, we did not record an impairment charge for our share of the Fort Hills oil sands project,
as our estimated post-tax recoverable amount of $3.7 billion approximately equalled our carrying value.
As at December 31, 2016, we recorded a pre-tax impairment charge of $222 million (after-tax $164 million) within our
property, plant and equipment balance related to our interest in Fort Hills. This was a result of our estimated post-tax
recoverable amount of $2.5 billion being lower than our carrying value.
We performed impairment testing for Fort Hills in 2017 and 2016 as a result of an increase in development costs
associated with the Fort Hills oil sands project.
Other
During the year ended December 31, 2017, we recorded other asset impairments of $44 million relating to Quebrada
Blanca assets that will not be recovered through use and will not be used for Quebrada Blanca Phase 2.
During the year ended December 31, 2016, we recorded other asset impairments of $72 million, of which $46 million
related to a project at our Trail Operations that will not be completed, and $26 million related to the Wintering Hills
Wind Power Facility, which was sold in 2017.
Management’s Discussion and Analysis
45
Sensitivity Analysis
The recoverable amount of Fort Hills exceeded its carrying value and we did not record an impairment charge.
The recoverable amount of Fort Hills is most sensitive to changes in assumed Western Canadian Select (WCS) oil prices,
the Canadian/U.S. dollar exchange rates and discount rates. The key inputs used in our determination of recoverable
amounts interrelate significantly with each other and with our operating plans. For example, a decrease in long-term
commodity prices would result in amendments to mine plans that would partially offset the effect of lower prices through
lower operating and capital costs. It is difficult to determine how all of these factors would interrelate, but in estimating the
effect of changes in these assumptions on fair values, we believe that all of these factors need to be considered together.
A linear extrapolation of these effects becomes less meaningful as the change in assumption increases.
Ignoring these interrelationships, in isolation a US$1 decrease in the long-term WCS oil price would reduce the
recoverable amount for Fort Hills by $140 million. A $0.01 strengthening of the Canadian dollar against the U.S. dollar
would reduce the recoverable amount by $50 million. A 25 basis point increase in the discount rate would reduce the
recoverable amount by approximately $150 million.
Annual Goodwill Impairment Testing
In 2017, we performed our annual goodwill impairment testing at October 31 and did not identify any goodwill
impairment losses.
Given the nature of expected future cash flows used to determine the recoverable amount, a material change could
occur over time, as the cash flows are significantly affected by the key assumptions described below.
Sensitivity Analysis
Our annual goodwill impairment test carried out at October 31, 2017 resulted in the recoverable amount of our
steelmaking coal CGU exceeding its carrying value by approximately $6.2 billion. The recoverable amount of our
steelmaking coal CGU is most sensitive to the long-term Canadian dollar steelmaking coal price assumption. In
isolation, a 14% decrease in the long-term Canadian dollar steelmaking coal price would result in the recoverable
amount of the steelmaking coal CGU being equal to the carrying value.
The recoverable amount of Quebrada Blanca exceeded the carrying amount by approximately $1.2 billion at the date
of our annual goodwill impairment testing. The recoverable amount of Quebrada Blanca is most sensitive to the
long-term copper price assumption and the development timeline of Quebrada Blanca Phase 2 project. In isolation, a
6% decrease in the long-term copper price assumption or a 3.5-year delay in the development of the Quebrada Blanca
Phase 2 project would result in the recoverable amount of Quebrada Blanca being equal to its carrying value.
Key Assumptions
The following are the key assumptions used in our asset impairment, asset impairment reversal and goodwill
impairment analysis during the years ended December 31, 2017 and 2016:
2017
2016
Steelmaking coal prices
Copper prices
Current price used in initial year,
de-escalated to a long-term price
in 2022 of US$140 per tonne
Current price used in initial year,
de-escalated to a long-term price
in 2021 of US$130 per tonne
Current price used in initial year,
de-escalated to a long-term price
in 2022 of US$3.00 per pound
Current price used in initial year,
escalated to a long-term price in
2021 of US$3.00 per pound
Western Canadian Select
(WCS) oil prices
Current price used in initial year,
escalated to a long-term price in
2022 of US$57 per barrel
Current price used in initial year,
escalated to a long-term price in
2021 of US$57 per barrel
Discount rate
5.2%–5.9%
5.5%–6.0%
Long-term foreign
exchange rate
1 U.S. to 1.25 Canadian dollars
1 U.S. to 1.25 Canadian dollars
Inflation rate
2%
2%
46 Teck 2017 Annual Report | Horizons
Commodity Prices
Commodity price assumptions are based on a number of factors, including forward curves in the near term, and are
benchmarked with external sources of information, including information published by our peers and market transactions,
where possible, to ensure they are within the range of values used by market participants.
Discount Rates
Discount rates are based on a mining weighted average cost of capital for all mining operations and an oil sands
weighted average cost of capital for the Fort Hills oil sands project. For the year ended December 31, 2017, we used
a discount rate of 5.9% real, 8.0% nominal post-tax (2016 – 5.8% real, 7.9% nominal post-tax) for mining operations
and goodwill. For the year ended December 31, 2017, we used a discount rate of 5.2% real, 7.3% nominal post-tax
(2016–5.5% real, 7.6% nominal post-tax) for oil sands operations.
Foreign Exchange Rates
Foreign exchange rates are benchmarked with external sources of information based on a range used by market
participants. Long-term foreign exchange assumptions are from year 2022 onwards for analysis performed in the year
ended December 31, 2017, and are from year 2021 onwards for analysis performed in the year ended December 31, 2016.
Inflation Rates
Inflation rates are based on average historical inflation for the location of each operation and long-term government targets.
Reserves and Resources
Future mineral production is included in projected cash flows based on mineral reserve and resource estimates, and
on exploration and evaluation work undertaken by appropriately qualified persons.
Operating Costs and Capital Expenditures
Operating costs and capital expenditures are based on life of mine plans and internal management forecasts. Cost
estimates incorporate management experience and expertise, current operating costs, the nature and location of each
operation, and the risks associated with each operation. Future capital expenditures are based on management’s best
estimate of expected future capital requirements, which are generally for the extraction and processing of existing
reserves and resources. All committed and anticipated capital expenditures based on future cost estimates have been
included in the projected cash flows. Operating cost and capital expenditure assumptions are continuously subjected
to ongoing optimization and review by management.
Recoverable Amount Basis
We estimate the recoverable amount of our CGUs on a fair value less costs of disposal (FVLCD) basis using a discounted
cash flow methodology and taking into account assumptions likely to be made by market participants unless it is
expected that the value-in-use methodology would result in a higher recoverable amount. For the asset impairment
and impairment reversal analysis performed in December 31, 2017 and 2016, we have applied the FVLCD basis.
Property, Plant and Equipment – Determination of Available for Use Date
Judgment is required in determining the date that property, plant and equipment is available for use. An asset is
available for use when it is in the location and condition necessary to operate in the manner intended by management,
and at that time, we commence depreciation of the asset and cease capitalization of borrowing costs. We consider a
number of factors in making the determination of when an asset is available for use including, but not limited to,
design capacity of the asset, production levels, capital spending remaining and commissioning status. The Fort Hills
oil sands project produced first oil in January 2018. We expect the project to be available for use, as defined above,
in the first half of 2018.
Management’s Discussion and Analysis
47
Joint Arrangements
We are a party to a number of arrangements in which we do not have control. Judgment is required in determining
whether joint control over these arrangements exists and, if so, which parties have joint control and whether each
arrangement is a joint venture or joint operation. In assessing whether we have joint control, we analyze the activities
of each arrangement and determine which activities most significantly affect the returns of the arrangement over its
life. These activities are determined to be the relevant activities of the arrangement. If unanimous consent is required
over the decisions about the relevant activities, the parties whose consent is required would have joint control over
the arrangement. The judgments around which activities are considered the relevant activities of the arrangement are
subject to analysis by each of the parties to the arrangement and may be interpreted differently. When performing this
assessment, we generally consider decisions about activities such as managing the asset while it is being constructed,
during its operating life and during the closure period. We may also consider other activities, including the approval of
budgets, expansion and disposition of assets, financing, significant operating and capital expenditures, appointment of
key management personnel, representation on the board of directors, and other items. When circumstances or
contractual terms change, we reassess the control group and the relevant activities of the arrangement.
If we have joint control over the arrangement, an assessment of whether the arrangement is a joint venture or joint
operation is required. This assessment is based on whether we have rights to the assets, and obligations for the
liabilities, relating to the arrangement, or whether we have rights to the net assets of the arrangement. In making this
determination, we review the legal form of the arrangement, the terms of the contractual arrangement, and other
facts and circumstances. In a situation where the legal form and the terms of the contractual arrangement do not give
us rights to the assets and obligations for the liabilities, an assessment of other facts and circumstances is required,
including whether the activities of the arrangement are primarily designed for the provision of output to the parties
and whether the parties are substantially the only source of cash flows contributing to the arrangement. In such
circumstances, we may consider the application of other facts and circumstances to conclude that a joint arrangement
is a joint operation. This conclusion requires judgment and is specific to each arrangement. We have applied the use
of other facts and circumstances to conclude that Antamina and Fort Hills are joint operations for the purposes of our
consolidated financial statements. The other facts and circumstances considered for both of these arrangements are
the provisions for output to the parties of the joint arrangements. For both Antamina and Fort Hills, we will take our
share of the output from the assets directly over the life of the arrangement. We have concluded that this, combined
with other factors, gives us direct rights to the assets and obligations for the liabilities of these arrangements,
proportionate to our ownership interests.
Streaming Transactions
When we enter into long-term streaming arrangements linked to production at specific operations, judgment is
required in assessing the appropriate accounting treatment of the transaction on the closing date and in future periods.
We consider the specific terms of each arrangement to determine whether we have disposed of an interest in the
reserves and resources of the respective operation. This assessment considers what the counterparty is entitled to,
and the associated risks and rewards attributable to them over the life of the operation, including the contractual terms
related to the total production over the life of the arrangement as compared to the expected production over the life of
the mine, the percentage being sold, the percentage of payable metals produced, the commodity price referred to in
the ongoing payment, and any guarantee relating to the upfront payment if production ceases.
For our gold and silver streaming arrangements entered into in 2015, there is no guarantee associated with the upfront
payment, and we have concluded that we have effectively disposed of the interest in the gold and silver mineral interests
at Carmen de Andacollo and Antamina, respectively. Accordingly, we consider these arrangements a disposition of a
mineral interest.
When the ongoing payment we receive is based on future commodity prices at the date deliveries are made, this may
be considered an embedded derivative. The valuation of embedded derivatives in these arrangements is an area of
estimation and is determined using discounted cash flow models. These models require a variety of inputs, including,
but not limited to, contractual terms, market prices, forward curve prices, mine plans and discount rates. Changes in
these assumptions could affect the carrying value of derivative assets or liabilities and the amount of unrealized gains
or losses recognized in other operating income (expense).
48 Teck 2017 Annual Report | Horizons
Estimated Recoverable Reserves and Resources
Mineral reserve and resource estimates are based on various assumptions relating to operating matters as presented
in National Instrument 43-101, Standards of Disclosure for Mineral Projects, or National Instrument 51-101, Standards
of Disclosure for Oil and Gas Activities, as applicable. These include assumptions with respect to production costs,
mining and processing recoveries, cut-off grades, long-term commodity prices and, in some cases, exchange rates,
inflation rates and capital costs. Cost estimates are based on feasibility study estimates or operating history. Estimates
are prepared by appropriately qualified persons, but will be affected by forecasted commodity prices, inflation rates,
exchange rates, and capital and production costs and recoveries, among other factors. Estimated recoverable reserves
and resources are used to determine the depreciation of property, plant and equipment at operating mine sites, in
accounting for capitalized production stripping costs, in performing impairment testing, and for forecasting the timing
of the payment of decommissioning and restoration costs. Therefore, changes in the assumptions used could change
the carrying value of assets, depreciation and impairment charges recorded in the income statement, and the carrying
value of the decommissioning and restoration provision.
Decommissioning and Restoration Provisions
The decommissioning and restoration provision (DRP) is based on future cost estimates, using information available at
the balance sheet date. The DRP represents the present value of estimated costs for required future decommissioning
and other site restoration activities. The DRP is adjusted at each reporting period for changes to factors such as the
expected amount of cash flows required to discharge the liability, the timing of such cash flows, and the discount rate.
The decommissioning and restoration provision requires other significant estimates and assumptions, including the
requirements of the relevant legal and regulatory framework, and the timing, extent and costs of required decommissioning
and restoration activities. To the extent the actual costs differ from these estimates, adjustments will be recorded and
the income statement may be affected.
During the year ended December 31, 2017, we updated our cost estimates for water quality management in the
Elk Valley, including post-closure water quality management costs, as outlined on pages 13 to 14. These updates
have increased our DRP for water quality management at Teck Coal to $394 million, which is an increase of
approximately $244 million compared to December 31, 2016. This increase in the DRP does not affect earnings, as
the adjustment is recorded through our DRP asset, within property, plant and equipment. The DRP includes water
quality management costs based on mining activities up to December 31, 2017 and does not incorporate future
mining activities, as required by IFRS. The water quality management costs included in our DRP extend for periods
up to 100 years and are discounted using a nominal discount rate of 6.82% as at December 31, 2017. The cash flow
estimates are inflated at a rate of 2.00%.
Current and Deferred Income Taxes
We calculate current and deferred tax provisions for each of the jurisdictions in which we operate. Actual amounts
of income tax expense are not final until tax returns are filed and accepted by the relevant authorities. This occurs
subsequent to the issuance of our financial statements, and the final determination of actual amounts may not be
completed for a number of years. Therefore, profit in subsequent periods will be affected by the amount that
estimates differ from the final tax return.
Judgment is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognized on
the balance sheet and what tax rate is expected to be applied in the year when the related temporary differences
reverse, particularly in regard to the utilization of the tax loss carryforwards. We also evaluate the recoverability of
deferred tax assets based on an assessment of our ability to use the underlying future tax deductions before they
expire against future taxable income. Deferred tax liabilities arising from temporary differences on investments in
subsidiaries, joint ventures and associates are recognized unless the reversal of the temporary differences is not
expected to occur in the foreseeable future and can be controlled. Assumptions about the generation of future taxable
profits and repatriation of retained earnings depend on management’s estimates of future production and sales
volumes, commodity prices, reserves and resources, operating costs, decommissioning and restoration costs, capital
expenditures, dividends and other capital management transactions. Judgment is also required on the application of
income tax legislation. These estimates and judgments are subject to risk and uncertainty and could result in an
adjustment to the deferred tax provision and a corresponding credit or charge to profit.
Management’s Discussion and Analysis
49
Adoption of New Accounting Standards and Accounting Developments
Accounting Developments
New IFRS pronouncements that have been issued but are not yet effective are listed below. We plan to apply the new
standard or interpretation in the annual period for which it is required.
Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (IFRS 15) as a result of a joint revenue
project with the Financial Accounting Standards Board (FASB).
The new revenue standard introduces a single principles-based five-step model for the recognition of revenue when
control of goods is transferred to, or a service is performed for, the customer. The five steps are to identify the
contract(s) with the customer, identify the performance obligations in the contract, determine the transaction price,
allocate the transaction price to each performance obligation, and recognize revenue as each performance obligation
is satisfied. IFRS 15 also requires enhanced disclosures about revenue to help investors better understand the nature,
amount, timing and uncertainty of revenue and cash flows from contracts with customers.
The standard has an effective date of January 1, 2018. We are required to adopt the provisions of IFRS 15 on either a full
or modified retrospective basis, and we will apply the full retrospective approach in restating our prior period financial
information. This restated information will be disclosed in our financial statements for the first quarter ended March 31, 2018.
As at December 31, 2017, we have substantially completed our review and analysis of IFRS 15 and the effect on our
financial statements. Based on our analysis, we do not expect the timing and amount of our revenue from product
sales to be significantly different under IFRS 15. The only exception to this would be for steelmaking coal sales when
we have a shipment that is partially loaded on a vessel at a reporting date. The performance obligation in these
contracts is for the full parcel and accordingly, we cannot recognize revenue until the full parcel is loaded. This is a
timing difference only and does not change the amount of revenue recognized for the full parcel. In our transition
adjustments, this timing difference will result in the reversal of $61 million of revenue recognized in the year ended
December 31, 2017. This revenue will be recognized in the first quarter ended March 31, 2018 under IFRS 15. We will
also adjust our inventory and cost of sales associated with these sales, as required.
As part of our assessment of IFRS 15, we analyzed the treatment of freight services provided to customers
subsequent to the transfer of control of the product sold. Under IFRS 15, in our view, these services represent
performance obligations that should be recognized separately. For the performance obligation related to freight
services, we have concluded that we are the principal to the shipping of product in our refined metal sales and
concentrate sales contracts, and will continue to reflect the revenue in these arrangements on a gross basis. For
certain of our steelmaking coal sales contracts, we have concluded that we are the agent to the ocean freight
shipping of product due to the terms of the arrangement, and our revenue will be reported on a net basis for these
arrangements. This change would reduce the revenue recognized for the year ended December 31, 2017, by
approximately $76 million as a result of the presentation of steelmaking coal sales revenue net of ocean freight costs.
There will be no effect on our gross profit, as these freight costs will be netted against revenue and not presented
within cost of sales.
We have assessed the effects of IFRS 15 on our gold and silver streaming arrangements. At the date these transactions
were completed, we accounted for the arrangements as the sale of a portion of our mineral interests at Antamina
and Carmen de Andacollo, respectively. We did not recognize disposal gains on the transactions as a result of the
requirements of the IFRS standards in effect at the dates of closing. We have concluded that under IFRS 15, the gain
on these streaming transactions would have been recognized in full as control over the right to the silver or gold
mineral interest transferred to the purchaser. Accordingly, we will recognize the deferred consideration of $755 million
recorded on our balance sheet through equity on transition to IFRS 15 as at January 1, 2017, and will present our
restated financial information in our first quarter financial statements as at March 31, 2018.
50 Teck 2017 Annual Report | Horizons
Financial Instruments
IFRS 9, Financial Instruments (IFRS 9), addresses the classification, measurement and recognition of financial assets
and financial liabilities and supersedes the guidance relating to the classification and measurement of financial instruments
in IAS 39, Financial Instruments: Recognition and Measurement (IAS 39).
IFRS 9 requires financial assets to be classified into three measurement categories on initial recognition: those measured
at fair value through profit and loss, those measured at fair value through other comprehensive income and those
measured at amortized cost. Investments in equity instruments are required to be measured by default at fair value
through profit or loss. However, there is an irrevocable option for each equity instrument to present fair value changes in
other comprehensive income. Measurement and classification of financial assets is dependent on the entity’s business
model for managing the financial assets and the contractual cash flow characteristics of the financial asset. For financial
liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value
option is taken for financial liabilities, the part of a fair value change relating to an entity’s own credit risk is recorded in
other comprehensive income rather than the income statement, unless this creates an accounting mismatch.
IFRS 9 introduces a new three-stage expected credit loss model for calculating impairment for financial assets. IFRS 9
no longer requires a triggering event to have occurred before credit losses are recognized. An entity is required to
recognize expected credit losses when financial instruments are initially recognized and to update the amount of
expected credit losses recognized at each reporting date to reflect changes in the credit risk of the financial instruments.
In addition, IFRS 9 requires additional disclosure requirements about expected credit losses and credit risk.
The new hedge accounting model in IFRS 9 aligns hedge accounting with risk management activities undertaken by
an entity. Components of both financial and non-financial items will now be eligible for hedge accounting, as long as
the risk component can be identified and measured. The hedge accounting model includes eligibility criteria that must
be met, but these criteria are based on an economic assessment of the strength of the hedging relationship. New
disclosure requirements relating to hedge accounting will be required and are meant to simplify existing disclosures.
The IASB currently has a separate project on macro hedging activities, and until the project is completed, the IASB has
provided a policy choice for entities to either apply the hedge accounting model in IFRS 9 or IAS 39 in full. Additionally,
there is a hybrid option to use IAS 39 to account for macro hedges only and to use IFRS 9 for all other hedges.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early adoption permitted. We have
concluded that this standard will not have a material effect on our financial statements.
We have made the irrevocable classification choice to record fair value changes on our current portfolio of investments
in other comprehensive income. This election will result in a reclassification of a $41 million loss from our retained
earnings to accumulated other comprehensive income (loss), all within equity, on January 1, 2018.
We have also completed a review of our expected credit losses on our trade receivables. We do not expect to record an
adjustment relating to the implementation of the expected credit loss model for our trade receivables as the expected
credit losses are not considered material, based on our review at the time of transition. We have implemented a process
for managing and estimating provisions relating to trade receivables going forward under IFRS 9.
We have elected not to adopt the hedging requirements of IFRS 9 as at January 1, 2018.
Leases
In January 2016, the IASB issued IFRS 16, Leases (IFRS 16), which eliminates the classification of leases as either
operating or finance leases for a lessee. Under IFRS 16, all leases are considered finance leases and will be recorded
on the balance sheet. The only exemptions to this classification will be for leases that are 12 months or less in duration
or for leases of low-value assets. The requirement to record all leases as finance leases under IFRS 16 will increase
lease assets and lease liabilities on an entity’s financial statements. IFRS 16 will also change the nature of expenses
relating to leases, as the straight-line lease expense previously recognized for operating leases will be replaced with
depreciation expense for lease assets and finance expense for lease liabilities. IFRS 16 includes an overall disclosure
objective and requires a company to disclose (a) information about lease assets and expenses and cash flows related
to leases, (b) a maturity analysis of lease liabilities, and (c) any additional company-specific information that is relevant
to satisfying the disclosure objective. IFRS 16 is effective from January 1, 2019. We are currently assessing and
Management’s Discussion and Analysis
51
quantifying the effect of this standard on our financial statements. On the transition date of January 1, 2019, we
expect to recognize additional leases on our consolidated balance sheet, which will increase our debt and property,
plant and equipment balances. As a result of recognizing additional finance leases, we expect a reduction in our cost
of sales, as operating lease expense will be presented as depreciation expense and finance expense.
Outstanding Share Data
As at February 13, 2018, there were 565.7 million Class B subordinate voting shares and 7.8 million Class A common
shares outstanding. In addition, there were 22 million employee stock options outstanding, with exercise prices
ranging between $4.15 and $58.80 per share. More information on these instruments, and the terms of their
conversion, is set out in Note 23 to our 2017 consolidated financial statements.
Contractual and Other Obligations
($ in millions)
Less than
1 Year
2–3
Years
4–5
Years
More than
5 Years
Total
Principal and interest payments on debt
$
374
$
Operating leases(1)
Capital leases
Minimum purchase obligations(2)
Concentrate, equipment,
supply and other purchases
Shipping and distribution
Energy contracts
NAB PILT and VIF payments(7)
Pension funding(3)
Other non-pension
post-retirement benefits(4)
Decommissioning and
restoration provision(5)
Other long-term liabilities(6)
Project commitments for Fort Hills
93
51
835
451
149
33
28
14
83
50
196
720
107
80
165
616
324
74
–
33
102
94
–
$
1,745
$ 8,444
$ 11,283
72
54
47
550
508
70
–
36
91
24
–
327
554
52
1,164
4,891
64
–
372
1,568
26
–
599
739
1,099
2,781
5,872
241
28
455
1,844
194
196
$
2,357
$
2,315
$
3,197
$ 17,462 $ 25,331
Notes:
(1) We lease road and port facilities from the Alaska Industrial Development and Export Authority, through which it ships metal concentrates
produced at the Red Dog mine. Minimum lease payments are US$18 million for the next 15 years and US$ 6 million for the following seven
years and are subject to deferral and abatement for force majeure events.
(2) The majority of our minimum purchase obligations are subject to continuing operations and force majeure provisions.
(3) As at December 31, 2017, the company had a net pension asset of $242 million, based on actuarial estimates prepared on a going concern
basis. The amount of minimum funding for 2018 in respect of defined benefit pension plans is $28 million. The timing and amount of additional
funding after 2018 is dependent upon future returns on plan assets, discount rates and other actuarial assumptions.
(4) We had a discounted, actuarially determined liability of $455 million in respect of other non-pension post-retirement benefits as at December
31, 2017. Amounts shown are estimated expenditures in the indicated years.
(5) We accrue environmental and reclamation obligations over the life of our mining operations, and amounts shown are estimated expenditures in
the indicated years at fair value, assuming credit-adjusted risk-free discount rates between 5.32% and 6.82% and an inflation factor of 2.00%.
(6) Other long-term liabilities include amounts for post-closure, environmental costs and other items.
(7) In April 2017, Teck Alaska entered into a 10-year agreement with the Northwest Arctic Borough (NAB) for payments in lieu of taxes (PILT).
