Teck Resources Limited Price & Performance (TECK)

Actual results may vary due to various risks and uncertainties. Tech does not assume the obligation to update any forward looking statements. Please refer to Slide two for the assumptions underlying our forward looking statements. We will reference non GAAP measures throughout this presentation. And explanations and reconciliations are in our MD and A and the latest press release on our website. Jonathan Price, our CEO, will start with an overview of our fourth quarter and full year results, Crystal Prestige, our CFO, will follow with the financial and operation and Jonathan will conclude with closing remarks followed by a Q and A session. With that, I'll hand the call over to Jonathan.

Thank you, Emma, and good morning, everyone. I'll start with highlights from 2024 on Slide four. Last year was a transformational year to Teck.

And we made significant advancements in our value creation strategy. We completed the sale of our steelmaking coal business for value enabling Teck to reposition as a pure play energy transition metals company focused on copper and zinc With the US8.6 billion dollars in proceeds from the transaction, we announced the largest cash return to shareholders in our history and we began executing the return immediately. In 2024, we returned $1,800,000,000 in cash to including $514,000,000 in dividends, or approximately $1 per share and $1,250,000,000 in share buybacks, We also enhanced our resilience by further strengthening our industry leading balance sheet, we reduced our debt by $2,500,000,000 and retained funding for our near term value accretive growth projects. We currently have $11,300,000,000 in liquidity including $7,100,000,000 in cash. This includes our sustainability linked revolving credit facility which we recently reduced by US1 billion dollars to US3 billion dollars and extended for a five year term to October 2029.

We were in a net cash position of $2,100,000,000 as of December 31, 2024, we generated $2,900,000,000 in adjusted EBITDA, more than double the prior year. We set a record for annual copper production with a 50% increase from the prior year to 446,000 tonnes. In zinc, Red Dog had strong performance increasing zinc in concentrate production while improving our net cash unit costs by US0.16 per pound. We continue to have a strong focus on cost discipline and managing the controllable costs across our business. We are starting to see the positive impact of the structural cost reductions following the sale of the steelmaking coal business in July. Over the full year, we reduced our corporate costs by 21% or $88,000,000 compared with 2023 Teck. We did all this safely with a high potential incident frequency that remained low across the operations that we control, Finally, we progressed our value accretive near term copper growth projects, We completed construction of QB In Chile, and ramped up the operation to design throughput by the end of the year, and we continue to lay the foundation for our next phase of copper growth by progressing our near term copper projects. Overall, we made significant progress across the four pillars of our strategy for responsible growth and value creation.

Now looking at our fourth quarter highlights on Slide five, Our strong full year results were enabled by our fourth quarter performance. This was our third consecutive quarter of record copper production as QB ramped up the design throughput rates by the end of the year our adjusted EBITDA increased by 160% to $835,000,000 compared to the same period last year. We reduced our debt by a further $275,000,000 and returned $549,000,000 in cash to shareholders, through share buybacks and our base quarterly dividend. And we continue to advance our near term copper growth projects towards potential sanction decisions this year. [indiscernible] Turning now to an update on safety and sustainability on Slide six. We remain committed to ensuring the health and safety of our people, operating responsibly and building strong relationships with communities As I mentioned earlier, we maintained a low high potential incident frequency of 0.12 across the operations that we control in 2024.

And with our continued focus on sustainability, we released our 2024 Climate Change and Nature report in December This combines the recommendations of the TCFD and the Teck to deliver an integrated report covering our progress on climate and the nature related aspects of our business. We will provide an update on all our sustainability performance in our 2024 sustainability report which we expect to release in March. We continue to receive recognition for our sustainability leadership Most recently, MediaCorp named Tech as one of Canada's Teck top 100 employers for the eighth consecutive year, Forbes also named us one of the world's top companies for women for 2024. Turning to our progress at Teck on Slide seven. In Q4, QB delivered the strongest quarter so far, with mill throughput rates increasing quarter over quarter and achieving design throughput rates, This is a plant with a robust design and it continues to operate well. Recoveries improved to approximately 85% in the quarter and averaged 87% in November and December. As a result of our successful improvement work on the grinding and flotation circuits in Q3, [indiscernible] Great.

In line with the mine plan.

The improvement in our mining drivers led copper production at QB increasing quarter over quarter to 60,700 tonnes from 52,500 tonnes in Q3. We also achieved record daily production throughout the quarter, For the full year, QB copper production within our revised guidance [indiscernible] Looking forward to 2025, we are well positioned for further growth in copper production at lower net cash unit costs at QB setting us up for improved margins. Our 2025 guidance range of 230,000 to 270,000 tonnes at QB represents a significant increase from 2024, This guidance reflects an extended eighteen day shutdown in January to conduct maintenance and reliability work and complete additional tailings lifts as part of the operational ramp up. We expect to continue to have regular quarterly maintenance shutdowns per our operating plans. In 2025, expect to see an overall increase in average grade to 0.6% In line with the mine plan, we are processing more transition ores. Which is lower grade material, particularly in the first quarter of the year Drades are expected to increase into the second half of the year. Our focus is on achieving steady state operational performance with consistent online time. With design recovery rates of 86% to 92% depending on ore feed material.