Payments under the agreement are based on a percentage of land, buildings and equipment at cost, less accumulated depreciation. This
agreement expires on December 31, 2025. In April 2017, Teck Alaska entered into a 10-year agreement with the NAB for payments to a village
improvement fund (VIF). Payments under the agreement are based on a percentage of earnings before income taxes, with 2018–2025 having
minimum payments of $4 million and maximum payments of $ 8 million. The agreement expires on December 31, 2025.
52 Teck 2017 Annual Report | Horizons
Disclosure Controls and Internal Control Over Financial Reporting
Disclosure Controls and Procedures
Disclosure controls and procedures are designed to provide reasonable assurance that information required to be
disclosed in reports filed or submitted by us under U.S. and Canadian securities legislation is recorded, processed,
summarized and reported within the time periods specified in those rules, and include controls and procedures
designed to ensure that information required to be disclosed in reports filed or submitted by us under U.S. and
Canadian securities legislation is accumulated and communicated to management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate, to permit timely decisions regarding required disclosure.
Management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of
the design and operation of our disclosure controls and procedures, as defined in the rules of the U.S. Securities
and Exchange Commission and the Canadian Securities Administrators, as at December 31, 2017. Based on this
evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and
procedures were effective as at December 31, 2017.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Any
system of internal control over financial reporting, no matter how well-designed, has inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. Management has used the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) 2013 framework to evaluate the effectiveness of our internal control over financial
reporting. Based on this assessment, management has concluded that as at December 31, 2017, our internal control
over financial reporting was effective.
The effectiveness of our internal controls over financial reporting has been audited by PricewaterhouseCoopers LLP,
an independent registered public accounting firm, who have expressed their opinion in their report included with our
annual consolidated financial statements.
Use of Non-GAAP Financial Measures
Our financial results are prepared in accordance with International Financial Reporting Standards (IFRS). This document
refers to gross profit before depreciation and amortization, gross profit margins before depreciation, EBITDA, adjusted
EBITDA, adjusted profit, adjusted earnings per share, cash unit costs, adjusted cash costs of sales, cash margins for
by-products, adjusted revenue, net debt, debt to debt-plus-equity ratio, and the net-debt to net-debt-plus-equity ratio,
which are not measures recognized under IFRS in Canada and do not have a standardized meaning prescribed by IFRS
and therefore may not be comparable to similar measures presented by other issuers.
Gross profit before depreciation and amortization is gross profit with the depreciation and amortization expense added back.
EBITDA is profit attributable to shareholders before net finance expense, income and resource taxes, and depreciation and
amortization. Adjusted EBITDA is EBITDA before impairment charges. For adjusted profit, we adjust profit attributable to
shareholders as reported to remove the effect of certain types of transactions that in our judgment are not indicative of our
normal operating activities or do not necessarily occur on a regular basis. This both highlights these items and allows us to
analyze the rest of our results more clearly. We believe that disclosing these measures assists readers in understanding the
cash-generating potential of our business in order to provide liquidity to fund working capital needs, service outstanding
debt, fund future capital expenditures and investment opportunities, and pay dividends.
Gross profit margins before depreciation are gross profit before depreciation and amortization, divided by revenue for
each respective business unit.
Cash unit costs are calculated by dividing the cost of sales for the principal product by sales volumes. We include this
information, as it is frequently requested by investors and investment analysts who use it to assess our cost structure
and margins and compare it to similar information provided by many companies in our industry.
Management’s Discussion and Analysis
53
We sell both copper concentrates and refined copper cathodes. The price for concentrates sold to smelters is based
on average LME prices over a defined quotational period, from which processing and refining deductions are made.
In addition, we are paid for an agreed percentage of the copper contained in concentrates, which constitutes payable
pounds. Adjusted revenue excludes the revenue from co-products and by-products, but adds back the processing and
refining allowances to arrive at the value of the underlying payable pounds of copper. Readers may compare this on a
per unit basis with the price of copper on the LME.
The adjusted cash cost of sales for our steelmaking coal operations is defined as the cost of the product as it leaves the
mine, excluding depreciation and amortization charges. Adjusted cash cost of sales for our copper and zinc operations
are defined as the cost of the product delivered to the port of shipment, excluding depreciation and amortization charges.
It is common practice in the industry to exclude depreciation and amortization, as these costs are ‘non-cash’ and
discounted cash flow valuation models used in the industry substitute expectations of future capital spending for these
amounts. In order to arrive at adjusted cash costs of sales for copper and zinc, we also deduct the costs of by-products
and co-products. For zinc operations, we also deduct royalty costs. Total cash unit costs include the smelter and refining
allowances added back in when determining adjusted revenue. This presentation allows a comparison of unit costs,
including smelter allowances, to the underlying price of copper and zinc in order to assess the margin. Unit costs, after
deducting co-product and by-product margins, are also a common industry measure. By deducting the co-product and
by-product margin per unit of the principal product, the margin for the mine on a per unit basis may be presented in a
single metric for comparison to other operations. Readers should be aware that this metric, by excluding certain items
and reclassifying cost and revenue items, distorts our actual production costs as determined under GAAP.
Net debt is total debt less cash and cash equivalents. The debt to debt-plus-equity ratio takes total debt as reported
and divides that by the sum of total debt plus total equity. The net-debt to net-debt-plus-equity ratio is net debt divided
by the sum of net debt plus total equity, expressed as a percentage. These measures are disclosed as we believe that
they provide readers with information that allows them to assess our credit capacity and the ability to meet our
short- and long-term financial obligations.
The measures described above do not have standardized meanings under IFRS, may differ from those used by other
issuers, and may not be comparable to such measures as reported by others. These measures have been derived
from our financial statements and have been applied on a consistent basis as appropriate. We disclose these measures
because we believe that they assist readers in understanding the results of our operations and financial position; they
are also meant to provide further information about our financial results to investors. These measures should not be
considered in isolation or used in substitute for other measures of performance prepared in accordance with IFRS.
Reconciliation of Earnings Per Share to Adjusted Earnings Per Share
(Per share amounts)
Earnings per share
Add (deduct):
Debt repurchase (gains) losses
Debt prepayment option gain
Asset sales and provisions
Foreign exchange (gains) losses
Collective agreement charges
Break fee in respect of Waneta Dam sale
Environmental provisions
Asset impairments (reversals)
Tax and other items
Adjusted earnings per share
54 Teck 2017 Annual Report | Horizons
2017
2016
$
4.34
$
1.80
0.28
(0.06)
(0.05)
(0.01)
0.05
0.04
0.10
(0.17)
(0.07)
(0.07)
(0.15)
(0.09)
(0.08)
0.07
–
–
0.38
0.05
$
4.45
$
1.91
Reconciliation of Net Debt to EBITDA Ratio
Profit attributable to shareholders
Finance expense net of finance income
Provision for income taxes
Depreciation and amortization
EBITDA
Total debt at period end
Less: cash and cash equivalents at period end
Net debt
Debt to EBITDA ratio
Net Debt to EBITDA ratio
Reconciliation of EBITDA and Adjusted EBITDA
($ in millions)
Profit attributable to shareholders
Finance expense net of finance income
Provision for income taxes
Depreciation and amortization
EBITDA
Add (deduct):
Debt repurchase (gains) losses
Debt prepayment option (gains) losses
Asset sales and provisions
Foreign exchange (gains) losses
Collective agreement charges
Break fee in respect of Waneta Dam sale
Environmental provisions
Asset impairments (reversals)
Tax and other items
Adjusted EBITDA
2017
2016
$
2,509
$
1,040
212
1,438
1,467
5,626
6,369
$
$
338
587
1,385
$
3,350
$ 8,343
(952)
(1,407)
$
5,417
$
6,936
1.1
1.0
2.5
2.1
2017
2016
$
2,509
$
1,040
212
1,438
1,467
338
587
1,385
$
5,626
$
3,350
216
(51)
(35)
(5)
41
28
81
(163)
(41)
(49)
(113)
(67)
(46)
64
–
–
294
35
$
5,697
$
3,468
Management’s Discussion and Analysis
55
Reconciliation of Gross Profit Before Depreciation and Amortization
($ in millions)
Gross profit
Depreciation and amortization
2017
2016
2015
$
4,629
$
2,396
$
1,279
1,467
1,385
1,366
Gross profit before depreciation and amortization
$
6,096
$
3,781
$
2,645
Reported as:
Steelmaking coal
Copper
Highland Valley Copper
Antamina
Quebrada Blanca
Carmen de Andacollo
Duck Pond
Other
Zinc
Trail Operations
Red Dog
Pend Oreille
Other
Energy
Gross profit before depreciation and amortization
$
3,769
$
2,007
$
906
213
670
50
222
–
(1)
268
409
24
86
–
1
449
412
(19)
86
(3)
6
$
1,154
$
788
$
931
209
971
19
(26)
241
749
–
(6)
$
$
$
1,173
–
6,096
$
$
$
984
2
3,781
$
$
$
205
600
(9)
9
805
3
2,645
56 Teck 2017 Annual Report | Horizons
Steelmaking Coal Unit Cost Reconciliation
(CAD$ in millions, except where noted)
Cost of sales as reported
Less:
Transportation
Depreciation and amortization
Inventory write-down
Collective agreement charge
Adjusted cash cost of sales
Tonnes sold (millions)
Per unit costs — CAD$/tonne
Adjusted cash cost of sales
Transportation
Collective agreement charge
Cash unit costs — CAD$/tonne
US$ amounts
Average exchange rate (CAD$ per US$1.00)
Per unit costs — US$/tonne (1)
Adjusted cash cost of sales
Transportation
Collective agreement charge
Cash unit costs — US$/tonne
Note:
(1) Average period exchange rates are used to convert to US$/tonne equivalent.
Year ended
Year ended
December 31, December 31,
2017
2016
$
3,108
$
2,765
(978)
(725)
–
–
(919)
(628)
(5)
(49)
$
1,405
$
1,164
26.8
27.0
$
$
$
$
$
52
37
–
89
1.30
40
28
–
68
$
$
$
$
$
43
34
2
79
1.33
32
26
2
60
Management’s Discussion and Analysis
57
Copper Unit Cost Reconciliation
(CAD$ in millions, except where noted)
Revenue as reported
By-product revenue (A) (1)
Smelter processing charges
Adjusted revenue
Cost of sales as reported
Less:
Depreciation and amortization
Inventory reversal (write-down)
Labour settlement charges
By-product cost of sales (B) (1)
Adjusted cash cost of sales
Payable pounds sold (millions) (C)
Adjusted per unit cash costs — CAD$/pound
Adjusted cash cost of sales
Smelter processing charges
Total cash unit costs — CAD$/pound (D)
Cash margin for by-products — CAD$/pound ((A–B)/C) (1)
Net cash unit cost CAD$/pound (2)
US$ amounts
Average exchange rate (CAD$ per US$1.00)
Adjusted per unit costs — US$/pound (3)
Adjusted cash cost of sales
Smelter processing charges
Total cash unit costs — US$/pound
Cash margin for by-products — US$/pound (1)
Net cash unit costs — US$/pound
Year ended
Year ended
December 31, December 31,
2017
2016
$
2,400
$
2,007
$
$
$
$
(378)
180
2,202
1,782
(536)
(12)
(15)
(54)
(187)
208
2,028
1,817
(598)
23
(15)
(28)
$
1,189
$
1,199
604.4
695.6
$
1.97
0.30
2.27
$
1.72
0.30
2.02
(0.54)
(0.23)
1.73
$
1.79
$
$
1.30
1.52
0.23
1.75
$
(0.42)
1.33
1.30
0.22
1.52
(0.17)
1.33
$
1.35
$
$
$
$
$
$
$
Notes:
(1) By-products includes both by-products and co-products. By-product costs of sales also includes cost recoveries associated with our streaming
transactions.
(2) Net cash unit cost of principal product after deducting co-product and by-product margins per unit of principal product and excluding
depreciation and amortization.
(3) Average period exchange rates are used to convert to US$/lb. equivalent.
58 Teck 2017 Annual Report | Horizons
Zinc Unit Cost Reconciliation (mining operations — (1))
(CAD$ in millions, except where noted)
Revenue as reported
Less: Trail Operations revenues as reported
Other revenues as reported
Add back: Inter-segment as reported
By-product revenues (A) (2)
Smelter processing charges
Adjusted revenue
Cost of sales as reported
Less: Trail Operations cost of sales as reported
Other costs as reported
Add back: Inter-segment as reported
Less:
Depreciation and amortization
Royalty costs
By-product cost of sales (B) (2)
Adjusted cash cost of sales
Payable pounds sold (millions) (C)
Adjusted per unit costs — CAD$/pound
Adjusted cash cost of sales
Smelter processing charges
Total cash unit costs — CAD$/pound
Cash margin for by-products — CAD$/pound ((A–B)/C) (2)
Net cash unit cost CAD$/pound (3)
US$ amounts
Average exchange rate (CAD$ per US$1.00)
Adjusted per unit costs — US$/pound (4)
Adjusted cash cost of sales
Smelter processing charges
Total cash unit costs — US$/pound)
Cash margin for by-products — US$/pound (2)
Net cash unit cost US$/pound
Year ended
Year ended
December 31, December 31,
2017
2016
$
3,496
$
3,147
(2,266)
(2,049)
(8)
635
(7)
430
$
1,857
$
1,521
$
$
$
$
(400)
339
1,796
2,529
(2,135)
(34)
635
995
(128)
(412)
(77)
(341)
363
1,543
2,317
(1,871)
(13)
430
863
(91)
(282)
(91)
$
378
$
399
1,060.9
1,189.2
$
$
$
$
$
$
$
$
0.35
0.32
0.67
$
(0.30)
0.34
0.30
0.64
(0.21)
0.37
$
0.43
$
$
1.30
0.27
0.25
0.52
$
(0.24)
1.33
0.25
0.23
0.48
(0.16)
0.28
$
0.32
Notes:
(1) Red Dog and Pend Oreille.
(2) By-products includes both by-products and co-products.
(3) Net cash unit cost of principal product after deducting co-product and by-product margins per unit of principal product and excluding
depreciation and amortization and royalty costs.
(4) Average period exchange rates are used to convert to US$/lb. equivalent.
Management’s Discussion and Analysis
59
Quarterly Reconciliation
($ in millions)
2017
2016
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Profit attributable to
shareholders
Finance expense,
$ 760
$ 600
$ 577
$ 572
$
697
$
234
$
15
$
94
net of finance income
39
39
58
76
82
86
82
Provision for
income taxes
Depreciation
408
355
330
345
395
119
47
88
26
and amortization
373
395
358
341
387
365
324
309
EBITDA
$ 1,580
$ 1,389
$ 1,323
$ 1,334
$ 1,561
$
804
$
468
$
517
60 Teck 2017 Annual Report | Horizons
Cautionary Statement on Forward-Looking Statements
This document contains certain forward-looking information and forward-looking statements as defined in applicable securities laws
(collectively referred to as “forward-looking statements”). All statements other than statements of historical fact are forward-looking
statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the
actual results, performance or achievements of Teck to be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. These forward-looking statements, principally under the heading
“Outlook”, but also elsewhere in this document, include estimates, forecasts and statements as to management’s expectations
with respect to, among other things, anticipated future production at our business units, products and individual operations (including
our long-term production guidance), cost and spending guidance for our business units and individual operations, production and
sales forecasts for our products and operations, our expectation that we will meet our production guidance, sales volume and selling
prices for our products (including settlement of coal contracts with customers), forecast capital expenditures and capital spending,
mine lives and the expected life of our various operations, expected prices and demand for our products, expected receipt of
regulatory approvals and timing thereof, expected receipt of pre-feasibility studies, feasibility studies and other studies and the
timing thereof, plans and expectations for our development projects, including resulting increases in forecast operating costs and
costs of product sold, expected production, expected progress, planned activities, costs and outcomes of our various projects and
investments, including, but not limited to, those described in the discussions of our operations, the effect of currency exchange rates
and commodity price changes, our strategies and objectives, our expectations for the general market for our commodities, future
trends for the company, expectation that the Baldy Ridge Extension mining will extend the current life of Elkview and increase its
production of high-quality coal and timing of first coal release, expectation that the Swift area mining at Fording will sustain the
operations’ current production levels in the future, timing and cost of Line Creek AWTF modifications, Elk Valley Water Quality Plan
spending guidance, including projected 2018 capital spending and other capital spending guidance, expected operating costs
associated with the Plan, timing of AWTF construction and projected number of AWTFs required, expectations regarding the
additional treatment steps associated with the water quality plan and related benefits, operating cost increase guidance associated
with the Plan, potential for saturated fills to reduce capital and operating costs associated with active water treatment, our
expectation that will be able to increase total production at our Elk Valley operations to compensate for the closure of Coal Mountain
and will increase the mine lives of our other operations, amount of lost production at Elkview and cost to repair the dryer, anticipated
mine life for our operations, expectation that Neptune can expand operations to over 18.5 million tonnes per year and improve the
global competitiveness and responsiveness of our steelmaking coal production portfolio long-term, expectation that steelmaking
coal production from 2019 to 2021 is expected to be higher than 2018, anticipated benefits and timing of our ball mill project at
Highland Valley, the statement that there is potential to extend cathode production at Andacollo past 2018, expectations regarding
the Quebrada Blanca Phase 2 project, including expectations regarding capacity, mine life, reserve and resources, regulatory
approvals, projected expenditures and timing of any development decision in respect thereof, expected spending and activities on
our Project Satellite properties, the anticipated benefits of the Red Dog mill upgrade project and the associated timing and cost, the
timing of closing of the sale of Waneta Dam and expectation that the sale of Waneta Dam will close, the potential to expand the
Pend Oreille mine life, benefits of the new acid plant at our Trail Operations and the timing thereof, the expected timing and amount
of production at the Fort Hills oil sands mining and processing operation capital costs and our expected share of capital cost to
complete the Fort Hills project, expectation that Fort Hills will achieve 90% capacity by the end of 2018, Fort Hills anticipated
production rate and capacity, our expectations regarding the adequacy of our Fort Hills related logistic arrangements, expectations
regarding our ultimate interest in Fort Hills, timing expectations regarding the Frontier review and permitting process as well as
anticipated cost to achieve first commercial production, reserve and resources estimates, the statement that Aktigiruq is one of the
world’s top undeveloped zinc deposits, the availability of our credit facilities, sources of liquidity and capital resources, statements
regarding the impact and sensitivity of our annual profit attributable to shareholders and EBITDA to changes in exchange rates and
commodity prices, our expectation that we will fund our commitments from cash on hand and our credit facilities, expectations
regarding our dividend policy, including that an annual base dividend will be declared and paid, impact of carbon pricing policies and
associated costs, expected impact of United States (U.S.) tax reform, projections and sensitivities under the heading “Commodity
Prices and 2018 Production”, all guidance appearing in this document appearing in this documentation including but not limited to
the production, sales, unit cost and capital expenditure guidance under the heading “Guidance”, including our estimate of reduction
in current taxes, forecast and demand and market outlook for commodities and our products. These forward-looking statements
involve numerous assumptions, risks and uncertainties and actual results may vary materially.
These statements are based on a number of assumptions, including, but not limited to, assumptions regarding general business,
regulatory and economic conditions, the supply and demand for, deliveries of, and the level and volatility of prices of zinc, copper and
steelmaking coal and other primary metals and minerals as well as oil, and related products, the timing of the receipt of regulatory
and governmental approvals for our development projects and other operations, our costs of production, and production and
productivity levels, as well as those of our competitors, power prices, continuing availability of water and power resources for our
operations, market competition, the accuracy of our reserve and resource estimates (including with respect to size, grade and
recoverability) and the geological, operational and price assumptions on which these are based, conditions in financial markets, the
future financial performance of the company, our ability to attract and retain skilled staff, our ability to procure equipment and
operating supplies, positive results from the studies on our expansion projects, our steelmaking coal and other product inventories,
our ability to secure adequate transportation, including rail and port services, for our products, our ability to obtain permits for our
operations and expansions, and our ongoing relations with our employees, business partners and joint venturers. Assumptions
regarding the Elk Valley Water Quality Plan include assumption that additional treatment will be effective at scale, and that the
technology and facilities operate as expected., as well as additional assumptions discussed under the heading “Steelmaking Coal
— Elk Valley Water Management” and in the footnotes to our Guidance section. Assumptions regarding Quebrada Blanca Phase 2
are based on current project assumptions and the final feasibility study. Assumptions regarding Fort Hills are based on the approved
project development plan and the assumption that the project will be developed and operated in accordance with that plan,
Management’s Discussion and Analysis
61
assumptions regarding the performance of the plant and other facilities at Fort Hills and the operation of the project. Statements
regarding our share of expected capital costs are also based on our current interest in the project. Statements regarding Aktigiruq
assume that future geological works will support, and be consistent with, the Aktigiruq exploration results. Assumptions regarding
the impact of U.S. tax reform include assumptions regarding profitability of our U.S. operations and there being no negative
regulatory developments in the implementation of the U.S. tax reforms. Assumptions regarding the impact of foreign exchange and
commodity prices are based on 2018 mid-range production estimates, current commodity prices and a Canadian/U.S. dollar
exchange rate of $1.25. Statements regarding the availability of our credit facilities are based on assumptions that we will be able to
satisfy the conditions for borrowing at the time of a borrowing request and that the credit facilities are not otherwise terminated or
accelerated due to an event of default. The foregoing list of assumptions is not exhaustive. Events or circumstances could cause
actual results to vary materially.
Factors that may cause actual results to vary materially include, but are not limited to, changes in commodity and power prices,
changes in market demand for our products, changes in interest and currency exchange rates, acts of foreign or domestic
governments and the outcome of legal proceedings, inaccurate geological and metallurgical assumptions (including with respect to
the size, grade and recoverability of mineral reserves and resources), unanticipated operational difficulties (including failure of plant,
equipment or processes to operate in accordance with specifications or expectations, cost escalation, unavailability of materials and
equipment, government action or delays in the receipt of government approvals, changes in tax or royalty rates, industrial
disturbances or other job action, adverse weather conditions and unanticipated events related to health, safety and environmental
matters), union labour disputes, political risk, social unrest, failure of customers or counterparties to perform their contractual
obligations (including but not limited to port, rail and other logistics providers), changes in our credit ratings, unanticipated increases
in costs to construct our development projects, difficulty in obtaining permits, inability to address concerns regarding permits or
environmental impact assessments, and changes or further deterioration in general economic conditions. The amount and timing of
actual capital expenditures is dependent upon, among other matters, being able to secure permits, equipment, supplies, materials
and labour on a timely basis and at expected costs to enable the related capital project to be completed as currently anticipated. Our
Fort Hills project is not controlled by us and construction and production schedules may be adjusted by our partners. Further factors
associated with our Elk Valley Water Quality Plan are discussed under the heading “Management’s Discussion and Analysis
— Steelmaking Coal — Elk Valley Water Management”. Declaration and payment of dividends is in the discretion of the Board, and
our dividend policy will be reviewed regularly and may change. Closing of the Waneta Dam transaction depends on approvals from
third-parties that we do not control and if all required approvals are not received in a timely manner, the timing and ability to close will
be jeopardized. Further Aktigiruq exploration might not support or be consistent with the Aktigiruq exploration target results.
Statements concerning future production costs or volumes, and the sensitivity of the company’s profit to changes in commodity
prices and exchange rates, are based on numerous assumptions of management regarding operating matters and on assumptions
that demand for products develops as anticipated, that customers and other counterparties perform their contractual obligations,
that operating and capital plans will not be disrupted by issues such as mechanical failure, unavailability of parts and supplies, labour
disturbances, interruption in transportation or utilities, and adverse weather conditions, and that there are no material unanticipated
variations in the cost of energy or supplies. Statements regarding anticipated steelmaking coal sales volumes and average
steelmaking coal prices depend on timely arrival of vessels and performance of our steelmaking coal-loading facilities, as well as the
level of spot pricing sales.
We assume no obligation to update forward-looking statements except as required under securities laws. Further information
concerning risks, assumptions and uncertainties associated with these forward-looking statements and our business can be found in
our Annual Information Form for the year ended December 31, 2017, filed under our profile on SEDAR (www.sedar.com) and on
EDGAR (www.sec.gov) under cover of Form 40-F, as well as subsequent filings that can also be found under our profile.
Scientific and technical information regarding our material mining projects in this annual report was approved by Mr. Rodrigo Alves
Marinho, P.Geo., an employee of Teck. Mr. Marinho is a qualified person, as defined under National Instrument (NI) 43-101.
Contingent Resource Disclosure
The contingent bitumen resources at Frontier have been prepared by Sproule Unconventional Limited, a qualified resources
evaluator, in accordance with the guidelines set out in the Canadian Oil and Gas Evaluation Handbook. The Sproule estimates of
contingent resources have not been adjusted for risk based on the chance of development (85% chance of development risk).
There is uncertainty that any of these resources will be commercially viable to produce any portion of the resources. Contingent
bitumen resources are defined for this purpose as those quantities of petroleum estimated, as of a given date, to be potentially
recoverable from known accumulations using established technology or technology under development, but which are not
currently considered to be commercially recoverable due to one or more contingencies. The entire contingent bitumen resources
for Frontier oil sands mine are sub-classified into the development pending project maturity sub-class as extensive
pre-development work has been completed. Contingencies may include factors such as economic, legal, environmental, political
and regulatory matters or a lack of markets. Contingent resources do not constitute, and should not be confused with, reserves.
There is no certainty that the Frontier project will produce any portion of the volumes currently classified as contingent
resources. The primary contingencies that currently prevent the classification of the contingent resources disclosed above for
the Frontier project as reserves include project economics due to the uncertainty in oil price and uncertainty in exchange rate;
uncertainties around receiving regulatory approval to develop the project; potential issues regarding social licence for oil sands
mining generally and climate change policy costs. In addition, there would be a need for approval of a decision to proceed to
construction of the project by Teck. The Frontier project is based on a development study. The recovery technology at Frontier is
expected to be a paraffinic froth treatment process. The total cost required to achieve first commercial production has been
estimated by the resources evaluator at $16.2 billion.
62 Teck 2017 Annual Report | Horizons
Consolidated
Financial
Statements
For the Years Ended December 31, 2017 and 2016
Consolidated Financial Statements
63
Consolidated Financial Statements
For the Years Ended December 31, 2017 and 2016
Management’s Responsibility for Financial Reporting
Management is responsible for the integrity and fair presentation of the financial information contained in this annual
report. Where appropriate, the financial information, including financial statements, reflects amounts based on the
best estimates and judgments of management. The financial statements have been prepared in accordance with
International Financial Reporting Standards as issued by the International Accounting Standards Board. Financial
information presented elsewhere in the annual report is consistent with that disclosed in the financial statements.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Any
system of internal control over financial reporting, no matter how well-designed, has inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to financial
statement preparation and presentation. The system of controls is also supported by a professional staff of internal
auditors who conduct periodic audits of many aspects of our operations and report their findings to management and
the Audit Committee.
Management has a process in place to evaluate internal control over financial reporting based on the criteria
established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) 2013 framework.
The Board of Directors oversees management’s responsibility for financial reporting and internal control systems
through an Audit Committee, which is composed entirely of independent directors. The Audit Committee meets
periodically with management, our internal auditors and independent auditors to review the scope and results of the
annual audit, and to review the financial statements and related financial reporting and internal control matters before
the financial statements are approved by the Board of Directors and submitted to the shareholders.
PricewaterhouseCoopers LLP, an independent registered public accounting firm, appointed by the shareholders, have
audited our financial statements in accordance with the standards of the Public Company Accounting Oversight Board
(United States) and have expressed their opinion in the Report of Independent Registered Public Accounting Firm.
Donald R. Lindsay
President and Chief Executive Officer
Ronald A. Millos
Senior Vice President, Finance and Chief Financial Officer
February 14, 2018
64
Teck 2017 Annual Report | Horizons
Independent Auditor’s Report
To the Shareholders and Board of Directors of Teck Resources Limited
Opinions on the financial statements and internal control over financial reporting
We have audited the accompanying consolidated balance sheets of Teck Resources Limited and its subsidiaries (the
“Company”) as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive
income, cash flows and changes in equity for the years then ended, including the related notes (collectively referred to
as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting
as of December 31, 2017, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016 and their financial performance and their cash
flows for the years then ended in conformity with International Financial Reporting Standards (“IFRS”) as issued by
the International Accounting Standards Board (“IASB”). Also in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control Over Financial Reporting, included in Management’s
Discussion and Analysis. Our responsibility is to express opinions on the Company’s consolidated financial statements
and on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in
Consolidated Financial Statements
65
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
Chartered Professional Accountants
February 14, 2018
Vancouver, Canada
We have served as the Company’s auditor since 1964.
66 Teck 2017 Annual Report | Horizons
Consolidated Statements of Income Years ended December 31
(CAD$ in millions, except for share data)
Revenues
Cost of sales
Gross profit
Other operating income (expenses)
General and administration
Exploration
Research and development
Impairment reversal and (asset impairments) (Note 6)
Other operating expense (Note 7)
Profit from operations
Finance income (Note 8)
Finance expense (Note 8)
Non-operating income (expense) (Note 9)
Share of income of associates and joint ventures (Note 14)
Profit before taxes
Provision for income taxes (Note 19)
Profit for the year
Profit attributable to:
Shareholders of the company
Non-controlling interests
Profit for the year
Earnings per share (Note 23(f))
Basic
Diluted
Weighted average shares outstanding (millions)
Shares outstanding at end of year (millions)
The accompanying notes are an integral part of these financial statements.
2017
2016
$
12,048
$
9,300
(7,419)
(6,904)
4,629
2,396
(116)
(58)
(55)
163
(230)
(99)
(51)
(30)
(294)
(197)
4,333
1,725
17
(229)
(151)
6
3,976
(1,438)
16
(354)
239
2
1,628
(587)
$
2,538
$
1,041
$
2,509
$
1,040
29
1
$
2,538
$
1,041
$
$
$
$
4.34
4.28
577.5
573.3
1.80
1.78
576.4
576.9
Consolidated Financial Statements
67
Consolidated Statements of Comprehensive Income Years ended December 31
(CAD$ in millions)
Profit for the year
2017
2016
$
2,538
$
1,041
Other comprehensive income (loss) in the year
Items that may be reclassified to profit
Currency translation differences (net of taxes of $(46) and $(27))
Change in fair value of available-for-sale financial instruments
(net of taxes of $2 and $(2))
Share of other comprehensive income (loss) of
associates and joint ventures (Note 14)
Items that will not be reclassified to profit
Remeasurements of retirement benefit plans (net of taxes of $(55) and $(7))
Total other comprehensive income (loss) for the year
(155)
(21)
(10)
(1)
(166)
129
(37)
16
1
(4)
19
15
Total comprehensive income for the year
$
2,501
$
1,056
Total other comprehensive income (loss) attributable to:
Shareholders of the company
Non-controlling interests
Total comprehensive income attributable to:
Shareholders of the company
Non-controlling interests
The accompanying notes are an integral part of these financial statements.
$
$
(29)
$
(8)
(37)
$
15
–
15
$
2,480
$
1,055
21
1
$
2,501
$
1,056
68 Teck 2017 Annual Report | Horizons
Consolidated Statements of Cash Flows Years ended December 31
(CAD$ in millions)
2017
2016
Operating activities
Profit for the year
Depreciation and amortization
Provision for income taxes
Asset impairments and (impairment reversal)
Gain on sale of investments and assets
Foreign exchange gains
Loss (gain) on debt repurchase
Gain on debt prepayment options
Finance expense
Income taxes paid
Other
Net change in non-cash working capital items
Investing activities
Property, plant and equipment
Capitalized production stripping costs
Expenditures on financial investments and other assets
Proceeds from the sale of investments and other assets
Financing activities
Issuance of debt
Repurchase and repayment of debt
Debt interest and finance charges paid
Issuance of Class B subordinate voting shares
Purchase and cancellation of Class B subordinate voting shares
Dividends paid
Distributions to non-controlling interests
Effect of exchange rate changes on cash and cash equivalents
Decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
$
$
2,538
1,467
1,438
(163)
(51)
(5)
216
(51)
229
(879)
233
94
5,066
(1,621)
(678)
(309)
109
1,041
1,385
587
294
(96)
(46)
(49)
(113)
354
(272)
331
(360)
3,056
(1,416)
(477)
(114)
170
(2,499)
(1,837)
–
(1,929)
(495)
26
(175)
(344)
(56)
1,567
(2,560)
(571)
8
–
(58)
(21)
(2,973)
(1,635)
(49)
(455)
(64)
(480)
1,407
1,887
Cash and cash equivalents at end of year
$
952
$
1,407
Supplemental cash flow information (Note 10)
The accompanying notes are an integral part of these financial statements.
Consolidated Financial Statements
69
Consolidated Balance Sheets
(CAD$ in millions)
Assets
Current assets
Cash and cash equivalents (Note 10)
Current income taxes receivable
Trade accounts receivable
Inventories (Note 11)
Assets held for sale (Note 12)
Financial and other assets (Note 13)
Investments in associates and joint ventures (Note 14)
Property, plant and equipment (Note 6 and Note 15)
Deferred income tax assets (Note 19)
Goodwill (Note 6 and Note 16)
Liabilities and Equity
Current liabilities
Trade accounts payable and other liabilities (Note 17)
Current income taxes payable
Debt (Note 18)
Debt (Note 18)
Deferred income tax liabilities (Note 19)
Deferred consideration (Note 20)
Retirement benefit liabilities (Note 21)
Other liabilities and provisions (Note 22)
Equity
Attributable to shareholders of the company
Attributable to non-controlling interests (Note 24)
Contingencies (Note 25)
Commitments (Note 26)
Approved on behalf of the Board of Directors
December 31, December 31,
2017
2016
$
952
48
1,791
1,637
350
4,778
1,051
943
29,045
154
1,087
$
1,407
97
1,585
1,673
–
4,762
1,034
1,012
27,595
112
1,114
$
37,058
$
35,629
$
2,313
273
55
2,641
6,314
5,398
651
552
1,977
$
1,902
199
99
2,200
8,244
4,896
723
643
1,322
17,533
18,028
19,383
142
19,525
17,442
159
17,601
$
37,058
$
35,629
Tracey L. McVicar
Chair of the Audit Committee
Warren S. R. Seyffert, Q.C.
Director
The accompanying notes are an integral part of these financial statements.
70 Teck 2017 Annual Report | Horizons
Consolidated Statements of Changes in Equity Years ended December 31
(CAD$ in millions)
Class A common shares (Note 23)
Beginning of year
Class A share conversion (Note 23(b))
End of year
Class B subordinate voting shares (Note 23)
Beginning of year
Share repurchases (Note 23(h))
Issued on exercise of options (Note 23(c))
Class A shares conversion (Note 23(b))
End of year
Retained earnings
Beginning of year
Profit for the year attributable to shareholders of the company
Dividends declared (Note 23(g))
Share repurchases (Note 23(h))
Purchase of non-controlling interests
Remeasurements of retirement benefit plans
2017
2016
$
$
7
(1)
6
6,637
(69)
34
1
6,603
10,183
2,509
(344)
(106)
(63)
129
7
–
7
6,627
–
10
–
6,637
9,174
1,040
(58)
–
8
19
End of year
12,308
10,183
Contributed surplus
Beginning of year
Share option compensation expense (Note 23(c))
Transfer to Class B subordinate voting shares on exercise of options
End of year
Accumulated other comprehensive income attributable
to shareholders of the company (Note 23(e))
Beginning of year
Other comprehensive income (loss)
Less remeasurements of retirement benefit plans recorded in retained earnings
End of year
Non-controlling interests (Note 24)
Beginning of year
Profit for the year attributable to non-controlling interests
Other comprehensive loss attributable to non-controlling interests
Purchase of non-controlling interests
Acquisition of AQM Copper Inc.
Other
Dividends or distributions
End of year
Total equity
The accompanying notes are an integral part of these financial statements.
193
17
(8)
202
422
(29)
(129)
264
159
29
(8)
–
18
–
(56)
142
173
22
(2)
193
426
15
(19)
422
230
1
–
(46)
–
(5)
(21)
159
$
19,525
$
17,601
Consolidated Financial Statements
71
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
1. Nature of Operations
Teck Resources Limited and its subsidiaries (Teck, we, us or our) are engaged in mining and related activities including
research, exploration and development, processing, smelting, refining and reclamation. Our major products are
steelmaking coal, copper, zinc and lead. We also produce precious metals, molybdenum, electrical power, fertilizers
and other metals. Metal products are sold as refined metals or concentrates. Our energy assets include a partnership
interest in an oil sands development project that is being commissioned and certain oil sands leases.
Teck Resources Limited is a Canadian corporation and our registered office is at 550 Burrard Street, Vancouver,
British Columbia, Canada, V6C 0B3.
2. Basis of Preparation and New IFRS Pronouncements
a) Basis of Preparation
These annual consolidated financial statements have been prepared by management in accordance with International
Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and were
approved by the Board of Directors on February 14, 2018.
b) New IFRS Pronouncements
New IFRS pronouncements that have been issued but are not yet effective at the date of these financial statements are
listed below. We plan to apply the new standards or interpretations in the annual period for which they are first required.
Revenue from Contracts with Customers
In May 2014, the IASB issued IFRS 15, Revenue from Contracts with Customers (IFRS 15) as a result of a joint revenue
project with the Financial Accounting Standards Board (FASB).
The new revenue standard introduces a single principles-based five-step model for the recognition of revenue when
control of goods is transferred to, or a service is performed for, the customer. The five steps are to identify the
contract(s) with the customer, identify the performance obligations in the contract, determine the transaction price,
allocate the transaction price to each performance obligation, and recognize revenue as each performance obligation
is satisfied. IFRS 15 also requires enhanced disclosures about revenue to help investors better understand the nature,
amount, timing and uncertainty of revenue and cash flows from contracts with customers.
The standard has an effective date of January 1, 2018. We are required to adopt the provisions of IFRS 15 on either
a full or modified retrospective basis, and we will apply the full retrospective approach in restating our prior period
financial information. This restated information will be disclosed in our financial statements for the first quarter ended
March 31, 2018.
As at December 31, 2017, we have substantially completed our review and analysis of IFRS 15 and the effect on our
financial statements. Based on our analysis, we do not expect the timing and amount of our revenue from product
sales to be significantly different under IFRS 15. The only exception to this would be for steelmaking coal sales where
we have a shipment that is partially loaded on a vessel at a reporting date. The performance obligation in these contracts
is for the full shipment and accordingly, we cannot recognize revenue until the full shipment is loaded. This is a timing
difference only and does not change the amount of revenue recognized for the full shipment. In our transition
adjustments, this timing difference will result in the reversal of $61 million of revenue recognized in the year ended
December 31, 2017. This revenue will be recognized in the first quarter ended March 31, 2018 under IFRS 15. We will
also adjust our inventory and cost of sales associated with these sales, as required.
As part of our assessment of IFRS 15, we analyzed the treatment of freight services provided to customers subsequent
to the transfer of control of the product sold. Under IFRS 15, in our view, these services represent performance
obligations that should be recognized separately. For the performance obligation related to these freight services, we
have concluded that we are the principal to the shipping of product in our refined metal sales and concentrate sales
72 Teck 2017 Annual Report | Horizons
contracts and will continue to reflect the revenue in these arrangements on a gross basis. For certain of our steelmaking
coal sales contracts, we have concluded that we are the agent to the ocean freight shipping of product due to the
terms of the arrangement, and our revenue will be reported on a net basis for these arrangements. This change would
reduce the revenue recognized for the year ended December 31, 2017, by approximately $76 million as a result of the
presentation of steelmaking coal sales revenue net of ocean freight costs. There will be no effect on our gross profit
as these freight costs will be netted against revenue and not presented within cost of sales.
We have assessed the effects of IFRS 15 on our silver and gold streaming arrangements. At the date these
transactions were completed, we accounted for the arrangements as the sale of a portion of our mineral interests
at Compañia Minera Antamina (Antamina) and Compañia Minera Teck Carmen de Andacollo (Carmen de Andacollo),
respectively. We did not recognize disposal gains on the transactions as a result of the requirements of the IFRS
standards in effect at the dates of closing. Under the recognition and measurement principles of IFRS 15, the gain
on these streaming transactions would have been recognized in full as control over the right to the silver or gold
mineral interest transferred to the purchaser. Accordingly, we will recognize the deferred consideration of $755 million
recorded on our balance sheet through equity on transition to IFRS 15 as at January 1, 2017 and will present our
restated financial information in our first quarter financial statements as at March 31, 2018.
Financial Instruments
IFRS 9 addresses the classification, measurement and recognition of financial assets and financial liabilities and
supersedes the guidance relating to the classification and measurement of financial instruments in IAS 39, Financial
Instruments: Recognition and Measurement (IAS 39).
IFRS 9 requires financial assets to be classified into three measurement categories on initial recognition: those
measured at fair value through profit and loss, those measured at fair value through other comprehensive income and
those measured at amortized cost. Investments in equity instruments are required to be measured by default at fair
value through profit or loss. However, there is an irrevocable option for each equity instrument to present fair value
changes in other comprehensive income. Measurement and classification of financial assets is dependent on the
entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial
asset. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases
where the fair value option is taken for financial liabilities, the part of a fair value change relating to an entity’s own
credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an
accounting mismatch.
IFRS 9 introduces a new three-stage expected credit loss model for calculating impairment for financial assets. IFRS 9 no
longer requires a triggering event to have occurred before credit losses are recognized. An entity is required to recognize
expected credit losses when financial instruments are initially recognized and to update the amount of expected credit
losses recognized at each reporting date to reflect changes in the credit risk of the financial instruments. In addition,
IFRS 9 requires additional disclosure requirements about expected credit losses and credit risk.
The new hedge accounting model in IFRS 9 aligns hedge accounting with risk management activities undertaken by
an entity. Components of both financial and non-financial items will now be eligible for hedge accounting, as long as
the risk component can be identified and measured. The hedge accounting model includes eligibility criteria that must
be met, but these criteria are based on an economic assessment of the strength of the hedging relationship. New
disclosure requirements relating to hedge accounting will be required and are meant to simplify existing disclosures.
The IASB currently has a separate project on macro hedging activities, and until the project is completed, the IASB has
provided a policy choice for entities to either apply the hedge accounting model in IFRS 9 or IAS 39 in full. Additionally,
there is a hybrid option to use IAS 39 to account for macro hedges only and to use IFRS 9 for all other hedges.
IFRS 9 is effective for annual periods beginning on or after January 1, 2018. We have concluded that this standard will
not have a material effect on our financial statements.
We have made the irrevocable classification choice to record fair value changes on our current portfolio of investments
in other comprehensive income. This election will result in a reclassification of a $41 million loss from our retained
earnings to accumulated other comprehensive income (loss), all within equity, on January 1, 2018.
Consolidated Financial Statements
73
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
2. Basis of Preparation and New IFRS Pronouncements (continued)
We have also completed a review of our expected credit losses on our trade receivables. We do not expect to record a
significant adjustment relating to the implementation of the expected credit loss model for our trade receivables as the
expected credit losses are nominal based on our review at the time of transition. We have implemented a process for
managing and estimating provisions relating to trade receivables going forward under IFRS 9.
We have elected not to adopt the hedging requirements of IFRS 9 as at January 1, 2018.
Leases
In January 2016, the IASB issued IFRS 16, Leases (IFRS 16), which eliminates the classification of leases as either
operating or finance leases for a lessee. Under IFRS 16, all leases are considered finance leases and will be recorded
on the balance sheet. The only exemptions to this classification will be for leases that are 12 months or less in duration
or for leases of low-value assets. The requirement to record all leases as finance leases under IFRS 16 will increase
lease assets and lease liabilities on an entity’s financial statements. IFRS 16 will also change the nature of expenses
relating to leases as the straight-line lease expense previously recognized for operating leases will be replaced with
depreciation expense for lease assets and finance expense for lease liabilities. IFRS 16 includes an overall disclosure
objective and requires a company to disclose (a) information about lease assets and expenses and cash flows related
to leases, (b) a maturity analysis of lease liabilities, and (c) any additional company-specific information that is relevant
to satisfying the disclosure objective. IFRS 16 is effective from January 1, 2019. We are currently assessing and
quantifying the effect of this standard on our financial statements. On the transition date of January 1, 2019, we
expect to recognize additional leases on our consolidated balance sheet, which will increase our debt and property,
plant and equipment balances. As a result of recognizing additional finance leases, we expect an increase in depreciation
expense and finance expense.
3. Summary of Significant Accounting Policies
The significant accounting policies applied in the preparation of these consolidated financial statements are set out
below. These policies have been consistently applied to all periods presented, unless otherwise stated.
Basis of Presentation
Our consolidated financial statements include the accounts of Teck Resources Limited and all of its subsidiaries.
Our significant operating subsidiaries include Teck Metals Ltd. (TML), Teck Alaska Incorporated (TAK), Teck Highland
Valley Copper Partnership (Highland Valley Copper), Teck Coal Partnership (Teck Coal), Teck Washington Incorporated
(TWI), Compañia Minera Teck Quebrada Blanca S.A. (Quebrada Blanca) and Carmen de Andacollo.
All subsidiaries are entities that we control, either directly or indirectly. Control is defined as the exposure, or rights,
to variable returns from involvement with an investee and the ability to affect those returns through power over
the investee. Power over an investee exists when our existing rights give us the ability to direct the activities that
significantly affect the investee’s returns. This control is generally evidenced through owning more than 50% of the
voting rights or currently exercisable potential voting rights of a company’s share capital. All of our intra-group balances
and transactions, including unrealized profits and losses arising from intra-group transactions, have been eliminated
in full. For subsidiaries that we control but do not own 100% of, the net assets and net profit attributable to outside
shareholders are presented as amounts attributable to non-controlling interests in the consolidated balance sheet and
consolidated statements of income and comprehensive income.
Certain of our business activities are conducted through joint arrangements. Our interests in joint operations include
Galore Creek Partnership (Galore Creek, 50% share), Fort Hills Energy Limited Partnership (Fort Hills, 20.89% share)
and Waneta Dam (66.7% share), which operate in Canada and Antamina (22.5% share), which operates in Peru. We
account for our interests in these joint operations by recording our share of the respective assets, liabilities, revenue,
expenses and cash flows. We also have an interest in a joint venture, NuevaUnión (50% share), in Chile that we account
for using the equity method (Note 14).
74 Teck 2017 Annual Report | Horizons
During the year ended December 31, 2017, our share of the Fort Hills oil sands project increased from 20% to
20.89% on resolution of a commercial dispute between the Fort Hills partners. We funded an increased share of the
project capital in the amount of $120 million, in consideration for the additional interest in the project. Subsequent to
December 31, 2017, our share of the Fort Hills oil sands project increased by a further 0.19% to 21.08% for consideration
of approximately $25 million.
All dollar amounts are presented in Canadian dollars unless otherwise specified.
Interests in Joint Arrangements
A joint arrangement can take the form of a joint venture or joint operation. All joint arrangements involve a contractual
arrangement that establishes joint control, which exists only when decisions about the activities that significantly
affect the returns of the investee require unanimous consent of the parties sharing control. A joint operation is a
joint arrangement in which we have rights to the assets and obligations for the liabilities relating to the arrangement.
A joint venture is a joint arrangement in which we have rights to only the net assets of the arrangement.
Joint ventures are accounted for in accordance with the policy “Investments in Associates and Joint Ventures”.
Joint operations are accounted for by recognizing our share of the assets, liabilities, revenue, expenses and cash
flows of the joint operation in our consolidated financial statements.
Investments in Associates and Joint Ventures
Investments over which we exercise significant influence but do not control or jointly control are associates.
Investments in associates are accounted for using the equity method, except when classified as held for sale.
Investments in joint ventures as determined in accordance with the policy “Interests in Joint Arrangements”
are also accounted for using the equity method.
The equity method involves recording the initial investment at cost and subsequently adjusting the carrying value of
the investment for our proportionate share of the profit or loss, other comprehensive income or loss and any other
changes in the associate’s or joint venture’s net assets, such as further investments or dividends.
Our proportionate share of the associate’s or joint venture’s profit or loss and other comprehensive income or loss
is based on its most recent financial statements. Adjustments are made to align any inconsistencies between our
accounting policies and our associate’s or joint venture’s policies before applying the equity method. Adjustments are
also made to account for depreciable assets based on their fair values at the acquisition date of the investment and
for any impairment losses recognized by the associate or joint venture.
If our share of the associate’s or joint venture’s losses were equal to or exceeded our investment in the associate
or joint venture, recognition of further losses would be discontinued. After our interest is reduced to zero, additional
losses would be provided for and a liability recognized only to the extent that we have incurred legal or constructive
obligations to provide additional funding or make payments on behalf of the associate or joint venture. If the associate
or joint venture subsequently reports profits, we resume recognizing our share of those profits only when we have a
positive interest in the entity.
At each balance sheet date, we consider whether there is objective evidence of impairment in associates and joint
ventures. If there is such evidence, we determine the amount of impairment to record, if any, in relation to the
associate or joint venture.
Consolidated Financial Statements
75
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
3. Summary of Significant Accounting Policies (continued)
Foreign Currency Translation
The functional currency of each of our subsidiaries and our joint operations, joint ventures and associates is the
currency of the primary economic environment in which the entity operates. Transactions in foreign currencies are
translated to the functional currency of the entity at the exchange rate in existence at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are retranslated at the
period end date exchange rates.
The functional currency of Teck Resources Limited, the parent entity, is the Canadian dollar, which is also the
presentation currency of our consolidated financial statements.