We expect a significant reduction in QB's net cash unit costs in 2025, to US180 dollars to US215 dollars per pound from $272 per pound in 2024. [indiscernible] This reduction is primarily driven by a combination of higher copper production, cost discipline and increased molybdenum byproduct credits as the QB molybdenum plant continues to ramp up. Overall, we are pleased with the performance of QB and we expect to see the operation generate significant cash flows in 2025. Looking at our copper segment in 2025 on Slide eight, We expect significant growth in our copper production with improving margins this year. Our copper production is expected to continue to grow to 490,000 to 565,000 tonnes from 446,000 tonnes in 2024. Due to the ongoing QB ramp up and improved grades at HVC. We also expect a significant reduction in our copper net cash unit cost in twenty twenty five to US165 dollars to US195 dollars per pound, from US220 dollars per pound in 2024. We already saw an increase in our copper EBITDA margin in 2024 and expect this to continue to improve to 53% in 2025 based on consensus estimates.

Slide nine outlines our well funded value accretive near term copper projects. Including the MyLife extension of Highland Valley in British Columbia, and our low capital intensity greenfield projects at Zafranal in Peru Teck, and San Nicolas in Mexico Teck. These are attractive projects that are simpler in scope and complexity than our QB2 project with significantly lower capital intensities. We continue our work to define the most capital efficient and value accretive path for the expansion of QB through the optimization of the mill, and low capital debottlenecking opportunities, which could increase throughput by 15% to 25%. Through the execution of these projects, we have a clear path to increase our annual copper production to approximately 800,000 tonnes per annum before the end of the decade.

I'll now hand the call over to Crystal to provide further details on our fourth quarter and full year results.

Thanks, Jonathan. Good morning, everyone. I will start with our financial performance in Q4 and for the full year on Slide 11. Our adjusted EBITDA more than doubled in 2024 to $2,900,000,000 and increased by 160% to $835,000,000 in the fourth quarter.

We had strong cash flow generation of $1,300,000,000 in the quarter benefiting from the working capital release at Red Dog and QB.

Over the full year, we reduced our corporate costs by 21% or $88,000,000 compared with 2023. This reflects our strong cost focus and structural cost reductions that we [indiscernible] following the sale of the steelmaking coal business. We expect to reduce our corporate costs further in 2025 as reflects We returned a total of $1,800,000,000 in cash to shareholders in 2024, including $549,000,000 in the fourth quarter. We also reduced our debt by $2,500,000,000 in 2024 including $275,000,000 in the fourth quarter, with the scheduled semi annual repayment on the QB project finance facility and other debt reductions. The chart on Slide 12 summarizes the key drivers of our financial performance in the fourth quarter as compared to the same period last year. As a result of the completion of the sale of the steelmaking coal business last [indiscernible] EBR results are presented as discontinued operations, for all periods reported in our Q4 financial statements and MD and A. Our adjusted EBITDA increased by 160% in the fourth quarter driven by strong base metals prices, and higher copper and zinc sales volumes reflecting the ramp up of QB and strong sales from Red Dog. Conference Inc. Sales volumes each increased by 24% from Q4 of twenty twenty three.

Our strong adjusted EBITDA also reflects improved zinc unit Teck driven by our rigorous approach to cost discipline as well as lower smelter processing charges and higher sales volumes. Now looking at each of our reporting segments in greater detail, starting with copper on slide 13. In the fourth quarter, gross profit before depreciation and amortization from our copper segment more than doubled $732,000,000 compared to the same period in 2023. The increase was primarily due to strong sales volumes and copper prices. QB ramp up continued to support growth in copper and we had our third consecutive record quarter of copper production in Q4. This was partially offset by lower production at Antamina due to a decline in grades from the same quarter last year as expected in our mine plant. While Highland Valley's production was lower than the same quarter in 2023, it improved quarter over quarter as expected due to increased mining in the higher grade Lorenex Pit And Improved Haul Truck Performance. Production At Carmen D'Aendacoyo increased due to higher grades, recoveries and mill throughput, reflecting our efforts to improve water availability in the quarter. Our net cash unit costs increased as QB continued to ramp up.

In Q4 twenty twenty three, most of the cost associated with QB continued to be capitalized as ramp up costs. Excluding QB, our total net cash unit cost improved by $0.33 a pound Teck. S, compared to Q4 twenty twenty three as a result of higher copper production, and substantially higher molybdenum production from both Antamina and Highland Valley. And finally, we were pleased to ratify new three year collective agreements with two of the three unions at QB Teck, representing 78% of the labor force and for all unionized labor at Antamina.