Foreign operations are translated from their functional currencies, generally the U.S. dollar, into Canadian dollars on
consolidation. Items in the statements of income and other comprehensive income are translated using weighted average
exchange rates that reasonably approximate the exchange rate at the transaction date. Items on the balance sheet are
translated at the closing spot exchange rate. Exchange differences on the translation of the net assets of entities with
functional currencies other than the Canadian dollar, and any offsetting exchange differences on net debt used to hedge
those assets, are recognized in a separate component of equity through other comprehensive income (loss).
Exchange differences that arise relating to long-term intra-group balances that form part of the net investment in a
foreign operation are also recognized in this separate component of equity through other comprehensive income (loss).
On disposition or partial disposition of a foreign operation, the cumulative amount of related exchange differences
recorded in a separate component of equity is recognized in the statement of income.
Revenue
Recognition
Sales of product, including by-product, are recognized in revenue when there is persuasive evidence that all of
the following criteria have been met: the significant risks and rewards of ownership pass to the customer, neither
continuing managerial involvement nor effective control remains over the goods sold, the selling price and costs to
sell can be measured reliably, and it is probable that the economic benefits associated with the sale will flow to us.
All of these criteria are generally met by the time the significant risks and rewards of ownership pass to the customer.
Royalties related to production are recorded in cost of sales.
For sales of steelmaking coal and a majority of sales of metal concentrates, significant risks and rewards of ownership
pass to the customer when the product is loaded onto a carrier specified by the customer. We generally retain title to
these products until we receive the first contracted payment, solely to protect the collectibility of the amounts due to
us, which are typically received shortly after loading. A minority of metal concentrate sales are made on consignment.
For these transactions, significant risks and rewards of ownership pass to the customer at the time the product is
consumed in the customer’s processes.
For sales of refined metal, significant risks and rewards of ownership generally pass to the customer when the product
is loaded onto a carrier specified by the customer. For these products, loading generally coincides with the transfer
of title.
Pricing agreements
Steelmaking coal is sold under spot or average pricing contracts. The selling price in average pricing contracts is
determined based on quoted price assessments over a specific period and the sale may occur before, during or
subsequent to this period. For certain of our steelmaking coal contracts, prices are determined based on quoted price
assessments in a period subsequent to the date of sale. For all steelmaking coal sales under average pricing contracts,
the price is determined on a provisional basis at the date of sale, and revenue is recorded at that time based on
estimated prices. For spot sales contracts, pricing is final when the product is shipped.
76 Teck 2017 Annual Report | Horizons
The majority of our cathode and metal concentrates are sold under pricing arrangements where final prices are
determined by quoted market prices in a period subsequent to the date of sale. For these sales, the price is determined
on a provisional basis at the date of sale, and revenue is recorded at that time based on estimated prices.
Adjustments are made to customer receivables in subsequent periods based on movements in quoted market prices
or published price assessments (for steelmaking coal) up to the date of final pricing. As a result, the value of our
cathode, concentrate and steelmaking coal sales receivables changes as the underlying commodity prices vary,
and this adjustment mechanism has the characteristics of a derivative. Accordingly, the fair value of the embedded
derivative is adjusted each reporting period by reference to forward market prices or published price assessments (for
steelmaking coal), and the changes in fair value are recorded as an adjustment to other operating income (expense).
Streaming transactions
The treatment of upfront and ongoing payments received from counterparties under streaming arrangements
depends on the specific terms of the arrangement. For arrangements we have entered into to date, we consider these
transactions to be a disposition of a portion of the associated mineral properties, and therefore do not recognize
revenue for payments received under these arrangements. Any deferred consideration recorded for streaming
transactions and any ongoing payments received from our streaming transactions are recognized in profit as a
reduction of cost of sales as deliveries are made under the respective streaming transaction.
Financial Instruments
We recognize financial assets and liabilities on the balance sheet when we become a party to the contractual
provisions of the instrument.
Cash and cash equivalents
Cash and cash equivalents include cash on account, demand deposits and money market investments with maturities
from the date of acquisition of three months or less, which are readily convertible to known amounts of cash and are
subject to insignificant changes in value. Cash is classified as loans and receivables. Cash equivalents are classified
as available-for-sale.
Trade receivables and payables
Trade receivables and payables are non-interest bearing if paid when due and are recognized at face amount, except
when fair value is materially different, and are subsequently measured at amortized cost. Where necessary, trade
receivables are net of allowances for uncollectible amounts.
Investments in marketable securities
Investments in marketable securities are classified as available-for-sale and recorded at fair value. Fair values are
determined by reference to quoted market prices at the balance sheet date. Unrealized gains and losses on available-
for-sale investments are recognized in other comprehensive income (loss) until investments are disposed of or when
there is objective evidence of an impairment in value. Investment transactions are recognized on the trade date with
transaction costs included in the underlying balance.
At each balance sheet date, we assess for any objective evidence of an impairment in value of our investments and
record such impairments in non-operating income (expense) for the period. If an impairment of an investment in a
marketable equity security has been recorded in profit, that loss cannot be reversed through profit in future periods
prior to sale.
Debt
Debt is initially recorded at fair value, less transaction costs. Debt is subsequently measured at amortized cost,
calculated using the effective interest rate method.
Consolidated Financial Statements
77
3. Summary of Significant Accounting Policies (continued)
Derivative instruments
Derivative instruments, including embedded derivatives, are classified as at fair value through profit or loss and,
accordingly, are recorded on the balance sheet at fair value. Unrealized gains and losses on derivatives held for trading
are recorded as part of other operating income (expense) or non-operating income (expense) in profit depending
on the nature of the derivative. Fair values for derivative instruments are determined using inputs based on market
conditions existing at the balance sheet date or settlement date of the derivative. Derivatives embedded in non-derivative
contracts are recognized separately unless they are closely related to the host contract.
Hedging
Certain derivative investments may qualify for hedge accounting. For fair value hedges, any gains or losses on both
the hedged item and the hedging instrument are recognized in the same line item in profit.
For cash flow hedges, any unrealized gains and losses on the hedging instrument relating to the effective portion of
the hedge are initially recorded in other comprehensive income (loss). Gains and losses are recognized in profit upon
settlement of the hedging instrument, when the hedged item ceases to exist, or when the hedge is determined to
be ineffective.
For hedges of net investments in foreign operations, any foreign exchange gains or losses on the hedging instrument
relating to the effective portion of the hedge are initially recorded in other comprehensive income (loss). Gains and
losses are recognized in profit on the ineffective portion of the hedge, or when there is a disposition or partial disposition
of a foreign operation being hedged.
Inventories
Finished products, work in-process, raw materials and supplies inventories are valued at the lower of weighted average
cost and net realizable value. Raw materials include concentrates for use at smelting and refining operations. Work
in-process inventory includes inventory in the milling, smelting or refining process and stockpiled ore at mining operations.
For work in-process and finished product inventories, cost includes all direct costs incurred in production, including
direct labour and materials, freight, depreciation and amortization, and directly attributable overhead costs. Production
stripping costs that are not capitalized are included in the cost of inventories as incurred. Depreciation and amortization
of capitalized production stripping costs are included in the cost of inventory.
When inventories have been written down to net realizable value, we make a new assessment of net realizable value
in each subsequent period. If the circumstances that caused the write-down no longer exist, the remaining amount of
the write-down on inventory not yet sold is reversed.
We use both joint-product and by-product costing for work in-process and finished product inventories. Joint-product
costing is applied to primary products where the profitability of the operations is dependent upon the production of
these products. Joint-product costing allocates total production costs based on the relative values of the products.
By-product costing is used for products that are not the primary products produced by the operation. The by-products
are allocated only the incremental costs of processes that are specific to the production of that product.
Supplies inventory is valued at the lower of weighted average cost and net realizable value. Cost includes acquisition,
freight and other directly attributable costs.
Property, Plant and Equipment
Land, buildings, plant and equipment
Land is recorded at cost and buildings, plant and equipment are recorded at cost less accumulated depreciation
and impairment losses. Cost includes the purchase price and the directly attributable costs to bring the assets to the
location and condition necessary for them to be capable of operating in the manner intended by management.
78 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016 Depreciation of mobile equipment, buildings used for production, and plant and processing equipment at our mining
operations is calculated on a units-of-production basis. Depreciation of buildings not used for production, and of plant
and equipment at our smelting operations is calculated on a straight-line basis over the assets’ estimated useful lives.
Where components of an asset have different useful lives, depreciation is calculated on each component separately.
Depreciation commences when an asset is ready for its intended use. Estimates of remaining useful lives and residual
values are reviewed annually. Changes in estimates are accounted for prospectively.
The expected useful lives are as follows:
• Buildings and equipment (not used in production)
• Plant and equipment (smelting operations)
2–50 years
3–30 years
Mineral properties and mine development costs
The cost of acquiring and developing mineral properties or property rights, including pre-production waste rock stripping
costs related to mine development and costs incurred during production to increase future output, are capitalized.
Waste rock stripping costs incurred in the production phase of a surface mine are recorded as capitalized production
stripping costs within property, plant and equipment when it is probable that the stripping activity will improve access
to the orebody, when the component of the orebody or pit to which access has been improved can be identified, and
when the costs relating to the stripping activity can be measured reliably. When the actual waste-to-ore stripping ratio
in a period is greater than the expected life-of-component waste-to-ore stripping ratio for that component, the excess
is recorded as capitalized production stripping costs.
Once available for use, mineral properties and mine development costs are depreciated on a units-of-production basis
over the proven and probable reserves to which they relate. Since the stripping activity within a component of a mine
improves access to the reserves of the same component, capitalized production stripping costs incurred during the
production phase of a mine are depreciated on a units-of-production basis over the proven and probable reserves
expected to be mined from the same component.
Underground mine development costs are depreciated using the block depreciation method, where development
costs associated with each distinct section of the mine are depreciated over the reserves to which they relate.
Exploration and evaluation costs
Property acquisition costs are capitalized. Other exploration and evaluation costs are capitalized if they relate to specific
properties for which resources, as defined under National Instrument 43-101, exist or are near a specific property with a
defined resource, and it is expected that the expenditure can be recovered by future exploitation or sale. All other costs
are charged to profit in the year in which they are incurred. Capitalized exploration and evaluation costs are considered
to be tangible assets. These assets are not depreciated as they are not currently available for use. When proven and
probable reserves are determined and development is completed, capitalized exploration and evaluation costs are
reclassified to mineral properties within property, plant and equipment.
Development costs of oil sands properties
The costs of acquiring, exploring, evaluating and developing oil sands properties are capitalized when it is expected
that these costs will be recovered through future exploitation or sale of the property. Capitalized development costs
of oil sands properties are tangible assets. These assets are not depreciated as they are not currently available for
use. When proven and probable reserves are determined and development is completed, capitalized development
costs for oil sands properties are reclassified to mineral properties within property, plant and equipment.
Construction in progress
Assets in the course of construction are capitalized as construction in progress. On completion, the cost of construction
is transferred to the appropriate category of property, plant and equipment, and depreciation commences when the
asset is available for its intended use.
Consolidated Financial Statements
79
3. Summary of Significant Accounting Policies (continued)
Impairment of non-current assets
The carrying amounts of assets included in property, plant and equipment are reviewed for impairment whenever
facts and circumstances indicate that the carrying amounts are less than the recoverable amounts. If there are
indicators of impairment, the recoverable amount of the asset is estimated in order to determine the extent of any
impairment. Where the asset does not generate cash flows that are independent from other assets, the recoverable
amount of the cash-generating unit (CGU) to which the asset belongs is determined. The recoverable amount of an
asset or CGU is determined as the higher of its fair value less costs of disposal and its value in use. An impairment
loss exists if the asset’s or CGU’s carrying amount exceeds the estimated recoverable amount, and is recorded as
an expense immediately.
Fair value is the price that would be received from selling an asset in an orderly transaction between market
participants at the measurement date. Costs of disposal are incremental costs directly attributable to the disposal of
an asset. For mining assets and oil sands development costs, when a binding sale agreement is not readily available,
fair value less costs of disposal is usually estimated using a discounted cash flow approach, unless comparable market
transactions on which to estimate fair value are available. Estimated future cash flows are calculated using estimated
future commodity prices, reserves and resources, and operating and capital costs. All inputs used are those that
an independent market participant would consider appropriate. Value in use is determined as the present value of
the future cash flows expected to be derived from continuing use of an asset or CGU in its present form for those
operating assets where value in use exceeds the fair value less costs of disposal. These estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset or CGU for which estimates of future cash flows have not been
adjusted. A value in use calculation uses a pre-tax discount rate and a fair value less costs of disposal calculation uses
a post-tax discount rate.
Indicators of impairment for exploration and evaluation assets are assessed on a project-by-project basis or as part
of the existing operation to which they relate.
Tangible assets that have been impaired in prior periods are tested for possible reversal of impairment whenever
events or significant changes in circumstances indicate that the impairment may have reversed. Indicators of a potential
reversal of an impairment loss mainly mirror the indicators present when the impairment was originally recorded. If the
impairment has reversed, the carrying amount of the asset is increased to its recoverable amount, but not beyond the
carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for
the asset in the prior periods. A reversal of an impairment loss is recognized into profit immediately.
Repairs and maintenance
Repairs and maintenance costs, including shutdown maintenance costs, are charged to expense as incurred, except
when these repairs significantly extend the life of an asset or result in a significant operating improvement. In these
instances, the portion of these repairs relating to the betterment is capitalized as part of plant and equipment.
Borrowing costs
We capitalize borrowing costs that are directly attributable to the acquisition, construction or production of an asset
that takes a substantial period of time to construct or prepare for its intended use. We begin capitalizing borrowing
costs when there are general or specific borrowings, expenditures are incurred, and activities are undertaken to
prepare the asset for its intended use. The amount of borrowing costs capitalized cannot exceed the actual amount
of borrowing costs incurred during the period. All other borrowing costs are expensed as incurred.
We discontinue the capitalization of borrowing costs when substantially all of the activities necessary to prepare the
qualifying asset for its intended use or sale are complete. In addition, we cease capitalization of borrowing costs when
there is suspension of activities to prepare an asset for its intended use or sale. Capitalization recommences when the
activities are restarted. Capitalized borrowing costs are amortized over the useful life of the related asset.
80 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016 Leased assets
Leased assets from which we receive substantially all of the risks and rewards of ownership of the asset are
capitalized as finance leases at the lower of the fair value of the asset or the estimated present value of the minimum
lease payments. The corresponding lease obligation is recorded within debt on the balance sheet.
Assets under operating leases are not capitalized, and rental payments are expensed based on the terms of the lease.
Goodwill
We allocate goodwill arising from business combinations to each CGU or group of CGUs that are expected to receive
the benefits from the business combination. The carrying amount of the CGU or group of CGUs to which goodwill
has been allocated is tested annually for impairment or when there is an indication that the goodwill may be impaired.
Any impairment is recognized as an expense immediately. Should there be a recovery in the value of a CGU, any
impairment of goodwill previously recorded is not subsequently reversed.
Income Taxes
Taxes, comprising both income taxes and resource taxes, are accounted for as income taxes under IAS 12, Income
Taxes and are recognized in the statement of income, except where they relate to items recognized in other
comprehensive income (loss) or directly in equity, in which case the related taxes are recognized in other comprehensive
income (loss) or equity.
Current taxes receivable or payable are based on estimated taxable income for the current year at the statutory tax
rates enacted or substantively enacted less amounts paid or received on account.
Deferred tax assets and liabilities are recognized based on temporary differences (the difference between the tax and
accounting values of assets and liabilities) and are calculated using enacted or substantively enacted tax rates for the
periods in which the differences are expected to reverse. The effect of changes in tax legislation, including changes in
tax rates, is recognized in the period of substantive enactment.
Deferred tax assets are recognized only to the extent that it is probable that future taxable profits of the relevant entity
or group of entities in a particular jurisdiction will be available, against which the assets can be utilized.
Deferred tax liabilities are recognized for taxable temporary differences arising on investments in subsidiaries, joint
ventures and associates. However, we do not recognize such deferred tax liabilities where the timing of the reversal
of the temporary differences can be controlled without affecting our operations or business, and it is probable that
the temporary differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are not recognized if the temporary differences arise from the initial recognition of
goodwill or an asset or liability in a transaction, other than in a business combination, which will affect neither
accounting profit nor taxable profit.
We are subject to assessments by various taxation authorities, who may interpret tax legislation differently than we do. The
final amount of taxes to be paid depends on a number of factors, including the outcomes of audits, appeals or negotiated
settlements. We account for such differences based on our best estimate of the probable outcome of these matters.
Employee Benefits
Defined benefit pension plans
Defined benefit pension plan obligations are based on actuarial determinations. The projected unit credit method,
which sees each period of service as giving rise to an additional unit of benefit entitlement and measures each unit
separately to build up the final obligation, is used to determine the defined benefit obligations, the related current
service costs and, where applicable, the past service costs. Actuarial assumptions used in the determination of
defined benefit pension plan assets and liabilities are based upon our best estimates, including discount rates,
salary escalation, expected health care costs and retirement dates of employees.
Consolidated Financial Statements
81
3. Summary of Significant Accounting Policies (continued)
Vested and unvested costs arising from past service following the introduction of changes to a defined benefit plan
are recognized immediately as an expense when the changes are made.
Actuarial gains and losses can arise from differences between expected and actual outcomes or changes in actuarial
assumptions. Actuarial gains and losses, changes in the effect of asset ceiling rules and return on plan assets are
collectively referred to as remeasurements of retirement benefit plans and are recognized immediately through other
comprehensive income (loss) and directly into retained earnings. Measurement of our net defined benefit asset is
limited to the lower of the surplus in the defined benefit plan and the asset ceiling. The asset ceiling is the funded
status of the plan on an accounting basis, less the present value of the expected economic benefit available to us in
the form of refunds from the plan or reductions in future contributions to the plan.
We apply one discount rate to the net defined benefit asset or liability for the purposes of determining the interest
component of the defined benefit cost. This interest component is recorded as part of finance expense. Depending on
the classification of the salary of plan members, current service costs and past service costs are included in either
operating expenses or general and administration expenses.
Defined contribution pension plans
The cost of providing benefits through defined contribution plans is charged to profit as the obligation to contribute
is incurred.
Non-pension post-retirement plans
We provide health care benefits for certain employees when they retire. Non-pension post-retirement plan obligations
are based on actuarial determinations. The cost of these benefits is expensed over the period in which the employees
render services. We fund these non-pension post-retirement benefits as they become due.
Termination benefits
We recognize a liability and an expense for termination benefits when we have demonstrably committed to terminate
employees. We are demonstrably committed to a termination when, and only when, there is a formal plan for the
termination with no realistic possibility of withdrawal. The plan should include, at a minimum, the location, function
and approximate number of employees whose services are to be terminated, the termination benefits for each job
classification or function, and the time at which the plan will be implemented without significant changes.
Share-Based Payments
The fair value method of accounting is used for share-based payment transactions. Under this method, the cost of
share options and other equity-settled share-based payment arrangements is recorded based on the estimated fair
value at the grant date, including an estimate of the forfeiture rate, and charged to other operating income (expense)
over the vesting period. For employees eligible for normal retirement prior to vesting, the expense is charged to other
operating income (expense) over the period from the grant date to the date they are eligible for retirement.
Share-based payment expense relating to cash-settled awards, including deferred, restricted and performance share
units, is accrued over the vesting period of the units based on the quoted market value of Class B subordinate voting
shares. Performance share units (PSUs) have an additional vesting factor determined by our total shareholder return in
comparison to a group of specified companies. PSUs and performance deferred share units (PDSUs) issued in 2017
also have a vesting factor determined by the ratio of the change in our earnings before interest, taxes, depreciation
and amortization (EBITDA) over the life of the share unit to the change in a specified weighted commodity price index.
As these awards will be settled in cash, the expense and liability are adjusted each reporting period for changes in the
underlying share price as well as changes to the above-noted vesting factors, as applicable.
82 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016 Share Repurchases
Where we repurchase any of our equity share capital, the excess of the consideration paid over book value is
deducted from retained earnings.
Provisions
Decommissioning and restoration provisions
Future obligations to retire an asset and to restore a site, including dismantling, remediation and ongoing treatment
and monitoring of the site related to normal operations, are initially recognized and recorded as a provision based
on estimated future cash flows discounted at a credit-adjusted risk-free rate. This decommissioning and restoration
provision is adjusted at each reporting period for changes to factors including the expected amount of cash flows
required to discharge the liability, the timing of such cash flows and the discount rate.
The provisions are also accreted to full value over time through periodic charges to profit. This unwinding of the
discount is charged to finance expense in the statement of income.
The amount of the decommissioning and restoration provision initially recognized is capitalized as part of the related
asset’s carrying value. The method of depreciation follows that of the underlying asset. For a closed site or where
the asset that generated a decommissioning and restoration provision no longer exists, there is no longer any future
benefit related to the costs, and as such, the amounts are expensed through other operating income (expense).
For operating sites, a revision in estimates or a new disturbance will result in an adjustment to the provision with an
offsetting adjustment to the capitalized asset retirement cost.
During the operating life of an asset, events such as infractions of environmental laws or regulations may occur.
These events are not related to the normal operation of the asset. The costs associated with these provisions are
accrued and charged to other operating income (expense) in the period in which the event giving rise to the liability
occurs. Changes in the estimated liability resulting in an adjustment to the provision are also charged to other
operating income (expense) in the period in which the estimate changes.
Other provisions
Provisions are recognized when a present legal or constructive obligation exists as a result of past events, and it is
probable that an outflow of resources that can be reliably estimated will be required to settle the obligation. Where
the effect is material, the provision is discounted using an appropriate credit-adjusted risk-free rate.
Research and Development
Research costs are expensed as incurred. Development costs are only capitalized when the product or process is
clearly defined; the technical feasibility has been established; the future market for the product or process is clearly
defined; and we are committed, and have the resources, to complete the project.
Earnings per Share
Earnings per share is calculated based on the weighted average number of shares outstanding during the year.
For diluted earnings per share, dilution is calculated based upon the net number of common shares issued should
“in-the-money” options and warrants be exercised and the proceeds be used to repurchase common shares at
the average market price in the year.
Consolidated Financial Statements
83
4. Critical Accounting Estimates and Judgments
In preparing these consolidated financial statements, we make estimates and judgments that affect the amounts
recorded. Actual results could differ from our estimates. Our estimates and judgments are based on historical
experience and other factors we consider to be reasonable, including expectations of future events. The judgments
and other sources of estimation uncertainty that have a risk of resulting in a material adjustment to the carrying
amounts of assets and liabilities within the next year are outlined below.
Impairment Testing
Judgment is required in assessing whether certain factors would be considered an indicator of impairment or
impairment reversal. We consider both internal and external information to determine whether there is an indicator
of impairment or impairment reversal present and, accordingly, whether impairment testing is required. When
impairment testing is required, discounted cash flow models are used to determine the recoverable amount of
respective assets. These models are prepared internally with assistance from third-party advisors when required.
When market transactions for comparable assets are available, these are considered in determining the recoverable
amount of assets. Significant assumptions used in preparing discounted cash flow models include commodity prices,
reserves and resources, mine plans, operating costs, capital expenditures, discount rates, foreign exchange rates
and inflation rates. Note 6 outlines the significant inputs used when performing goodwill and other asset impairment
testing. These inputs are based on management’s best estimates of what an independent market participant
would consider appropriate. Changes in these inputs may alter the results of impairment testing, the amount of the
impairment charges or reversals recorded in the statement of income and the resulting carrying values of assets.
Property, Plant and Equipment – Determination of Available for Use Date
Judgment is required in determining the date that property, plant and equipment is available for use. An asset is
available for use when it is in the location and condition necessary to operate in the manner intended by management,
and at that time, we commence depreciation of the asset and cease capitalization of borrowing costs. We consider
a number of factors in making the determination of when an asset is available for use including, but not limited to,
design capacity of the asset, production levels achieved, capital spending remaining and commissioning status. The
Fort Hills oil sands project produced first oil in January 2018. We expect the project to be available for use, as defined
above, in the first half of 2018.
Joint Arrangements
We are a party to a number of arrangements over which we do not have control. Judgment is required in determining
whether joint control over these arrangements exists and, if so, which parties have joint control and whether each
arrangement is a joint venture or joint operation. In assessing whether we have joint control, we analyze the activities
of each arrangement and determine which activities most significantly affect the returns of the arrangement over its
life. These activities are determined to be the relevant activities of the arrangement. If unanimous consent is required
over the decisions about the relevant activities, the parties whose consent is required would have joint control over
the arrangement. The judgments around which activities are considered the relevant activities of the arrangement are
subject to analysis by each of the parties to the arrangement and may be interpreted differently. When performing this
assessment, we generally consider decisions about activities such as managing the asset while it is being designed,
developed and constructed, during its operating life and during the closure period. We may also consider other
activities including the approval of budgets, expansion and disposition of assets, financing, significant operating and
capital expenditures, appointment of key management personnel, representation on the board of directors and other
items. When circumstances or contractual terms change, we reassess the control group and the relevant activities
of the arrangement.
84 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016 If we have joint control over the arrangement, an assessment of whether the arrangement is a joint venture or joint
operation is required. This assessment is based on whether we have rights to the assets, and obligations for the
liabilities, relating to the arrangement or whether we have rights to the net assets of the arrangement. In making this
determination, we review the legal form of the arrangement, the terms of the contractual arrangement and other
facts and circumstances. In a situation where the legal form and the terms of the contractual arrangement do not give
us rights to the assets and obligations for the liabilities, an assessment of other facts and circumstances is required,
including whether the activities of the arrangement are primarily designed for the provision of output to the parties and
whether the parties are substantially the only source of cash flows contributing to the arrangement. In such circumstances,
we may consider the application of other facts and circumstances to conclude that a joint arrangement is a joint operation.
This conclusion requires judgment and is specific to each arrangement. Other facts and circumstances have led us to
conclude that Antamina and Fort Hills are joint operations for the purposes of our consolidated financial statements.
The other facts and circumstances considered for both of these arrangements are the provisions for output to the
parties of the joint arrangements. For both Antamina and Fort Hills, we will take our share of the output from the assets
directly over the life of the arrangement. We have concluded that this, combined with other factors, gives us direct
rights to the assets and obligations for the liabilities of these arrangements, proportionate to our ownership interests.
Streaming Transactions
When we enter into a long-term streaming arrangement linked to production at specific operations, judgment is
required in assessing the appropriate accounting treatment for the transaction on the closing date and in future periods.
We consider the specific terms of each arrangement to determine whether we have disposed of an interest in the
reserves and resources of the respective operation. This assessment considers what the counterparty is entitled to
and the associated risks and rewards attributable to them over the life of the operation. These include the contractual
terms related to the total production over the life of the arrangement as compared to the expected production over the
life of the mine, the percentage being sold, the percentage of payable metals produced, the commodity price referred
to in the ongoing payment and any guarantee relating to the upfront payment if production ceases.
For our silver and gold streaming arrangements entered into in 2015, there is no guarantee associated with the
upfront payment, and we have concluded that we have effectively disposed of the interest in the silver and gold
mineral interests at Antamina and Carmen de Andacollo, respectively. Accordingly, we consider these arrangements
a disposition of a mineral interest.
When the ongoing payment we receive is based on future commodity prices at the date deliveries are made, this may
be considered an embedded derivative (Note 28(c)). The valuation of embedded derivatives in these arrangements is
an area of estimation and is determined using discounted cash flow models. These models require a variety of inputs,
including, but not limited to, contractual terms, market prices, forward curve prices, mine plans and discount rates.
Changes in these assumptions could affect the carrying value of derivative assets or liabilities and the amount of
unrealized gains or losses recognized in other operating income (expense).
Estimated Recoverable Reserves and Resources
Mineral reserve and resource estimates are based on various assumptions relating to operating matters as set forth in
National Instrument 43-101, Standards of Disclosure for Mineral Projects and National Instrument 51-101, Standards of
Disclosure for Oil and Gas Activities. These include production costs, mining and processing recoveries, cut-off grades,
long-term commodity prices and, in some cases, exchange rates, inflation rates and capital costs. Cost estimates are
based on feasibility study estimates or operating history. Estimates are prepared by appropriately qualified persons,
but will be affected by forecasted commodity prices, inflation rates, exchange rates, capital and production costs, and
recoveries, among other factors. Estimated recoverable reserves and resources are used to determine the depreciation
of property, plant and equipment at operating mine sites, in accounting for capitalized production stripping costs, in
performing impairment testing, and in forecasting the timing of the payment of decommissioning and restoration costs.
Therefore, changes in the assumptions used could affect the carrying value of assets, depreciation and impairment
charges recorded in the statement of income and the carrying value of the decommissioning and restoration provision.
Consolidated Financial Statements
85
4. Critical Accounting Estimates and Judgments (continued)
Decommissioning and Restoration Provisions
The decommissioning and restoration provision (DRP) is based on future cost estimates using information available at the
balance sheet date (Note 22(a)). The DRP represents the present value of estimated costs of future decommissioning
and other site restoration activities. The DRP is adjusted at each reporting period for changes to factors such as the
expected amount of cash flows required to discharge the liability, the timing of such cash flows and the credit adjusted
discount rate. The decommissioning and restoration provision requires other significant estimates and assumptions,
including the requirements of the relevant legal and regulatory framework and the timing, extent and costs of required
decommissioning and restoration activities. To the extent the actual costs differ from these estimates, adjustments will
be recorded and the income statement may be affected.
During the year ended December 31, 2017, we updated our cost estimates for water quality management in the
Elk Valley, including post-closure water quality management costs. These updates have increased our DRP for water
quality management at Teck Coal to $394 million, which is an increase of approximately $244 million compared to
December 31, 2016. The DRP includes water quality management costs based on mining activities up to December 31, 2017
and does not incorporate future mining activities. The water quality management costs included in our DRP extend
for periods up to 100 years and are discounted using a nominal discount rate of 6.82% as at December 31, 2017.
The cash flow estimates are inflated at a rate of 2.00%.
Current and Deferred Taxes
We calculate current and deferred tax provisions for each of the jurisdictions in which we operate. Actual amounts
of income tax expense are not final until tax returns are filed and accepted by the relevant authorities. This occurs
subsequent to the issuance of our financial statements, and the final determination of actual amounts may not be
completed for a number of years. Therefore, profit in subsequent periods will be affected by the amount that
estimates differ from the final tax return.
Judgment is required in assessing whether deferred tax assets and certain deferred tax liabilities are recognized on
the balance sheet and what tax rate is expected to be applied in the year when the related temporary differences
reverse, particularly in regard to the utilization of tax loss carry-forwards. We also evaluate the recoverability of
deferred tax assets based on an assessment of our ability to use the underlying future tax deductions before they
expire against future taxable income. Deferred tax liabilities arising from temporary differences on investments in
subsidiaries, joint ventures and associates are recognized unless the reversal of the temporary differences is not
expected to occur in the foreseeable future and can be controlled. Assumptions about the generation of future taxable
profits and repatriation of retained earnings depend on management’s estimates of future production and sales
volumes, commodity prices, reserves and resources, operating costs, decommissioning and restoration costs, capital
expenditures, dividends and other capital management transactions. Judgment is also required on the application
of income tax legislation. These estimates and judgments are subject to risk and uncertainty and could result in an
adjustment to the deferred tax provision and a corresponding credit or charge to profit.
86 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016 5. Expenses by Nature
(CAD$ in millions)
Employment-related costs:
Wages and salaries
Employee benefits and other wage-related costs
Bonus payments
Post-employment benefits and pension costs
Transportation
Depreciation and amortization
Raw material purchases
Fuel and energy
Operating supplies consumed
Maintenance and repair supplies
Contractors and consultants
Overhead costs
Royalties
Other operating costs
Less:
Capitalized production stripping costs
Change in inventory
Total cost of sales, general and administration,
exploration and research and development expenses
2017
2016
$
$
899
236
192
122
1,449
1,331
1,467
824
657
569
698
570
287
453
9
858
250
162
112
1,382
1,270
1,385
876
596
558
586
427
293
312
13
8,314
7,698
(678)
12
(477)
(137)
$
7,648
$
7,084
Approximately 28% (2016 — 29%) of our costs are incurred at our foreign operations where the functional currency
is the U.S. dollar.
6. Asset and Goodwill Impairment Testing
a) Impairment Reversal and Asset Impairments
The following pre-tax impairment reversal and (asset impairments) were recorded in the statement of profit and loss:
Impairment Reversal and (Asset Impairments)
(CAD$ in millions)
Steelmaking coal CGU
Fort Hills oil sands project
Other
Total
2017
$
207
$
–
(44)
2016
–
(222)
(72)
$
163
$
(294)
Consolidated Financial Statements
87
6. Asset and Goodwill Impairment Testing (continued)
Steelmaking Coal CGU
As at December 31, 2017, we recorded a pre-tax impairment reversal of $207 million (after-tax $131 million) related
to one of the mines in our steelmaking coal CGU. The estimated post-tax recoverable amount of this mine was
significantly higher than the carrying value. This impairment reversal arose as a result of changes in short-term and
long-term market participant price expectations for steelmaking coal and expected future operating cost estimates
included in our annual goodwill impairment testing. The impairment reversal affects the profit (loss) of our steelmaking
coal operating segment (Note 27).
Fort Hills Project
For the year ended December 31, 2017, we noted an impairment indicator at Fort Hills and the recoverable amount of
the CGU was estimated.
As at December 31, 2017, we did not record an impairment charge for our share of the Fort Hills oil sands project as
our estimated post-tax recoverable amount of $3.7 billion approximately equaled our carrying value.
As at December 31, 2016, we recorded a pre-tax impairment charge of $222 million (after-tax $164 million) within our
property, plant and equipment balance related to our interest in Fort Hills. This was a result of our estimated post-tax
recoverable amount of $2.5 billion being lower than our carrying value.
Cash flow projections used in the 2017 and 2016 analyses were based on current life of mine plans at the testing date
and exploration potential and cash flows covered a period of 49 years and 44 years, respectively. We performed
impairment testing for Fort Hills in 2017 and 2016 as a result of an increase in development costs associated with the
Fort Hills oil sands project.
Other
During the year ended December 31, 2017, we recorded other asset impairments of $44 million relating to Quebrada
Blanca assets that will not be recovered through use and will not be used for Quebrada Blanca Phase 2.
During the year ended December 31, 2016, we recorded other asset impairments of $72 million, of which $46 million
related to a project at our Trail Operations that will not be completed and $26 million related to the Wintering Hills
Wind Power Facility, which was sold in 2017.
Sensitivity Analysis
The recoverable amount of Fort Hills is most sensitive to changes in WCS oil prices, the Canadian/U.S. dollar exchange
rates and discount rates. The key inputs used in our determination of recoverable amounts interrelate significantly
with each other and with our operating plans. For example, a decrease in long-term commodity prices would result
in us making amendments to the mine plans that would partially offset the effect of lower prices through lower
operating and capital costs. It is difficult to determine how all of these factors would interrelate, but in estimating the
effect of changes in these assumptions on fair values, we believe that all of these factors need to be considered
together. A linear extrapolation of these effects becomes less meaningful as the change in assumption increases.
Ignoring the above described interrelationships, in isolation a US$1 decrease in the long-term WCS oil price would
result in a reduction in the recoverable amount of $140 million. A $0.01 strengthening of the Canadian dollar against
the U.S. dollar would result in a reduction in the recoverable amount of $50 million. A 25 basis point increase in the
discount rate would result in a reduction in the recoverable amount of approximately $150 million.
88 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016 b) Annual Goodwill Impairment Testing
The allocation of goodwill to CGUs or groups of CGUs reflects how goodwill is monitored for internal management
purposes. Our Quebrada Blanca CGU and steelmaking coal CGU have goodwill allocated to them (Note 16).
In 2017, we performed our annual goodwill impairment testing at October 31 and did not identify any goodwill
impairment losses.
Cash flow projections are based on expected mine life. For our steelmaking coal operations, the cash flows cover
periods of 15 to 42 years with a steady state thereafter until reserves and resources are exhausted. For Quebrada
Blanca, the cash flows cover a period of 29 years, with a steady state thereafter until reserves and resources are
exhausted.
Given the nature of expected future cash flows used to determine the recoverable amount, a material change could
occur over time as the cash flows are significantly affected by the key assumptions described below in Note 6(c).
Sensitivity Analysis
Our annual goodwill impairment test carried out at October 31, 2017 resulted in the recoverable amount of our
steelmaking coal CGU exceeding its carrying value by approximately $6.2 billion. The recoverable amount of our
steelmaking coal CGU is most sensitive to the long-term Canadian dollar steelmaking coal price assumption. In
isolation, a 14% decrease in the long-term Canadian dollar steelmaking coal price would result in the recoverable
amount of the steelmaking coal CGU being equal to the carrying value.
The recoverable amount of Quebrada Blanca exceeded the carrying amount by approximately $1.2 billion at the date
of our annual goodwill impairment testing. The recoverable amount of Quebrada Blanca is most sensitive to the
long-term copper price assumption and the development timeline of Quebrada Blanca Phase 2 project. In isolation, a
6% decrease in the long-term copper price or a 3.5-year delay in the development of the Quebrada Blanca Phase 2
project would result in the recoverable amount of Quebrada Blanca being equal to its carrying value.
c) Key Assumptions
The following are the key assumptions used in our asset impairment, asset impairment reversal and goodwill
impairment analyses during the years ended December 31, 2017 and 2016:
(CAD$ in millions)
Steelmaking coal prices
Copper prices
Western Canadian Select (WCS)
Oil prices
2017
2016
Current price used in initial year,
decreased to a long-term price
in 2022 of US$140 per tonne
Current price used in initial year,
decreased to a long-term price in
2021 of US$130 per tonne
Current price used in initial year,
decreased to a long-term price
in 2022 of US$3.00 per pound
Current price used in initial year,
increased to a long-term price in
2021 of US$3.00 per pound
Current price used in initial year,
increased to a long-term price in
2022 of US$57 per barrel
Current price used in initial year,
increased to a long-term price in
2021 of US$57 per barrel
Discount rate
5.2% — 5.9%
5.5% — 6.0%
Long-term foreign exchange rate
1 U.S. to 1.25 Canadian dollars
1 U.S. to 1.25 Canadian dollars
Inflation rate
2%
2%
Consolidated Financial Statements
89
6. Asset and Goodwill Impairment Testing (continued)
Commodity Prices
Commodity price assumptions are based on a number of factors, including forward curves in the near term, and are
benchmarked with external sources of information, including information published by our peers and market transactions,
where possible, to ensure they are within the range of values used by market participants.
Discount Rates
Discount rates are based on a mining weighted average cost of capital for all mining operations and an oil sands
weighted average cost of capital for the Fort Hills oil sands project. For the year ended December 31, 2017, we used
a discount rate of 5.9% real, 8.0% nominal post-tax (2016 — 5.8% real, 7.9% nominal post-tax) for mining operations
and goodwill. For the year ended December 31, 2017, we used a discount rate of 5.2% real, 7.3% nominal post-tax
(2016 — 5.5% real, 7.6% nominal post-tax) for oil sands operations.
Foreign Exchange Rates
Foreign exchange rates are benchmarked with external sources of information based on a range used by market
participants. Long-term foreign exchange assumptions are from year 2022 onwards for analysis performed in
the year ended December 31, 2017 and are from year 2021 onwards for analysis performed in the year ended
December 31, 2016.
Inflation Rates
Inflation rates are based on average historical inflation for the location of each operation and long-term government
targets.
Reserves and Resources
Future mineral production is included in projected cash flows based on mineral reserve and resource estimates and
on exploration and evaluation work undertaken by appropriately qualified persons.
Operating Costs and Capital Expenditures
Operating costs and capital expenditures are based on life of mine plans and internal management forecasts. Cost
estimates incorporate management experience and expertise, current operating costs, the nature and location of each
operation, and the risks associated with each operation. Future capital expenditures are based on management’s best
estimate of expected future capital requirements, which are generally for the extraction and processing of existing
reserves and resources. All committed and anticipated capital expenditures based on future cost estimates have been
included in the projected cash flows. Operating cost and capital expenditure assumptions are continuously subjected
to ongoing optimization and review by management.
Recoverable Amount Basis
We estimate the recoverable amount of our CGUs on a fair value less costs of disposal (FVLCD) basis using a discounted
cash flow methodology and taking into account assumptions likely to be made by market participants unless it is
expected that the value-in-use methodology would result in a higher recoverable amount. For the asset impairment,
impairment reversal and goodwill impairment analyses performed in December 31, 2017 and 2016 (Note 6(a)),
we have applied the FVLCD basis. This is classified as a Level 3 measurement within the fair value measurement
hierarchy (Note 29).
90 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016 7. Other Operating Income (Expense)
(CAD$ in millions)
Settlement pricing adjustments (Note 28(b))
Share-based compensation
Environmental and care and maintenance costs
Social responsibility and donations
Gain on sale of assets
Commodity derivatives (Note 28(b) and Note 28(c))
Restructuring
Take or pay contract costs
Break fee in respect of Waneta Dam sale (Note 12)
Other
8. Finance Income and Finance Expense
(CAD$ in millions)
Finance income
Investment income
Total finance income
Finance expense
Debt interest
Letters of credit and standby fees
Net interest expense on retirement benefit plans
Accretion on decommissioning and restoration provisions (Note 22(a))
Other
Less capitalized borrowing costs (Note 15(c))
2017
$
190
$
(125)
(186)
(7)
35
12
(11)
(81)
(28)
(29)
2016
153
(171)
(144)
(25)
62
32
(8)
(48)
–
(48)
$
(230)
$
(197)
2017
2016
$
$
17
17
$
$
16
16
$
385
$
476
70
12
81
14
562
(333)
62
14
55
13
620
(266)
Total finance expense
$
229
$
354
9. Non-Operating Income (Expense)
(CAD$ in millions)
Foreign exchange gains
Gain on debt prepayment options (Note 28(b))
Gain on sale of investments
Gain (loss) on debt repurchases (Note 18(a) and Note 18(b))
Provision for marketable securities
$
2017
2016
$
5
51
9
(216)
–
46
113
34
49
(3)
$
(151)
$
239
Consolidated Financial Statements
91
10. Supplemental Cash Flow Information
(CAD$ in millions)
Cash and cash equivalents
Cash
Investments with maturities from the date of acquisition of three months or less
(CAD$ in millions)
Net change in non-cash working capital items
Trade accounts receivable
Inventories
Trade accounts payable and other liabilities
11. Inventories
(CAD$ in millions)
Supplies
Raw materials
Work in-process
Finished products
Less long-term portion (Note 13)
December 31, December 31,
2017
2016
$
$
$
230
722
254
1,153
952
$
1,407
2017
2016
$
(250)
$
(480)
(1)
345
(86)
206
$
94
$
(360)
December 31, December 31,
$
$
2017
563
223
529
430
1,745
(108)
2016
586
204
521
449
1,760
(87)
$
1,637
$
1,673
Cost of sales of $7.4 billion (2016 — $6.9 billion) include $6.7 billion (2016 — $6.3 billion) of inventories recognized
as an expense during the year.
Total inventories held at net realizable value amounted to $17 million at December 31, 2017 (December 31, 2016
— $53 million). Total inventory write-downs in 2017 were $20 million (2016 — $7 million) and were included as part
of cost of sales. Total reversals of inventory write-downs previously recorded were $30 million in 2017 (2016 —
$23 million) as a result of an increase in net realizable value primarily relating to commodity price increases. These
reversals were included as part of cost of sales.
Long-term inventories consist of ore stockpiles and other in-process materials that are not expected to be processed
within one year.
92 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
12. Assets Held for Sale
During the year ended December 31, 2017, we announced an agreement to sell our two-thirds interest in the Waneta
Dam and related transmission assets for $1.2 billion cash to Fortis Inc. (Fortis). Under the agreement, we were granted a
20-year lease with an option to extend for an additional 10 years to use Fortis’ two-thirds interest in the Waneta Dam,
which entitles us to power for our Trail Operations. During the third quarter of 2017, BC Hydro exercised their right of
first offer in respect of this transaction on materially the same terms. The closing of the transaction with BC Hydro is
subject to customary conditions, including receipt of regulatory approvals and certain consents and is not expected to
close before the third quarter of 2018. During the year, we paid a break fee of $28 million to Fortis, which was recorded
as part of other operating income (expense) (Note 7).
We have reclassified the carrying value of the Waneta Dam and related transmission assets to “assets held for sale”
and ceased depreciation on these assets in accordance with the requirements of IFRS 5, Non-current Assets Held for
Sale and Discontinued Operations. There were no adjustments required to the carrying amount of the Waneta Dam
assets on reclassification to assets held for sale as the FVLCD exceeded the carrying amount.
The Waneta Dam is a hydroelectric dam that is located near the Trail smelter. We hold a two-thirds interest in the
Waneta Dam and report this asset in our zinc operating segment (Note 27).
13. Financial and Other Assets
(CAD$ in millions)
December 31, December 31,
2017
2016
Long-term receivables and deposits
$
Available-for-sale marketable equity and debt securities carried at fair value
Debt prepayment options (Note 28(c))
Derivative assets
Pension plans in a net asset position (Note 21(a))
Long-term portion of inventories (Note 11)
Intangibles
Other
14. Investments in Associates and Joint Ventures
(CAD$ in millions)
At January 1, 2016
Contributions
Changes in foreign exchange rates
Share of income
Share of other comprehensive income
At December 31, 2016
Contributions
Changes in foreign exchange rates
Share of income
Share of other comprehensive income
Acquisition of AQM Copper Inc.
$
209
156
108
12
339
108
76
43
249
163
139
1
283
87
74
38
$
1,051
$
1,034
NuevaUnión
Other
Total
$
$
959
13
(28)
2
–
946
43
(64)
4
–
–
$
58
$
1,017
8
(1)
–
1
21
(29)
2
1
$
66
$
1,012
4
1
2
(1)
(58)
47
(63)
6
(1)
(58)
943
Consolidated Financial Statements
93
At December 31, 2017
$
929
$
14
$
15. Property, Plant and Equipment
(CAD$ in millions)
At December 31, 2015
Exploration
and
Evaluation
Land, Capitalized
Buildings, Production
Plant and
Properties Equipment
Mineral
Stripping Construction
In Progress
Costs
Total
Cost
$ 1,600
$ 18,001
$ 13,208
$
3,761
$
3,186
$ 39,756
Accumulated depreciation
–
(4,776)
(6,574)
(1,615)
–
(12,965)
Net book value
$ 1,600
$ 13,225
$ 6,634
$
2,146
$
3,186
$ 26,791
Year ended December 31, 2016
Opening net book value
$ 1,600
$ 13,225
$ 6,634
$
2,146
$
3,186
$ 26,791
Additions
Disposals
Asset impairments (Note 6)
Depreciation and amortization
Transfers between classifications
Decommissioning and restoration
provision change in estimate
Capitalized borrowing costs
Other
Changes in foreign
exchange rates
24
–
–
–
–
–
–
(9)
(2)
47
–
–
(356)
–
633
91
–
173
(10)
(26)
(657)
276
26
–
(6)
531
1,112
1,887
–
–
–
(268)
(10)
(294)
(500)
–
(1,513)
–
–
–
–
(276)
–
–
175
–
659
266
(15)
(78)
(58)
(16)
(22)
(176)
Closing net book value
$
1,613
$ 13,562
$ 6,352
$
2,161
$ 3,907
$ 27,595
At December 31, 2016
Cost
$
1,613
$ 18,667
$ 13,517
$ 4,269
$ 3,907
$ 41,973
Accumulated depreciation
–
(5,105)
(7,165)
(2,108)
–
(14,378)
Net book value
$
1,613
$ 13,562
$ 6,352
$
2,161
$ 3,907
$ 27,595
94 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
(CAD$ in millions)
Year ended December 31, 2017
Exploration
and
Evaluation
Land, Capitalized
Buildings, Production
Plant and
Properties Equipment
Mineral
Stripping Construction
In Progress
Costs
Total
Opening net book value
$
1,613
$ 13,562
$ 6,352
$
2,161
$ 3,907
$ 27,595
Additions
Disposals
Impairment reversal and (asset
impairments) (Note 6)
Depreciation and amortization
Transfers between classifications
Decommissioning and restoration
provision change in estimate
Capitalized borrowing costs
Reclass of Waneta Dam and other
Changes in foreign
exchange rates
171
–
–
–
–
–
–
–
174
–
207
(368)
(8)
501
102
40
562
(67)
(44)
(640)
104
24
–
(394)
742
1,284
2,933
–
–
(566)
–
–
–
–
–
–
–
(96)
–
231
–
(67)
163
(1,574)
–
525
333
(354)
(10)
(240)
(155)
(39)
(65)
(509)
Closing net book value
$
1,774
$ 13,970
$
5,742
$ 2,298
$ 5,261
$ 29,045
At December 31, 2017
Cost
$
1,774
$ 19,329
$ 12,948
$ 4,561
$ 5,261
$ 43,873
Accumulated depreciation
–
(5,359)
(7,206)
(2,263)
–
(14,828)
Net book value
$
1,774
$ 13,970
$
5,742
$ 2,298
$ 5,261
$ 29,045
a) Exploration and Evaluation
Significant exploration and evaluation projects in property, plant and equipment include Galore Creek and non-Fort
Hills oil sands properties in Alberta.
b) Finance Leases
The net carrying value of property, plant and equipment held under finance lease (Note 18(c)) at December 31, 2017
is $406 million (2016 — $220 million), of which $192 million (2016 — $220 million) is included in land, buildings,
plant and equipment and $214 million (2016 — $nil) is included in construction in progress for our share of the pipeline
leases of the Fort Hills oil sands project. Ownership of leased assets remains with the lessor.
c) Borrowing Costs
Borrowing costs are capitalized at a rate based on our weighted average cost of borrowing or at the rate on the
project-specific debt, as applicable. These projects are shown as part of mineral properties and leases, land, buildings,
plant and equipment, or construction in progress. Our weighted average borrowing rate used for capitalization of
borrowing costs in 2017 was 5.8% (2016 — 5.7%).
Consolidated Financial Statements
95
16. Goodwill
(CAD$ in millions)
January 1, 2016
Changes in foreign exchange rates
December 31, 2016
Changes in foreign exchange rates
December 31, 2017
Steelmaking
Coal Operations
Quebrada
Blanca
Total
$
$
$
702
$
425
$
1,127
–
702
$
–
(13)
412
(27)
(13)
$
1,114
(27)
702
$
385
$
1,087
The results of our annual goodwill impairment analysis and key assumptions used in the analysis are outlined in
Notes 6(b) and 6(c).
17. Trade Accounts Payable and Other Liabilities
(CAD$ in millions)
December 31, December 31,
2017
2016
Trade accounts payable and accruals
$
1,150
$
Capital project accruals
Payroll-related liabilities
Accrued interest
Commercial and government royalties
Customer deposits
Current portion of provisions (Note 22(a))
Current portion of deferred consideration (Note 20)
Other
149
420
120
296
19
133
23
3
986
142
252
148
246
18
71
32
7
$
2,313
$
1,902
96
Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
18. Debt
($ in millions)
3.15% notes due January 2017
$
3.85% notes due August 2017
2.5% notes due February 2018
3.0% notes due March 2019 (a)
4.5% notes due January 2021 (a)
8.0% notes due June 2021 (a)(b)
4.75% notes due January 2022 (a)
3.75% notes due February 2023 (a)(b)
8.5% notes due June 2024 (b)
6.125% notes due October 2035 (b)
6.0% notes due August 2040 (b)
6.25% notes due July 2041 (b)
5.2% notes due March 2042 (b)
5.4% notes due February 2043 (b)
Antamina term loan due April 2020
Finance lease liabilities (c)
Other
December 31, 2017
December 31, 2016
Face
Value
(US$)
Fair
Carrying
Value
Value
(CAD$) (CAD$)
Face
Value
(US$)
Carrying
Value
(CAD$)
Fair
Value
(CAD$)
–
–
22
–
220
–
672
646
600
609
491
795
399
377
$
–
–
28
–
274
–
841
804
753
751
613
986
494
468
$
–
–
28
–
285
–
884
818
853
865
686
1,144
502
481
$
34
16
22
278
500
650
700
670
600
609
491
795
399
377
$
45
21
30
372
668
866
936
891
806
804
658
$
45
21
30
375
685
963
951
858
935
801
623
1,055
1,043
528
500
477
450
4,831
23
6,012
28
6,546
28
6,141
23
8,180
30
8,257
30
250
13
313
16
313
16
86
13
115
18
115
18
5,117
6,369
6,903
6,263
8,343
8,420
Less current portion of debt
(45)
(55)
(55)
(74)
(99)
(99)
$ 5,072
$ 6,314
$ 6,848
$ 6,189
$ 8,244
$ 8,321
The fair values of debt are determined using market values, if available, and discounted cash flows based on our cost
of borrowing where market values are not available. The latter are considered Level 2 fair value measurements with
significant other observable inputs on the fair value hierarchy (Note 29).
Consolidated Financial Statements
97
18. Debt (continued)
a) Debt Transactions — 2017
During the year ended December 31, 2017, we purchased US$1.26 billion aggregate principal amount of our
outstanding notes pursuant to cash tender offers, make-whole redemptions and open-market purchases. The principal
amount of notes purchased was US$278 million of 3.00% notes due 2019, US$280 million of 4.50% notes due
January 2021, US$650 million of 8.00% notes due June 2021 (June 2021 notes), US$28 million of 4.75% notes due
2022 and US$24 million of 3.75% notes due 2023. The total cost of the purchases, which was funded from cash
on hand, including the premiums, was US$1.36 billion. We recorded a pre-tax accounting charge of $216 million
($159 million after-tax) in non-operating income (expense) (Note 9) in connection with these purchases for the year
ended December 31, 2017. The accounting charge of $216 million included $75 million relating to the write-off of
the prepayment option recorded in other assets for the June 2021 notes (Note 28(c)).
b) Debt Transactions — 2016
In 2016, we purchased US$759 million aggregate principal amount of our outstanding notes through private and open
market purchases. The principal amount of notes purchased was US$80 million of 3.75% notes due 2023, US$91 million
of 6.125% notes due 2035, US$159 million of 6.00% notes due 2040, US$205 million of 6.25% notes due 2041,
US$101 million of 5.20% notes due 2042 and US$123 million of 5.40% notes due 2043. The total cost of the purchases
was US$693 million. We recorded a pre-tax accounting gain of $76 million (after-tax $67 million) in non-operating
income (expense) (Note 9) in connection with these purchases for the year ended December 31, 2016.
In 2016, we issued US$650 million of senior unsecured notes due June 2021 which were repurchased in 2017. We
also issued US$600 million of senior unsecured notes due June 2024 (2024 notes). The 2024 notes have a coupon
of 8.50% per annum and an effective interest rate, after taking into account issuance costs and the prepayment
option value, of 8.49%. These notes were issued at par value and are callable on or after June 1, 2019 at predefined
prices based on the date of redemption. Prior to June 1, 2019, the 2024 notes can be redeemed, in whole or in part,
at a redemption price equal to the principal amount plus accrued interest to, but not including, the date of redemption
and a make-whole call premium. Our obligations under these notes are guaranteed on a senior unsecured basis by
TML, Teck Coal, Teck South American Holdings Ltd. (formerly Teck Financial Corporation Ltd.), TCL U.S. Holdings
Ltd., TAK and Highland Valley Copper, each a wholly owned subsidiary of Teck. The 2016 indenture limits the
aggregate amount of additional indebtedness for borrowed money that the subsidiary guarantors may guarantee or
otherwise incur to 10% of consolidated net tangible assets, subject to certain specified exceptions.
Net proceeds from these issuances in 2016, after underwriting and issuance costs, were US$1.227 billion. We used
these proceeds and cash on hand to purchase US$1.25 billion aggregate principal amount of our outstanding notes in
2016 pursuant to cash tender offers. The principal amount of notes purchased in 2016 pursuant to the tender offers
was US$266 million of 3.15% notes due 2017, US$284 million of 3.85% notes due 2017, US$478 million of 2.50%
notes due 2018 and US$222 million of 3.00% notes due 2019. The total cost of the purchases, including the premium
for the purchase, was US$1.267 billion. We recorded a pre-tax accounting charge of $27 million (after-tax $23 million)
in non-operating income (expense) on these transactions (Note 9) during the year ended December 31, 2016.
The 2024 notes include a prepayment option that is considered to be an embedded derivative (Note 28(c)).
c) Finance Lease Liabilities
As at December 31, 2017, the carrying amount of assets under finance leases is $406 million (Note 15(b)) and the
corresponding finance lease liabilities are $313 million.
98 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016 Minimum lease payments in respect of finance lease liabilities and the effect of discounting are as follows:
(CAD$ in millions)
Undiscounted minimum finance lease payments:
Less than one year
One to five years
Thereafter
Effect of discounting
Present value of minimum finance lease payments — total finance lease liabilities
Less current portion
Long-term finance lease liabilities
December 31, December 31,
2017
2016
$
$
51
134
554
739
(426)
313
(27)
$
286
$
34
43
62
139
(24)
115
(33)
82
The present value of finance lease liabilities and their expected timing of payment are as follows:
(CAD$ in millions)
Less than one year
One to five years
Thereafter
Total
December 31, December 31,
$
2017
48
106
159
$
2016
34
39
42
$
313
$
115
Fort Hills has a service agreement with TransCanada Corp. for the operation of the Northern Courier Pipeline to
transport bitumen between the Fort Hills oil sands project and Fort McMurray, Alberta, for a period of 25 years with
an option to renew for four additional five-year periods. As at December 31, 2017, our share of the related lease liability
was $207 million.
d) Optional Redemptions
All of our outstanding notes, except the 2024 notes, are redeemable at any time by repaying the greater of the
principal amount and the present value of the sum of the remaining scheduled principal and interest amounts
discounted at a comparable treasury yield plus a stipulated spread, plus, in each case, accrued interest to, but not
including, the date of redemption. In addition, the 2023, 2042 and 2043 notes issued in 2012 are callable at 100%
(plus accrued interest to, but not including, the date of redemption) at any time on or after November 1, 2022,
September 1, 2041, and August 1, 2042, respectively. The 2022 and 2041 notes issued in 2011 are callable at 100%
at any time on or after October 15, 2021, and January 15, 2041, respectively. The January 2021 notes are callable
at 100% on or after October 15, 2020, and the 2040 notes are callable at 100% on or after February 15, 2040.
The 2024 notes issued during the year ended December 31, 2016, can be redeemed as described in (b).
Consolidated Financial Statements
99
18. Debt (continued)
e) Revolving Facilities
At December 31, 2017, we had two committed revolving credit facilities in the amounts of US$3.0 billion and
US$1.2 billion, respectively. The US$3.0 billion facility is available until October 2022 and is undrawn at December 31,
2017. The US$1.2 billion facility is available until October 2020 and has an aggregate of US$809 million in outstanding
letters of credit drawn against it at December 31, 2017.
Under our US$3.0 billion and US$1.2 billion facilities, our uncommitted credit facilities, certain standby letters of
credit and hedging lines, we have provided subsidiary guarantees for the benefit of the credit facilities. As a result,
our obligations under these agreements are guaranteed on a senior unsecured basis by TML, Teck Coal, Teck South
American Holdings Ltd., TCL U.S. Holdings Ltd., TAK and Highland Valley Copper, each a wholly owned subsidiary
of Teck.
Any amounts drawn under the committed revolving credit facilities can be repaid at any time and are due in full at
maturity. While Teck has non-investment grade credit ratings, amounts outstanding under these facilities bear interest
at LIBOR plus an applicable margin based on our leverage ratio. If and when Teck regains investment grade credit
ratings, amounts outstanding under these facilities will bear interest at LIBOR plus an applicable margin based on credit
ratings. Both facilities require that our total debt-to-capitalization ratio, which was 0.25 to 1.0 at December 31, 2017,
not exceed 0.5 to 1.0.
When our credit ratings are below investment grade, we are required to satisfy financial security requirements under
power purchase agreements at Quebrada Blanca and transportation, tank storage and pipeline capacity agreements
for our interest in Fort Hills. At December 31, 2017, we had an aggregate of US$839 million in letters of credit
outstanding for these security requirements. These letters of credit will be terminated if and when we regain
investment grade ratings and for the power purchase agreements will also be reduced, if, and when, certain project
milestones are reached.
We maintain uncommitted bilateral credit facilities primarily for the issuance of letters of credit to support our future
reclamation obligations. As at December 31, 2017, we were party to various uncommitted credit facilities providing for
a total of $1.46 billion of capacity, and the aggregate outstanding letters of credit issued thereunder were $1.27 billion.
In addition to the letters of credit outstanding under these uncommitted credit facilities, we also had stand-alone
letters of credit of $336 million outstanding at December 31, 2017, which were not issued under a credit facility.
These uncommitted credit facilities and stand-alone letters of credit are typically renewed on an annual basis.
We also have $350 million in surety bonds outstanding at December 31, 2017, to support current and future
reclamation obligations.
f) Scheduled Principal Payments
At December 31, 2017, the scheduled principal payments excluding finance lease liabilities (c), during the next five
years and thereafter are as follows:
($ in millions)
2018
2019
2020
2021
2022
Thereafter
100 Teck 2017 Annual Report | Horizons
$
US$
22
–
23
220
672
3,930
CAD$
Equivalent
$
28
–
28
275
844
4,930
$
4,867
$
6,105
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
g) Debt Continuity
($ in millions)
As at January 1
Cash flows
Issuance of debt
Scheduled debt repayments
Debt repurchases
Finance lease payments (c)
Non-cash changes
Issuance of debt
Loss (gain) on debt repurchases (a)(b)
Changes in foreign exchange rates
Finance lease liabilities (c)
Finance fees and discount amortization
US$
CAD$ Equivalent
2017
2016
2017
2016
$
6,213
$
6,961
$
8,343
$
9,634
–
(49)
(1,356)
(26)
–
105
–
187
3
1,227
–
(1,960)
(22)
17
(37)
–
21
6
–
(64)
(1,831)
(34)
–
141
(424)
234
4
1,567
–
(2,531)
(29)
22
(49)
(308)
28
9
As at December 31
$
5,077
$
6,213
$
6,369
$
8,343
19. Income Taxes
a) Provision for Income Taxes
(CAD$ in millions)
Current
Current taxes on profits for the year
Adjustments for current taxes of prior periods
Total current taxes
Deferred
Origination and reversal of temporary differences
Adjustments to deferred taxes of prior periods
Tax losses not recognized (recognition of previously unrecognized losses)
Effect due to tax legislative changes
Total deferred taxes
2017
2016
$
1,014
$
(15)
999
$
444
$
23
(9)
(19)
439
1,438
$
$
$
$
$
$
551
(14)
537
42
(2)
(10)
20
50
587
Consolidated Financial Statements
101
19. Income Taxes (continued)
b) Reconciliation of income taxes calculated at the Canadian statutory income tax rate to the actual provision for
income taxes is as follows:
(CAD$ in millions)
Tax (recovery) expense at the Canadian statutory income tax rate of
26.10% (2016 — 26.10%)
Tax effect of:
Resource taxes
Resource and depletion allowances
Non-temporary differences including one-half of capital gains and losses
Tax pools not recognized (recognition of previously unrecognized tax pools)
Effect due to tax legislative changes
Withholding taxes
Difference in tax rates in foreign jurisdictions
Revisions to prior year estimates
Other
2017
2016
$
1,038
$
425
371
(128)
14
(9)
(19)
57
129
12
(27)
170
(110)
(15)
(10)
20
40
90
(5)
(18)
$
1,438
$
587
Effective January 1, 2018, the Canadian statutory tax rate increased by 1% due to the British Columbia legislative
change which resulted in an increase to deferred tax liabilities of $82 million.
As a result of the enacted U.S. tax reform, our statutory U.S. federal income tax rate decreased from 35% to 21%.
Accordingly, a $101 million reduction in our deferred tax liabilities was recorded, which relates to the reduction in
corporate income tax rate and the repeal of the corporate alternative minimum tax regime.
c) The amount of deferred tax expense charged (credited) to the income statement is as follows:
(CAD$ in millions)
Net operating loss carryforwards
Capital allowances in excess of depreciation
Decommissioning and restoration provisions
U.S. alternative minimum tax credits
Unrealized foreign exchange losses
Withholding taxes
Retirement benefit plans
Other temporary differences
$
$
2017
133
775
(393)
(31)
89
(10)
4
(128)
$
439
$
2016
(154)
311
(212)
(9)
113
4
2
(5)
50
102 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
d) Temporary differences giving rise to deferred income tax assets and liabilities are as follows:
(CAD$ in millions)
Net operating loss carryforwards
Property, plant and equipment
Decommissioning and restoration provisions
U.S. alternative minimum tax credits
Retirement benefit plans
Other temporary differences
Deferred income tax assets
Net operating loss carryforwards
Property, plant and equipment
Decommissioning and restoration provisions
U.S. alternative minimum tax credits
Unrealized foreign exchange
Withholding taxes
Retirement benefit plans
Other temporary differences
Deferred income tax liabilities
e) The general movement in the net deferred income taxes account is as follows:
(CAD$ in millions)
As at January 1
Income statement change
Amounts recognized in equity
Tax charge relating to components of other comprehensive income
Foreign exchange and other differences
As at December 31
f) Deferred Tax Liabilities Not Recognized
December 31, December 31,
2017
2016
$
58
$
$
$
$
$
(189)
78
143
23
41
154
(1,059)
7,390
(754)
–
(135)
79
(22)
(101)
32
35
–
–
–
45
112
(1,218)
6,881
(439)
(112)
(224)
89
(92)
11
$
5,398
$
4,896
2017
2016
$
4,784
$
4,738
439
–
90
(69)
50
6
37
(47)
$
5,244
$
4,784
Deferred tax liabilities of $694 million (2016 — $730 million) have not been recognized on the unremitted earnings associated
with investments in subsidiaries and interests in joint arrangements where we are in a position to control the timing of the
reversal of the temporary differences, and it is probable that such differences will not reverse in the foreseeable future.
g) Loss Carryforwards and Canadian Development Expenses
At December 31, 2017, we had $3.63 billion of Canadian federal net operating loss carryforwards (2016 — $4.57 billion).
These loss carryforwards expire at various dates between 2028 and 2036. We have $981 million of cumulative Canadian
development expenses at December 31, 2017 (2016 — $1.33 billion), which are deductible for income tax purposes
on a declining balance basis at a maximum rate of 30% per year. The deferred tax benefits of these pools have been
recognized. In addition, we have $103.7 million of Canadian federal and provincial investment tax credits that expire at
various dates between 2021 and 2037.
Consolidated Financial Statements
103
h) Deferred Tax Assets Not Recognized
We have not recognized $231 million (2016 — $270 million) of deferred tax assets associated with unused tax credits
and tax pools in entities and jurisdictions that do not have established sources of taxable income.
20. Deferred Consideration
In 2015, we entered into a long-term streaming agreement with a subsidiary of Franco-Nevada Corporation (Franco-
Nevada) linked to our share of silver production at the Antamina mine.
We received a payment of $789 million (US$610 million) from Franco-Nevada on closing of the transaction, and we
receive 5% of the spot price at the time of delivery for each ounce of silver delivered under the agreement. We deliver
silver to Franco-Nevada equivalent to 22.5% of payable silver sold by Antamina, which represents our proportionate
share of silver produced by Antamina. In the event that 86 million ounces of silver has been delivered under the
agreement, the stream will be reduced by one-third to 15% of payable silver sold by Antamina.
Antamina is not a party to the agreement with Franco-Nevada, and our rights as a shareholder of Antamina are
unaffected by the agreement.
The following table summarizes the movements in deferred consideration for the years ended December 31, 2017, and 2016:
(CAD$ in millions)
As at January 1
Recognized in profit
Changes in foreign exchange rates
As at December 31
Less current portion of deferred consideration (Note 17)
Long-term deferred consideration
21. Retirement Benefit Plans
2017
2016
$
755
$
(32)
(49)
674
(23)
$
651
$
$
$
816
(36)
(25)
755
(32)
723
We have defined contribution pension plans for certain groups of employees. Our share of contributions to these
plans is expensed in the year earned by employees.
We have multiple defined benefit pension plans registered in various jurisdictions that provide benefits based
principally on employees’ years of service and average annual remuneration. These plans are only available to certain
qualifying employees, and some are now closed to additional members. The plans are “flat-benefit” or “final-pay”
plans and may provide for inflationary increases in accordance with certain plan provisions. All of our registered
defined benefit pension plans are governed and administered in accordance with applicable pension legislation in
either Canada or the United States. Actuarial valuations are performed at least every three years to determine
minimum annual contribution requirements as prescribed by applicable legislation. For the majority of our plans,
current service costs are funded based on a percentage of pensionable earnings or as a flat dollar amount per active
member depending on the provisions of the pension plans. Actuarial deficits are funded in accordance with minimum
funding regulations in each applicable jurisdiction. All of our defined benefit pension plans were actuarially valued
within the past three years. While the majority of benefit payments are made from registered held-in-trust funds,
there are also several unregistered and unfunded plans where benefit payment obligations are met as they fall due.
We also have several post-retirement benefit plans that provide post-retirement medical, dental and life insurance
benefits to certain qualifying employees and surviving spouses. These plans are unfunded, and we meet benefit
obligations as they come due.
104 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
a) Actuarial Valuation of Plans
(CAD$ in millions)
2017
2016
$
Defined benefit obligation
Balance at beginning of year
Current service cost
Past service costs arising from plan improvements
Benefits paid
Interest expense
Obligation experience adjustments
Effect from change in financial assumptions
Effect from change in demographic assumptions
Changes in foreign exchange rates
Balance at end of year
Fair value of plan assets
Fair value at beginning of year
Interest income
Return on plan assets, excluding amounts
included in interest income
Benefits paid
Contributions by the employer
Changes in foreign exchange rates
Fair value at end of year
Funding surplus (deficit)
Less effect of the asset ceiling
Balance at beginning of year
Interest on asset ceiling
Change in asset ceiling
Balance at end of year
Defined Non-Pension
Post-
Benefit
Retirement
Pension
Plans Benefit Plans
Defined Non-Pension
Post-
Benefit
Retirement
Pension
Plans Benefit Plans
$
$
$
2,106
48
10
(153)
79
27
119
–
(12)
2,224
2,342
88
212
(153)
31
(10)
2,510
286
58
3
(17)
44
538
24
–
(23)
22
(22)
25
(104)
(5)
455
–
–
–
(23)
23
–
–
(455)
–
–
–
–
2,112
46
7
(151)
79
(8)
33
(6)
(6)
2,106
2,312
87
63
(151)
36
(5)
2,342
236
36
1
21
58
518
21
1
(19)
21
2
8
(13)
(1)
538
–
–
–
(19)
19
–
–
(538)
–
–
–
–
Net accrued retirement benefit asset (liability)
$
242
$
(455)
$
178
$
(538)
Represented by:
Pension assets (Note 13)
Accrued retirement benefit liability
Net accrued retirement benefit asset (liability)
$
$
$
339
(97)
$
–
(455)
$
283
(105)
242
$
(455)
$
178
$
–
(538)
(538)
A number of the plans have a surplus totalling $44 million at December 31, 2017 (December 31, 2016 — $58 million),
which is not recognized on the basis that future economic benefits are not available to us in the form of a reduction
in future contributions or a cash refund.
In 2017, we recorded a $104 million gain through other comprehensive income (loss) as a result of changes in
assumptions related to a reduction in future Medical Services Plan premiums required for post-retirement benefit
plan members in the Province of British Columbia.
Consolidated Financial Statements
105
21. Retirement Benefit Plans (continued)
We expect to contribute $28 million to our defined benefit pension plans in 2018 based on minimum funding
requirements. The weighted average duration of the defined benefit pension obligation is 14 years and the weighted
average duration of the non-pension post-retirement benefit obligation is 17 years.
Defined contribution expense for 2017 was $44 million (2016 — $44 million).
b) Significant Assumptions
The discount rate used to determine the defined benefit obligations and the net interest cost was determined by
reference to the market yields on high-quality debt instruments at the measurement date with durations similar to
the duration of the expected cash flows of the plans.
Weighted average assumptions used to calculate the defined benefit obligation at the end of each year are as follows:
Discount rate
Rate of increase in future compensation
Initial medical trend rate
Ultimate medical trend rate
Years to reach ultimate medical trend rate
2017
2016
Defined Non-Pension
Benefit
Post-
Retirement
Pension
Plans Benefit Plans
Defined Non-Pension
Benefit
Post-
Pension
Retirement
Benefit Plans
Plans
3.36%
3.25%
–
–
–
3.44%
3.25%
5.00%
5.00%
–
3.74%
3.25%
–
–
–
3.79%
3.25%
5.50%
5.00%
2
c) Sensitivity of the defined benefit obligation to changes in the weighted average assumptions:
2017
Effect on Defined Benefit Obligation
Change in
Assumption
Increase in
Assumption
Decrease in
Assumption
Discount rate
Rate of increase in future compensation
Medical cost claim trend rate
1.0%
1.0%
1.0%
Decrease by 15%
Increase by 17%
Increase by 1%
Decrease by 1%
Increase by 2%
Decrease by 2%
2016
Effect on Defined Benefit Obligation
Change in
Assumption
Increase in
Assumption
Decrease in
Assumption
Discount rate
Rate of increase in future compensation
Medical cost claim trend rate
1.0%
1.0%
1.0%
Decrease by 13%
Increase by 15%
Increase by 1%
Decrease by 1%
Increase by 2%
Decrease by 2%
The above sensitivity analyses are based on a change in each actuarial assumption while holding all other assumptions
constant. The sensitivity analyses on our defined benefit obligation are calculated using the same methods as those
used for calculating the defined benefit obligation recognized on our balance sheet. The methods and types of
assumptions used in preparing the sensitivity analyses did not change from the prior period.
106 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
d) Mortality Assumptions
Assumptions regarding future mortality are set based on management’s best estimate in accordance with published
mortality tables and expected experience. These assumptions translate into the following average life expectancies
for an employee retiring at age 65:
2017
2016
Male
Female
Male
Female
Retiring at the end of the reporting period
85.2 years
87.6 years
85.1 years
87.6 years
Retiring 20 years after the end of the reporting period
86.3 years
88.6 years
86.3 years
88.6 years
e) Significant Risks
The defined benefit pension plans and post-retirement benefit plans expose us to a number of risks, the most significant
of which include asset volatility risk, changes in bond yields, and an increase in life expectancy.
Asset volatility risk
The discount rate used to determine the defined benefit obligations is based on AA-rated corporate bond yields.
If our plan assets underperform this yield, the deficit will increase. Our strategic asset allocation includes a significant
proportion of equities that increases volatility in the value of our assets, particularly in the short term. We expect
equities to outperform corporate bonds in the long term.
Changes in bond yields
A decrease in bond yields increases plan liabilities, which are partially offset by an increase in the value of the plans’
bond holdings.
Life expectancy
The majority of the plans’ obligations are to provide benefits for the life of the member. Increases in life expectancy
will result in an increase in the plans’ liabilities.
f) Investment of Plan Assets
The assets of our defined benefit pension plans are managed by external asset managers under the oversight of the
Teck Resources Limited Executive Pension Committee.
Our pension plan investment strategies support the objectives of each defined benefit plan and are related to each
plan’s demographics and timing of expected benefit payments to plan members. The objective for the plan asset
portfolios is to achieve annualized portfolio returns over five-year periods in excess of the annualized percentage
change in the Consumer Price Index plus a certain premium.
Strategic asset allocation policies have been developed for each defined benefit plan to achieve this objective. The
policies also reflect an asset/liability matching framework that seeks to reduce the effect of interest rate changes on
each plan’s funded status by matching the duration of the bond investments with the duration of the pension liabilities.
We do not use derivatives to manage interest risk. Asset allocation is monitored at least quarterly and rebalanced if
the allocation to any asset class exceeds its allowable allocation range. Portfolio and investment manager performance
is monitored quarterly and the investment guidelines for each plan are reviewed at least annually.
The defined benefit pension plan assets at December 31, 2017 and 2016 are as follows:
(CAD$ in millions)
2017
2016
Quoted
Unquoted
Total %
Quoted
Unquoted
Total %
Equity securities
Debt securities
Real estate and other
$
$
$
1,184
935
74
$
$
$
–
–
317
47%
37%
16%
$
$
$
1,124
850
49
$
$
$
–
–
319
48%
36%
16%
Consolidated Financial Statements
107
22. Other Liabilities and Provisions
(CAD$ in millions)
Provisions (a)
Derivative liabilities (net of current portion of $nil (2016 — $5 million))
Other
a) Provisions
December 31, December 31,
2017
2016
$
1,905
$
1,236
43
29
21
65
$
1,977
$
1,322
The following table summarizes the movements in provisions for the year ended December 31, 2017:
(CAD$ in millions)
As at January 1, 2017
Settled during the year
Change in discount rate
Change in amount and timing of cash flows
Accretion
Other
Changes in foreign exchange rates
As at December 31, 2017
Less current portion of provisions (Note 17)
Decommissioning and
Restoration Provisions
Other
Total
$
1,220
$
(39)
210
406
81
(2)
(32)
1,844
(83)
87
(10)
–
121
–
–
(4)
194
(50)
$
1,307
(49)
210
527
81
(2)
(36)
2,038
(133)
Long-term provisions
$
1,761
$
144
$
1,905
During the year ended December 31, 2017, we recorded $121 million of additional study and environmental costs
arising from legal obligations through other provisions.
Decommissioning and Restoration Provisions
The decommissioning and restoration provisions represent the present value of estimated costs for required future
decommissioning and other site restoration activities. The majority of the decommissioning and site restoration
expenditures occur at the end of, or after, the life of the related operation. Our provision for these expenditures was
$1,169 million as at December 31, 2017. After the end of the life of certain operations, water quality management
costs may extend for periods in excess of 100 years. Our provision for these expenditures was $675 million as at
December 31, 2017. In 2017, the decommissioning and restoration provision was calculated using nominal discount rates
between 5.32% and 6.82%. We also used an inflation rate of 2.00% in our cash flow estimates. The decommissioning
and restoration provision includes $270 million (2016 — $194 million) in respect of closed operations.
During the fourth quarter of 2017, our decommissioning and restoration provisions increased by $398 million compared
to the third quarter as a result of a change in cash flow estimates, the majority of which relates to post-closure water
quality management costs at Teck Coal (Note 4). This increase was partially offset by a decrease of $36 million relating
to an increase in the discount rate compared to the third quarter.
108 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
23. Equity
a) Authorized Share Capital
Our authorized share capital consists of an unlimited number of Class A common shares without par value, an
unlimited number of Class B subordinate voting shares (Class B shares) without par value and an unlimited number
of preferred shares without par value issuable in series.
Class A common shares carry the right to 100 votes per share. Class B shares carry the right to one vote per share.
Each Class A common share is convertible, at the option of the holder, into one Class B share. In all other respects,
the Class A common shares and Class B shares rank equally.
The attributes of the Class B subordinate voting shares contain so-called “coattail provisions” which provide that, in
the event that an offer (an “Exclusionary Offer”) to purchase Class A common shares, which is required to be made
to all or substantially all holders thereof, is not made concurrently with an offer to purchase Class B subordinate voting
shares on identical terms, then each Class B subordinate voting share will be convertible into one Class A common
share at the option of the holder during a certain period provided that any Class A common shares received upon such
conversion are deposited to the Exclusionary Offer. Any Class B subordinate voting shares converted into Class A
common shares pursuant to such conversion right will automatically convert back to Class B subordinate voting shares
in the event that any such shares are withdrawn from the Exclusionary Offer or not otherwise ultimately taken up and
paid for under the Exclusionary Offer.
The Class B subordinate voting shares will not be convertible in the event that holders of a majority of the Class A
common shares (excluding those shares held by the offeror making the Exclusionary Offer) certify to Teck that they
will not, among other things, tender their Class A common shares to the Exclusionary Offer.
If an offer to purchase Class A common shares does not, under applicable securities legislation or the requirements of
any stock exchange having jurisdiction, constitute a “take-over bid” or is otherwise exempt from any requirement that
such offer be made to all or substantially all holders of Class A common shares, the coattail provisions will not apply.
b) Class A Common Shares and Class B Subordinate Voting Shares Issued and Outstanding
Shares (in 000’s)
As at January 1, 2016
Options exercised (c)
As at December 31, 2016
Class A share conversion
Options exercised (c)
Acquired and cancelled pursuant to normal course issuer bid (h)
As at December 31, 2017
Class A
Class B
Common Subordinate
Shares Voting Shares
9,353
566,899
–
647
9,353
567,546
(1,576)
–
–
1,576
2,275
(5,891)
7,777
565,506
During the year ended December 31, 2017, 1,576,166 Class A common shares were converted into the same
number of Class B subordinate voting shares. As a result of this conversion, the percentage of total votes attached
to outstanding Class A common shares was reduced from 62.2% to 57.7% upon completion of this transaction in
the second quarter of 2017.
c) Share Options
Under our current share option plan, at December 31, 2017, 28 million Class B shares have been set aside for the
grant of share options to full-time employees, of which 4.8 million remain available for grant. The exercise price for each
option is the closing price for our Class B shares on the last trading day before the date of grant. Our share options
are settled through the issuance of Class B shares.
Consolidated Financial Statements
109
23. Equity (continued)
During the year ended December 31, 2017, we granted 2,010,520 Class B share options to employees. These share options
have a weighted average exercise price of $27.79, vest in equal amounts over three years, and have a term of 10 years.
The weighted average fair value of Class B share options granted in the year was estimated at $8.32 per option
(2016 — $1.81) at the grant date based on the Black-Scholes option-pricing model using the following assumptions:
Weighted average exercise price
Dividend yield
Risk-free interest rate
Expected option life
Expected volatility
Forfeiture rate
2017
$
27.79
$
2.20%
1.06%
2016
5.48
1.85%
0.72%
4.2 years
4.2 years
42%
0.36%
46%
0.96%
The expected volatility is based on a statistical analysis of historical daily share prices over a period equal to the
expected option life.
Outstanding share options are as follows:
2017
2016
Share
Options
(in 000’s)
Weighted
Average
Exercise
Price
Share
Options
(in 000’s)
Weighted
Average
Exercise
Price
Outstanding at beginning of year
22,854
$
18.38
15,929
$
26.53
Granted
Exercised
Forfeited
Expired
Outstanding at end of year
Vested and exercisable at end of year
2,011
(2,275)
(78)
(444)
22,068
12,266
$
$
27.79
11.47
16.25
40.40
19.52
8,946
(647)
(219)
(1,155)
5.48
12.15
10.74
35.73
22,854
$
18.38
24.94
9,090
$
29.70
The average share price during the year was $27.86 (2016 — $17.59).
Information relating to share options outstanding at December 31, 2017, is as follows:
Outstanding Share Options (in 000’s)
Exercise
Price Range
Weighted Average Remaining Life
of Outstanding Options (months)
8,018
5,083
2,734
4,527
1,706
22,068
$
4.15 – $ 12.35
$ 12.36 – $ 20.14
$ 20.15 – $ 26.79
$ 26.80 – $ 36.85
$ 36.86 – $ 58.80
$
4.15 – $ 58.80
91
86
74
77
45
81
Total share option compensation expense recognized for the year was $17 million (2016 — $22 million).
110 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
d) Deferred Share Units, Restricted Share Units, Performance Share Units and Performance Deferred Share Units
We have issued and outstanding deferred share units (DSUs), restricted share units (RSUs), performance share units
(PSUs) and performance deferred share units (PDSUs) (collectively Units).
As of 2017, DSUs are granted to directors only. RSUs are granted to both employees and directors. PSUs and PDSUs
are granted to certain officers only. DSUs entitle the holder to a cash payment equal to the closing price of one
Class B subordinate voting share on the Toronto Stock Exchange on the day prior to exercise. RSUs entitle the holder
to a cash payment equal to the weighted average trading price of one Class B share on the Toronto Stock Exchange
over either 10 or 20 consecutive trading days prior to the payout date, depending on the date issued. PSUs granted
prior to 2017 vest in a percentage of the original grant varying from 0% to 200% based on our total shareholder return
ranking compared to a group of specified companies. PSUs issued in 2017 vest in a percentage from 0% to 200%
based on both relative total shareholder return and a calculation based on the change in EBITDA over the vesting
period divided by the change in a weighted commodity price index. Once vested, PSUs entitle the holder to a cash
payment equal to the weighted average trading price of one Class B subordinate voting share on the Toronto Stock
Exchange over either 10 or 20 consecutive trading days prior to vesting, depending on the date issued. Officers
granted PSUs in 2017 can elect on the grant date to receive PSUs or PDSUs, which pay out following termination
of employment as described below.
RSUs, PSUs, and PDSUs vest on December 20th in the year prior to the third anniversary of the grant date. DSUs
vest immediately for directors, and on the December 20th in the year prior to the third anniversary of the grant date
for employees. Units vest on a pro rata basis if employees retire or are terminated without cause, and unvested
units are forfeited if employees resign or are terminated with cause.
DSUs and PDSUs may be exercised on or before December 15 of the first calendar year commencing after the date
on which the participant ceases to be a director or employee. RSUs and PSUs pay out on the vesting date.
Additional Units are issued to Unit holders to reflect dividends paid and other adjustments to Class B subordinate
voting shares.
In 2017, we recognized compensation expense of $108 million for Units (2016 — $149 million). The total liability and
intrinsic value for vested Units as at December 31, 2017 was $185 million (2016 — $128 million).
The outstanding Units are summarized in the following table:
(in 000’s)
DSUs
RSUs
PSUs
PDSUs
2017
2016
Outstanding
Vested Outstanding
Vested
2,648
2,823
1,517
70
7,058
2,423
1,699
869
20
5,011
2,597
3,316
1,554
–
7,467
2,119
1,327
616
–
4,062
Consolidated Financial Statements
111
23. Equity (continued)
e) Accumulated Other Comprehensive Income
(CAD$ in millions)
2017
Accumulated other comprehensive income — beginning of year
$
422
$
2016
426
Currency translation differences:
Unrealized losses on translation of foreign subsidiaries
(488)
(201)
Foreign exchange differences on debt designated as a hedge of our
investment in foreign subsidiaries (net of taxes of $(46) and $(27))
Available-for-sale financial assets:
Unrealized gains (losses) (net of taxes of $1 and $(6))
Gains reclassified to profit (net of taxes of $1 and $4)
Share of other comprehensive income (loss) of associates and joint ventures
Remeasurements of retirement benefit plans (net of taxes of $(55) and $(7))
Total other comprehensive income (loss)
Less remeasurements of retirement benefit plans recorded in retained earnings
341
(147)
(4)
(6)
(10)
(1)
129
(29)
(129)
Accumulated other comprehensive income — end of year
$
264
$
180
(21)
45
(29)
16
1
19
15
(19)
422
f) Earnings Per Share
The following table reconciles our basic and diluted earnings per share:
(CAD$ in millions, except per share data)
2017
2016
Net basic and diluted profit attributable to shareholders of the company
$
2,509
$
1,040
Weighted average shares outstanding (000’s)
Dilutive effect of share options
Weighted average diluted shares outstanding (000’s)
Basic earnings per share
Diluted earnings per share
577,482
576,391
8,910
6,496
586,392
582,887
$
$
4.34
4.28
$
$
1.80
1.78
At December 31, 2017, 4,240,949 (2016 — 13,333,164) potentially dilutive shares were not included in the diluted
earnings per share calculation because their effect was anti-dilutive.
112 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
g) Dividends
We declared and paid dividends on our Class A common and Class B subordinate voting shares of $0.10, $0.05 and
$0.45 per share in the second, third and fourth quarters of 2017, respectively, and $0.05 per share in the second and
fourth quarters of 2016.
h) Normal Course Issuer Bid
On occasion, we purchase and cancel Class B subordinate voting shares pursuant to our normal course issuer bids
that allow us to purchase up to a specified maximum number of shares over a one-year period.
In October 2017, we renewed our normal course issuer bid, under which we may purchase up to 20 million Class B
subordinate voting shares during the period from October 10, 2017 to October 9, 2018. All repurchased shares will be
cancelled. We repurchased 5,890,794 Class B subordinate voting shares under our normal course issuer bid during
the fourth quarter of 2017.
24. Non-Controlling Interests
Set out below is information about our subsidiaries with non-controlling interests and the non-controlling interest
balances included in equity.
Percentage of
Ownership
Interest and
Voting Rights
Held by Non-
(CAD$ in millions)
Carmen de Andacollo
Quebrada Blanca
Principal Place
of Business
Region IV, Chile
Region I, Chile
Elkview Mine Limited Partnership
British Columbia, Canada
Compañia Minera Zafranal S.A.C.
Arequipa Region, Peru
Controlling December 31, December 31,
Interest
2017
2016
10%
$
23.5%
5%
20%
$
34
30
53
25
45
64
50
–
$
142
$
159
Consolidated Financial Statements
113
25. Contingencies
We consider provisions for all our outstanding and pending legal claims to be adequate. The final outcome with respect
to actions outstanding or pending as at December 31, 2017, or with respect to future claims, cannot be predicted with
certainty. Significant contingencies not disclosed elsewhere in the notes to our financial statements are as follows:
Upper Columbia River Basin
Teck American Inc. (TAI) continues studies under the 2006 settlement agreement with the U.S. Environmental Protection
Agency (EPA) to conduct a remedial investigation on the Upper Columbia River in Washington State. Residential
soil testing within the study site has identified certain properties where remediation is required. TAI and EPA have
reached an agreement regarding remediation to be undertaken, and that work is ongoing. The Lake Roosevelt litigation
involving TML in the Federal District Court for the Eastern District of Washington continues. In September 2012, TML
entered into an agreement with the plaintiffs, agreeing that certain facts were established for purposes of the litigation.
The agreement stipulated that some portion of the slag discharged from TML’s Trail Operations into the Columbia River
between 1896 and 1995, and some portion of the effluent discharged from Trail Operations, have been transported
to and are present in the Upper Columbia River in the United States, and that some hazardous substances from the
slag and effluent have been released into the environment within the United States. In December 2012, the Court
found in favour of the plaintiffs in phase one of the case, issuing a declaratory judgment that TML is liable under the
Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) for response costs, the amount
of which will be determined in later phases of the case. In August 2016 the trial court judge ruled in favour of the Tribal
plaintiffs awarding approximately $9 million in past response costs and that decision, along with certain other findings in
the first phase of the case, is under appeal in the Ninth Circuit Court of Appeals, and a decision is expected in 2018.
A District Court ruling in favour of plaintiffs on a motion seeking recovery from TML for environmental response
costs, and in a subsequent proceeding, natural resource damages and assessment costs, arising from the alleged
deposition of hazardous substances in the United States from aerial emissions from TML’s Trail Operations was
overturned on appeal in the Ninth Circuit in July 2016, with the result that alleged damages associated with air
emissions are no longer part of the case.
A hearing with respect to natural resource damages and assessment costs is expected to follow after resolution of
appeals with respect to issues raised in the first phase of the litigation and completion of the remedial investigation
and feasibility study being undertaken by TAI.
There is no assurance that we will ultimately be successful in our defence of the litigation or that we or our affiliates
will not be faced with further liability in relation to this matter. Until the studies contemplated by the EPA settlement
agreement and additional damage assessments are completed, it is not possible to estimate the extent and cost, if
any, of any additional remediation or restoration that may be required or to assess our potential liability for damages.
The studies may conclude, on the basis of risk, cost, technical feasibility or other grounds, that no remediation other
than some residential soil removal should be undertaken. If other remediation is required and damage to resources
found, the cost of that remediation may be material.
114
Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016 26. Commitments
a) Capital Commitments
As at December 31, 2017, we had contracted for $766 million of capital expenditures that have not yet been incurred
for the purchase of property, plant and equipment. This amount includes $323 million for Quebrada Blanca Phase 2,
$196 million for our 20.89% share of Fort Hills, $175 million for our steelmaking coal operations and $72 million for our
other operations. The amount includes $520 million that is expected to be incurred within one year and $246 million
within two to five years.
b) Operating Lease Commitments
We lease office premises, mining equipment and rail facilities under operating leases. The terms of these leases are
up to 20 years.
TAK leases road and port facilities from the Alaska Industrial Development and Export Authority, through which it
ships all concentrates produced at the Red Dog Operations. The lease requires TAK to pay a minimum annual user
fee of US$18 million for the next 15 years and US$6 million for the following seven years, totalling US$312 million
over 22 years.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
(CAD$ in millions)
Less than one year
One to five years
Thereafter
$
2017
93
179
327
$
$
599
$
2016
80
162
310
552
Total operating lease expenses were $113 million (2016 — $93 million). This consists of $13 million (2016 — $10
million) for office premises, $60 million (2016 — $36 million) for mining equipment, $12 million (2016 — $10 million)
for rail facilities and $28 million (2016 — $37 million) for road and port facilities.
c) Red Dog Royalty
In accordance with the operating agreement governing the Red Dog mine, TAK pays a royalty to NANA Regional
Corporation, Inc. (NANA) on the net proceeds of production. A 25% royalty became payable in the third quarter of 2007
after we had recovered cumulative advance royalties previously paid to NANA. The net proceeds of production royalty
rate will increase by 5% every fifth year to a maximum of 50%. The increase to 35% of net proceeds of production
occurred in the fourth quarter of 2017. An expense of US$324 million was recorded in 2017 (2016 — US$213 million)
in respect of this royalty.
d) Antamina Royalty
Our interest in the Antamina mine is subject to a net profits royalty equivalent to 7.4% of our share of the mine’s free
cash flow. An expense of $28 million was recorded in 2017 (2016 — $17 million) in respect of this royalty.
e) Purchase Commitments
We have a number of forward purchase commitments for the purchase of concentrates and other process inputs,
and for shipping and distribution of products, which are incurred in the normal course of business. In addition, we have
contractual arrangements for the purchase of 240 megawatts of power for the expansion of our Quebrada Blanca
Operations. These contracts contain monthly fixed prices and variable prices per hour and are effective from dates
between November 2016 and January 2018, extending for 21 years. The majority of these contracts are subject to
force majeure provisions.
Consolidated Financial Statements
115
27. Segmented Information
Based on the primary products we produce and our development projects, we have five reportable segments —
steelmaking coal, copper, zinc, energy and corporate — which is the way we report information to our Chief Executive
Officer. The corporate segment includes all of our initiatives in other commodities, our corporate growth activities and
groups that provide administrative, technical, financial and other support to all of our business units. Other operating
expenses include general and administration costs, exploration, research and development, and other operating income
(expenses). Sales between segments are carried out on terms that arm’s-length parties would use. Total assets does
not include intra-group receivables between segments. Deferred tax assets and liabilities have been allocated
amongst segments.
(CAD$ in millions)
December 31, 2017
Steelmaking
Coal
Copper
Zinc
Energy Corporate
Total
Segment revenues
$
6,152
$ 2,400
$
4,131
$
Less: Inter-segment revenues
–
–
(635)
6,152
2,400
3,496
(3,108)
(1,782)
(2,529)
3,044
618
967
207
(44)
–
(99)
3,152
(5)
(29)
–
63
637
(45)
5
3
673
702
467
385
(28)
939
(31)
(9)
–
899
244
–
$
–
–
–
–
–
–
(3)
(3)
(7)
–
–
–
–
–
–
–
–
(392)
(392)
(124)
$ 12,683
(635)
12,048
(7,419)
4,629
163
(459)
4,333
(212)
(118)
(151)
3
6
(10)
(631)
3,976
911
–
4
–
2,299
1,087
15,271
9,533
3,720
5,667
2,867
37,058
$ 9,759
$
5,748
$ 2,335
$ 4,656
$
(2,973)
$ 19,525
Profit (loss) before taxes
3,118
600
Revenues
Cost of sales
Gross profit
Impairment reversal and
(asset impairments)
Other operating
income (expense)
Profit (loss) from operations
Net finance expense
Non-operating income
(expense)
Share of income of associates
and joint ventures
Capital expenditures
Goodwill
Total assets
Net assets
116 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
(CAD$ in millions)
December 31, 2016
Steelmaking
Coal
Copper
Zinc
Energy Corporate
Total
Segment revenues
$
4,144
$ 2,007
$ 3,577
$
Less: Inter-segment revenues
–
–
(430)
4,144
2,007
(2,765)
(1,817)
3,147
(2,317)
Revenues
Cost of sales
Gross profit (loss)
Asset impairments
Other operating
income (expense)
1,379
–
(74)
348
702
190
–
35
225
(42)
830
(46)
30
814
(27)
(5)
(5)
2
180
339
412
–
782
190
–
Profit (loss) from operations
1,305
Net finance expense
Non-operating
income (expense)
Share of income of associates
and joint ventures
(21)
6
–
Profit (loss) before taxes
1,290
Capital expenditures
Goodwill
Total assets
Net assets
$
2
–
2
(5)
(3)
(248)
(30)
(281)
(6)
–
–
–
–
–
–
–
–
(338)
(338)
(242)
$ 9,730
(430)
9,300
(6,904)
2,396
(294)
(377)
1,725
(338)
243
239
–
2
(287)
(337)
1,628
1,010
–
6
–
1,893
1,114
14,894
9,673
3,742
4,129
3,191
35,629
$ 10,071
$ 6,029
$ 2,464
$ 3,648
$
(4,611)
$ 17,601
The geographical distribution of our non-current assets is as follows:
(CAD$ in millions)
Canada
Chile
Peru
United States
Other
December 31, December 31,
2017
2016
$
22,466
$
20,853
6,077
1,305
1,131
96
6,332
1,286
1,180
70
$
31,075
$
29,721
Non-current assets attributed to geographical locations exclude deferred income tax assets and financial and
other assets.
Consolidated Financial Statements
117
27. Segmented Information (continued)
Revenue is attributed to regions based on the location of the port of delivery as designated by the customer and is
as follows:
(CAD$ in millions)
Asia
China
Japan
South Korea
India
Other
Americas
United States
Canada
Latin America
Europe
Germany
Finland
Spain
Netherlands
Italy
Other
$
2017
2016
$
2,129
1,921
1,353
763
970
1,360
919
407
579
284
278
215
191
679
1,773
1,319
1,181
553
825
1,314
770
294
354
178
186
95
124
334
$
12,048
$
9,300
28. Accounting for Financial Instruments
a) Financial Risk Management
Our activities expose us to a variety of financial risks, which include liquidity risk, foreign exchange risk, interest rate
risk, commodity price risk, credit risk and other risks associated with capital markets. From time to time, we may use
foreign exchange, commodity price and interest rate contracts to manage exposure to fluctuations in these variables.
We do not have a practice of trading derivatives. Our use of derivatives is based on established practices and
parameters to mitigate risk and is subject to the oversight of our Hedging Committee and our Board of Directors.
Foreign Exchange Risk
We operate on an international basis, and therefore, foreign exchange risk exposures arise from transactions
denominated in a foreign currency. Our foreign exchange risk arises primarily with respect to the U.S. dollar and to
a lesser extent, the Chilean peso and Peruvian sol. Our cash flows from Canadian, Chilean and Peruvian operations
are exposed to foreign exchange risk, as commodity sales are denominated in U.S. dollars and a substantial portion
of operating expenses are denominated in local currencies.
We also have various investments in U.S. dollar foreign operations, whose net assets are exposed to foreign currency
translation risk. This currency exposure is managed in part through our U.S. dollar denominated debt as a hedge
against net investments in foreign operations. As at December 31, 2017, $4.1 billion of U.S. dollar debt was designated
in this manner.
118 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
U.S. dollar financial instruments subject to foreign exchange risk consist of U.S. dollar denominated items held
in Canada and are summarized below. This risk is reduced by our policy to apply a hedge against our U.S. dollar net
investments using our U.S. dollar debt.
December 31, December 31,
(US$ in millions)
Cash and cash equivalents
Trade accounts receivable
Trade accounts payable and other liabilities
Debt
Net investment in foreign operations hedged
Net U.S. dollar exposure
$
2017
368
913
(569)
(4,831)
(4,119)
4,149
$
2016
521
867
(572)
(6,141)
(5,325)
5,424
$
30
$
99
As at December 31, 2017, with other variables unchanged, a $0.10 strengthening of the Canadian dollar against the
U.S. dollar would result in a $3 million pre-tax loss (2016 — $10 million) from our financial instruments. There would
also be a $157 million pre-tax loss (2016 — $11 million) in other comprehensive income from the translation of our
foreign operations. The inverse effect would result if the Canadian dollar weakened by $0.10 against the U.S. dollar.
Liquidity Risk
Liquidity risk arises from our general and capital financing needs. We have planning, budgeting and forecasting
processes to help determine our funding requirements to meet various contractual and other obligations. Note 18(e)
details our available credit facilities as at December 31, 2017.
Contractual undiscounted cash flow requirements for financial liabilities as at December 31, 2017 are as follows:
(CAD$ in millions)
Trade accounts payable and
other liabilities
Debt (Note 18(f))
Estimated interest payments on debt
$
Interest Rate Risk
Less Than
1 Year
$
2,313
28
346
2–3 Years
4–5 Years
More Than
5 Years
$
$
–
28
692
$
$
–
1,119
626
$
$
–
4,930
3,514
$
$
Total
2,313
6,105
5,178
Our interest rate risk arises mainly in respect of our holdings of cash and cash equivalents. Our interest rate
management policy is generally to borrow at fixed rates. However, floating rate funding may be used to fund short
term operating cash flow requirements or, in conjunction with fixed to floating interest rate swaps, be used to offset
interest rate risk from our cash. The fair value of fixed-rate debt fluctuates with changes in market interest rates,
but the cash flows, denominated in U.S. dollars, do not.
Cash and cash equivalents have short terms to maturity and receive interest based on market interest rates.
A 1% increase in the LIBOR rate, with other variables unchanged, would result in a $10 million pre-tax gain (2016
— $13 million). There would be no effect on other comprehensive income. The inverse effect would result if the
LIBOR rate decreased by 1%.
Consolidated Financial Statements
119
28. Accounting for Financial Instruments (continued)
Commodity Price Risk
We are subject to price risk from fluctuations in market prices of the commodities that we produce. From time to time,
we may use commodity price contracts to manage our exposure to fluctuations in commodity prices. At the balance
sheet date, we had zinc and lead derivative contracts outstanding as described in (b) below.
Our commodity price risk associated with financial instruments primarily relates to changes in fair value caused by final
settlement pricing adjustments to receivables and payables, derivative contracts for zinc and lead, embedded derivatives
in one of our road and port contracts, and in the ongoing payments under our silver stream and gold stream arrangements.
The following represents the effect on profit attributable to shareholders from a 10% change in commodity prices,
based on outstanding receivables and payables subject to final pricing adjustments at December 31, 2017. There is
no effect on other comprehensive income.
Change in Profit
Price on December 31, Attributable to Shareholders
(CAD$ in millions, except for US$/lb. data)
2017
2016
2017
Copper
Zinc
US$3.26/lb.
US$2.50/lb.
US$1.50/lb.
US$1.17/lb.
$
$
35
5
$
$
2016
24
5
A 10% change in the price of zinc, lead, silver and gold, respectively, with other variables unchanged, would change
our net liability relating to derivatives and embedded derivatives, excluding receivables and payables subject to final
pricing adjustments, and change our pre-tax profit attributable to shareholders by $26 million (2016 — $45 million).
There would be no effect on other comprehensive income.
Credit Risk
Credit risk arises from the non-performance by counterparties of contractual financial obligations. Our primary
counterparties related to our cash, money market investments and derivative contracts carry investment grade
ratings as assessed by external rating agencies. There is ongoing review of these ratings. We manage credit risk
for trade and other receivables through close monitoring of outstanding customer receivables subject to established
credit policies, procedures and controls and ongoing review to evaluate the credit-worthiness of customers. Our
maximum exposure to credit risk at the reporting date is the carrying value of our cash and cash equivalents, trade
accounts receivable and derivative assets. While we are exposed to credit losses due to the non-performance of our
counterparties, we do not consider this to be a material risk.
b) Derivative Financial Instruments and Hedges
Sale and Purchase Contracts
We record adjustments to our receivable and payable balances for provisionally priced sales and purchases,
respectively, in periods up to the date of final pricing based on movements in quoted market prices or published price
assessments (for steelmaking coal). These arrangements have the characteristics of a derivative instrument, as the
value of our receivables and payables will vary as prices for the underlying commodities vary in the metal markets.
These final pricing adjustments result in gains (losses from purchases) in a rising price environment and losses (gains
from purchases) in a declining price environment and are recorded in other operating income (expense). It should be
noted that while these effects arise on the sale of concentrates, we also purchase concentrates at our Trail Operations
where the opposite effects occur.
120 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
The table below outlines our outstanding receivable and payable positions, which were provisionally valued at
December 31, 2017, and December 31, 2016.
(Pounds in millions)
Receivable positions
Copper
Zinc
Lead
Payable positions
Zinc payable
Lead payable
Outstanding at
December 31, 2017
Outstanding at
December 31, 2016
Pounds
US$/lb.
Pounds
US$/lb.
138
197
44
97
30
$
$
$
$
$
3.26
1.50
1.13
1.50
1.13
114
231
26
114
20
$
$
$
$
$
2.50
1.17
0.90
1.17
0.90
At December 31, 2017, total outstanding settlements receivable were $687 million (2016 — $631 million), and total
outstanding settlements payable were $39 million (2016 — $43 million). These amounts are included in trade accounts
receivable and trade accounts payable and other liabilities, respectively, on the consolidated balance sheet.
Zinc and Lead Swaps
Due to ice conditions, the port serving our Red Dog mine is normally only able to ship concentrates from July to
October each year. As a result, zinc and lead concentrate sales volumes are generally higher in the third and fourth
quarter of each year than in the first and second quarter. During 2017 and 2016, we purchased and sold zinc and
lead swaps to match our economic exposure to the average zinc and lead prices over our shipping year, which is
from July of one year to June of the following year. We do not apply hedge accounting to the zinc or lead swaps.
The fair value of our commodity swaps is calculated using a discounted cash flow method based on forward metal
prices. A summary of these derivative contracts and related fair values as at December 31, 2017 is as follows:
Average Price
of Purchase
Commitments
Average Price
of Sale
Commitments
Fair Value
Asset
(CAD$ in millions)
Quantity
Derivatives not designated
as hedging instruments
Zinc swaps
Lead swaps
175 million lbs.
68 million lbs.
US$1.44/lb.
US$1.09/lb.
US$1.47/lb.
US$1.09/lb.
$
$
6
–
6
All free-standing derivative contracts mature in 2018 and 2019.
Free-standing derivatives, not designated as hedging instruments, are recorded in trade accounts receivable in the
amount of $6 million on the consolidated balance sheet.
Consolidated Financial Statements
121
28. Accounting for Financial Instruments (continued)
Derivatives Not Designated as Hedging Instruments and Embedded Derivatives
(CAD$ in millions)
Zinc derivatives
Lead derivatives
Settlements receivable and payable
Contingent zinc escalation payment embedded derivative (c)
Gold stream embedded derivative (c)
Silver stream embedded derivative (c)
Amount of Gain (Loss) Recognized
in Other Operating Income (Expense)
$
2017
2016
$
11
10
190
(24)
13
2
45
(5)
153
(18)
6
4
$
202
$
185
During the year ended December 31, 2017, we recorded a $51 million gain (2016 — $113 million) in non-operating
income (expense) (Note 9) related to an increase in the value of debt prepayment options (c).
Hedges
Net investment hedge
Our hedges of net investments in foreign operations were effective, and no ineffectiveness was recognized in profit
for the period.
c) Embedded Derivatives
One of our road and port contracts contains a contingent zinc escalation payment that is considered to be an embedded
derivative. The fair value of this embedded derivative was $43 million at December 31, 2017 (2016 — $20 million) and
is included in other liabilities and provisions on the consolidated balance sheet.
The gold stream and silver stream agreements entered into in 2015 each contain an embedded derivative in the
ongoing future payments due to Teck from RGLD Gold AG and Franco-Nevada, respectively. The gold stream’s 15%
ongoing payment contains an embedded derivative relating to the gold price. The fair value of this embedded derivative
was $9 million at December 31, 2017 (2016 — $2 million) and is included in financial and other assets (2016 — other
liabilities and provisions) on the consolidated balance sheet. The silver stream’s 5% ongoing payment contains an
embedded derivative relating to the silver price. The fair value of this embedded derivative was $3 million at December
31, 2017 (2016 — $1 million) and is included in financial and other assets on the consolidated balance sheet.
Our June 2021 and 2024 notes issued in 2016 (Note 18(b)) include prepayment options that are considered to be
embedded derivatives. The June 2021 notes were purchased in 2017, and the prepayment option was written off (Note
18(a)) during the year. At December 31, 2017, the prepayment option in the 2024 notes is recorded as financial and
other assets (Note 13) on the consolidated balance sheet at a fair value of $108 million (2016 — $78 million) based on
current market interest rates for similar instruments and our credit spread.
29. Fair Value Measurements
Certain of our financial assets and liabilities are measured at fair value on a recurring basis and classified in their entirety
based on the lowest level of input that is significant to the fair value measurement. Certain non-financial assets and
liabilities may also be measured at fair value on a non-recurring basis. There are three levels of the fair value hierarchy
that prioritize the inputs to valuation techniques used to measure fair value, with Level 1 inputs having the highest
priority. The levels and the valuation techniques used to value our financial assets and liabilities are described below:
122 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
Level 1 — Quoted Prices in Active Markets for Identical Assets
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted
assets or liabilities.
Cash equivalents, marketable equity securities and certain debt securities are valued using quoted market prices in
active markets. Accordingly, these items are included in Level 1 of the fair value hierarchy.
Level 2 — Significant Other Observable Inputs
Quoted prices in markets that are not active, quoted prices for similar assets or liabilities in active markets, or inputs
that are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Derivative instruments and embedded derivatives are included in Level 2 of the fair value hierarchy as they are valued
using pricing models or discounted cash flow models. These models require a variety of inputs, including, but not limited
to, market prices, forward price curves, yield curves and credit spreads. These inputs are obtained from or corroborated
with the market. Also included in Level 2 are settlements receivable and settlements payable from provisional pricing
on concentrate sales and purchases and steelmaking coal sales because they are valued using quoted market prices
for forward curves for copper, zinc and lead and published price assessments for steelmaking coal sales.
Level 3 — Significant Unobservable Inputs
Unobservable (supported by little or no market activity) prices.
We include investments in certain debt securities in Level 3 of the fair value hierarchy because they trade infrequently
and have little price transparency. We review the fair value of these instruments periodically and estimate an impairment
charge based on management’s best estimates, which are unobservable inputs.
The fair values of our financial assets and liabilities measured at fair value on a recurring basis at December 31, 2017
and 2016, are summarized in the following table:
(CAD$ in millions)
2017
2016
Level 1
Level 2
Level 3
Total
Level 1
Level 2
Level 3
Total
Financial assets
Cash equivalents
$ 722
$
Marketable equity securities
Debt securities
Settlements receivable
Derivative instruments
94
67
–
$
–
–
–
687
and embedded derivatives
–
126
$ 883
$ 813
$
Financial liabilities
Derivative instruments
and embedded derivatives
$
Settlements payable
$
–
–
–
$
$
43
39
$
82
$
–
–
4
–
–
4
–
–
–
$ 722
$ 1,153
$
94
71
687
95
68
–
$
–
–
–
–
–
11
–
$ 1,153
95
79
631
631
126
–
142
–
142
$ 1,700
$ 1,316
$ 773
$
11
$ 2,100
$
43
39
$
$
82
$
–
–
–
$
$
27
43
$
70
$
–
–
–
$
$
27
43
70
As at December 31, 2017 and 2016, we measured certain non-financial assets at their recoverable amounts using
a FVLCD basis, which is classified as a Level 3 measurement. Refer to Note 6 for information about these fair value
measurements.
Consolidated Financial Statements
123
30. Capital Management
The capital we manage is the total of equity and debt on our balance sheet. Our capital management objectives are to
maintain access to the capital we require to operate and grow our business while minimizing the cost of such capital
and providing for returns to our shareholders. Our financial policies are to maintain, on average over time, a target debt
to debt-plus-equity ratio of less than 30% and a target debt-to-EBITDA ratio of less than 2.5x. These ratios are expected
to vary from their target levels from time to time, reflecting commodity price cycles and corporate activity, including
the development of major projects. We may also review and amend such policy targets from time to time. We maintain
two committed revolving credit facilities consisting of a core liquidity facility of US$3 billion and a US$1.2 billion facility,
which is used for financial letters of credit required while our credit rating is non-investment grade. These credit
facilities include a financial covenant that requires us to maintain a debt-to-capitalization ratio that does not exceed
50% (Note 18).
As at December 31, 2017, our debt to debt-to-capitalization ratio was 25% (2016 — 32%), our debt-to-EBITDA
ratio was 1.1 (2016 — 2.5) and our debt-to-adjusted-EBITDA ratio was 1.1 (2016 — 2.4). We manage the risk of not
meeting our financial targets through the issuance and repayment of debt, our distribution policy, the issuance
of equity capital, asset sales as well as through the ongoing management of operations, investments and capital
expenditures.
31. Key Management Compensation
The compensation for key management recognized in total comprehensive income in respect of employee services
is summarized in the table below. Key management includes our directors and senior vice presidents.
(CAD$ in millions)
2017
2016
Salaries, bonuses, director fees and other short term benefits
$
16
$
Post-employment benefits
Share option compensation expense (Note 23(c))
Compensation expense related to Units (Note 23(d))
5
7
52
80
$
$
14
6
8
85
113
124 Teck 2017 Annual Report | Horizons
Notes to Consolidated Financial Statements Years ended December 31, 2017 and 2016
Board of Directors
Norman B. Keevil, O.C.(1)
Chairman of the Board
Director since: 1963
Warren S. R. Seyffert, Q.C. (1) (2) (3) (4) (5)
Deputy Chairman and Lead Director
Director since: 1989
Donald R. Lindsay (1)
President and Chief Executive Officer
Director since: 2005
Mayank M. Ashar (3) (5) (6)
Director since: 2007
Quan Chong
Director since: 2016
Takeshi Kubota (5) (6)
Director since: 2012
Laura L. Dottori-Attanasio (2) (4) (5)
Director since: 2014
Tracey L. McVicar (2) (3)
Director since: 2014
Edward C. Dowling (1) (3) (4) (6)
Director since: 2012
Kenneth W. Pickering (5) (6)
Director since: 2015
Eiichi Fukuda (6)
Director since: 2016
Norman B. Keevil III (5) (6)
Director since: 1997
Una M. Power (2) (6)
Director since: 2017
Timothy R. Snider (2) (3) (4)
Director since: 2015
Notes: (1) Member of the Executive Committee; (2) Member of the Audit Committee; (3) Member of the Compensation Committee; (4) Member of the
Corporate Governance and Nominating Committee; (5) Member of the Safety and Sustainability Committee; (6) Member of the Reserves Committee.
More information on our directors and officers can be found in our most recent Annual Information Form or in our Management Proxy Circular, which are
available on our website at www.teck.com, on the Canadian Securities Administrators website at www.sedar.com (SEDAR), and on the EDGAR section
of the United States Securities and Exchange Commission (SEC) website at www.sec.gov.
(Left to right) Norman Keevil III, Mayank Ashar, Timothy Snider, Eiichi Fukuda, Donald Lindsay, Norman B. Keevil, Tracey McVicar, Laura Dottori-Attanasio,
Quan Chong, Kenneth Pickering, Una Power, Takeshi Kubota, Edward Dowling; Not pictured: Warren Seyffert
Board of Directors
125
Officers
Norman B. Keevil, O.C.
Chairman of the Board
Warren S. R. Seyffert, Q.C.
Deputy Chairman and Lead Director
Donald R. Lindsay
President and Chief Executive Officer
Dale E. Andres
Senior Vice President, Base Metals
Alex N. Christopher
Senior Vice President, Exploration,
Projects and Technical Services
Andrew J. Golding
Senior Vice President,
Corporate Development
Ronald A. Millos
Senior Vice President, Finance
and Chief Financial Officer
H. Fraser Phillips
Senior Vice President, Investor
Relations and Strategic Analysis
Raymond A. Reipas
Senior Vice President, Energy
Peter C. Rozee
Senior Vice President,
Commercial and Legal Affairs
Robin B. Sheremeta
Senior Vice President, Coal
Marcia M. Smith
Senior Vice President,
Sustainability and External Affairs
Andrew A. Stonkus
Senior Vice President,
Marketing and Logistics
Timothy C. Watson
Senior Vice President
Shehzad Bharmal
Vice President, North America
Operations, Base Metals
Anne J. Chalmers
Vice President, Risk and Security
Larry M. Davey
Vice President, Planning and
Development, Coal
Christopher J. Dechert
Vice President,
Copper Operations, Chile
Mark Edwards
Vice President, Community and
Government Relations
Réal Foley
Vice President, Coal Marketing
John F. Gingell
Vice President and Corporate
Controller
C. Jeffrey Hanman
Vice President, Corporate Affairs
M. Colin Joudrie
Vice President, Business Development
Ralph J. Lutes
Vice President, Asia
Scott E. Maloney
Vice President, Environment
Douglas J. Powrie
Vice President, Tax
Amanda R. Robinson
Corporate Secretary
Kalev Ruberg
Vice President, Teck Digital Systems
and Chief Information Officer
Keith G. Stein
Vice President, Project Development
Lawrence Watkins
Vice President, Health and Safety
Scott R. Wilson
Vice President and Treasurer
Dean C. Winsor
Vice President, Human Resources
Officers listed as at February 14, 2018. More information on our directors and officers can be found in our most recent Annual Information Form or in our
Management Proxy Circular, which are available on our website at www.teck.com, on the Canadian Securities Administrators website at www.sedar.com
(SEDAR), and on the EDGAR section of the United States Securities and Exchange Commission (SEC) website at www.sec.gov.
126
Teck 2017 Annual Report | Horizons
Our Business
Teck is a diversified resource company committed to responsible mining and mineral
development with business units focused on steelmaking coal, copper, zinc and energy.
Headquartered in Vancouver, British Columbia (B.C.), Canada, we own or have interests in
12 operating mines, one large metallurgical complex, an oil sands mining and processing
operation, and several major development projects in Canada, the United States, Chile
and Peru. We have expertise across a wide range of activities related to exploration,
development, mining and minerals processing, including smelting and refining, health and
safety, environmental protection, materials stewardship, recycling and research.
Our corporate strategy is focused on exploring for, developing, acquiring and operating
world-class, long-life assets in stable jurisdictions that operate through multiple price
cycles. We maximize productivity and efficiency at our existing operations, maintain a
strong balance sheet, and are nimble in recognizing and acting on opportunities. The pursuit
of sustainability guides our approach to business, and we recognize that our success
depends on our ability to establish safe workplaces for our people and collaborative
relationships with communities.
Mineral reserve and resource estimates for our properties are disclosed in our most recent Annual Information Form, which is
available on our website at www.teck.com, on the Canadian Securities Administrators website at www.sedar.com (SEDAR), and on
the EDGAR section of the United States Securities and Exchange Commission (SEC) website at www.sec.gov.
Forward-Looking Statements
This annual report contains forward-looking statements. Please refer to the “Cautionary Statement on Forward-Looking Statements”
on page 61.
All dollar amounts expressed throughout this report are in Canadian dollars unless otherwise noted.
In This Report
Our Business
2017 Highlights
Letter from the Chairman
Letter from the CEO
Responsibility
Management’s Discussion and Analysis
Steelmaking Coal
Copper
1
2
3
5
7
9
12
17
Zinc
Energy
Exploration
Financial Overview
Consolidated Financial Statements
Board of Directors
Officers
Corporate Information
22
26
29
30
63
125
126
127
Corporate Information
2017 Share Prices and Trading Volume
Class B subordinate voting shares–TSX–CAD$/share
Q1
Q2
Q3
Q4
$
$
$
$
Class B subordinate voting shares–NYSE–US$/share
Q1
Q2
Q3
Q4
Class A common shares–TSX–CAD$/share
Q1
Q2
Q3
Q4
$
$
$
$
$
$
$
$
Stock Exchanges
Our Class A common shares and Class B subordinate voting
shares are listed on the Toronto Stock Exchange under the
symbols TECK.A and TECK.B, respectively.
Our Class B subordinate voting shares are also listed on the
New York Stock Exchange under the symbol TECK.
Dividends Declared on Class A and B Shares
Amount per share
$0.10
$0.05
$0.45
Payment Date
June 30, 2017
September 29, 2017
December 29, 2017
These dividends are eligible for both the Canadian federal and
provincial enhanced dividend tax credits. The December 29,
2017 dividend included $0.05 per share for the regular quarterly
dividend and $0.40 per share as a supplemental dividend,
in accordance with our announced dividend policy.
Shares Outstanding at December 31, 2017
Class A common shares
Class B subordinate voting shares
7,777,304
565,506,055
Shareholder Relations
Amanda Robinson, Corporate Secretary
Annual Meeting
Our annual meeting of shareholders will be held at 11:00 a.m.
on Wednesday, April 25, 2018, in the British Columbia Ballroom,
Fairmont Hotel Vancouver, 900 West Georgia Street, Vancouver,
British Columbia.
Transfer Agents
Inquiries regarding change of address, stock transfer, registered
shareholdings, dividends or lost certificates should be directed
to our Registrar and Transfer Agent:
High
34.60
32.18
31.92
33.76
High
26.45
24.07
25.67
26.80
High
35.14
32.84
32.49
33.56
$
$
$
$
$
$
$
$
$
$
$
$
Low
25.90
19.27
22.05
25.89
Low
19.20
14.56
17.20
20.15
Low
26.73
20.00
22.81
26.35
$
$
$
$
$
$
$
$
$
$
$
$
Close
Volume
29.08
22.48
26.27
32.87
166,166,974
143,220,254
147,983,981
116,086,280
573,457,489
Close
21.90
17.33
21.09
26.17
Volume
62,353,965
63,534,363
57,356,207
64,493,390
247,746,925
Close
Volume
30.15
23.00
26.60
33.05
513,953
219,158
167,392
204,367
1,104,870
AST Trust Company (Canada)
1600 – 1066 West Hastings Street,
Vancouver, British Columbia V6E 3X1
AST Trust Company (Canada) provides an AnswerLine Service
for the convenience of shareholders:
Toll-free in Canada and the United States
+1.800.387.0825
Outside Canada and the United States
+1.416.682.3860
Email: inquiries@astfinancial.com
American Stock Transfer & Trust Company, LLC
6201 – 15th Avenue,
Brooklyn, New York 11219
+1.800.937.5449 or +1.718.921.8124
Email: info@amstock.com
Website: www.amstock.com
TTY: +1.866.703.9077 or +1.718.921.8386
Auditors
PricewaterhouseCoopers LLP
Chartered Professional Accountants
Suite 700, 250 Howe Street,
Vancouver, British Columbia V6C 3S7
Annual Information Form
We prepare an Annual Information Form (AIF) that is filed with
the securities commissions or similar bodies in all the provinces
of Canada. Copies of our AIF and annual and quarterly reports
are available on request or on our website at www.teck.com, on
the Canadian Securities Administrators website at www.sedar.
com (SEDAR), and on the EDGAR section of the United States
Securities and Exchange Commission (SEC) website at www.sec.gov.
On the cover: haul truck on the horizon at Greenhills Operations.
Corporate Information
127
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1
7
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Horizons
2017 Annual Report
Teck Resources Limited
Suite 3300, 550 Burrard Street
Vancouver, British Columbia, Canada
V6C 0B3
+1.604.699.4000 Tel
+1.604.699.4750 Fax
www.teck.com
Setting Possibilities in Motion