Looking forward, in the first quarter of this year, we expect QB's production to reflect a extended eighteen day shutdown in January as well as processing lower grade material in the quarter as Jonathan outlined earlier. Now moving to a forward look at 2025 and our copper segment on Slide 14. Our copper production is expected Teck grow to 490,000 to 565,000 tonnes from 446,000 tonnes in 2024.

This increase is primarily due to the ramp up of QB, as well as a significant increase in production from Highland Valley.

Highland Valley's copper production is expected to increase as we continue to mine more ore from the Lornix Pit which is both higher grade and softer leading to increased throughput. These factors combined should more than offset lower recovery rates expected from the Lorenex ore. We also expect production at Carmen De Adnacoyo to increase reflecting in water availability through the year. We expect a significant reduction in our copper net cash unit cost [indiscernible] from US $2.20 per pound in 2024. This reduction reflects an increase in copper and molybdenum production as well as continued cost discipline across our operations. We expect our molybdenum production to increase to 5.1% to 7,400 tonnes from 3,300 tonnes last year.

This is based on the continued ramp up of the molybdenum plant at QB and increased molybdenum production at Highland Valley as we mine in the Lornix Pit.

Turning now to our zinc segment on Slide 50.

Our gross profit before depreciation and amortization from our Xyng segment more than doubled from the same quarter last year to $320,000,000 This was driven by higher zinc prices as well as strong Red Dog sales volumes due to the timing of sales, lower treatment charges and higher byproduct revenues. This was partially offset by higher Nano royalty expense as a result of Red Dog's strong profitability. As expected in our mine plan and our annual guidance, Red Dog zinc production declined in Q4 due to the lower price. [indiscernible] reflecting lower smelter processing charges the effect of higher sales and an increase in silver byproduct credits. At Trejo operations, our refined zinc production was impacted by the localized fire in Teck electrolytic plant in September advancing detailed engineering, [indiscernible] and project execution planning which are critical steps in meeting our investment requirements potential project sanctioning. Zaffronil already has its main permit, and we are therefore proceeding with advance early works in 2025, to enable construction to start when the project is sanctioned. We also expect to spend US 25 Teck $30,000,000 to progress QB debottlenecking this year. The remaining copper growth capital expenditures are focused on advancing studies for our pipeline of medium to long term projects including Engleur Creek, Shaft Creek, Hu Range and Nueva Union.

These investments ensure that we are well positioned to advance these growth projects efficiently while remaining disciplined with our capital allocation. With that, I'll turn it back to Jonathan.

Thanks, Crystal.

So as we look forward, I want to take a moment to acknowledge the economic and political backdrop in which we are operating on Slide 22. Globally, we are witnessing a period of significant economic uncertainty and change that will alter trade flows and potentially impact global supply chains and market dynamics In this context, the outlook for our commodities remains robust. Driven by the underlying demand factors of economic growth and urbanization, electrification to ensure energy security, and growth in the digital economy. These secular tailwinds underpin significant demand for both and when coupled with supply side constraints, underlying the strength in our strategy as a pure play based metals company with a deep pipeline of copper growth opportunities. Turning to Slide 23 Teck, we are closely monitoring the potential impact of tariffs and other restrictions between The U. S. And Canada which is a fluid and rapidly evolving situation. Tech has a resilient business driven by the diverse coupled with an agile and sophisticated commercial strategy, and a very strong balance sheet, To put the potential tariffs into context, any imposed tariffs by The U. S. Are not expected to have a material impact Our copper and zinc concentrate sales would not be impacted as we primarily sell to Asia and Europe, and not into The U. S, Trails refined zinc lead and specialty metals such as germanium, indium, and sulfur products are sold into The U. S. But in the event that tariffs are imposed, we expect trade flows to adjust While tech produces a large proportion of the Teck China supply for this diverse group of metals, they comprise less than 15% of our revenues.

Actively monitor and respond to the situation potential impacts to us. We have a strong commercial strategy and logistic tools to quickly pivot and respond to changing market conditions. We are closely watching and engaging with our customers we remain resilient in the current environment. So to conclude on Slide 24, our focus at TEC is to create value for our shareholders. And our priorities are focused on doing just that in 2025 and beyond, We've entered the year with QB operating at design throughput capacity rates and our primary focus is to complete the QB ramp up to steady state. We will continue to drive operational excellence across our portfolio of high quality copper and zinc operations and projects with a strong focus on cost discipline. This will ensure that we not only increase our copper production, but also increase our margins. Importantly, remain committed to returning cash to our shareholders through the execution of our authorized share buyback program and annual based dividend. We are progressing on near term copper projects to possible sanction decisions in 2025 positioning us for our next phase of copper growth. And I feel confident that we have the resilience to navigate uncertainty and create value through our strong financial position and agile commercial strategy.

Overall, I'm very excited about the opportunities ahead of us to continue to drive value creation. Thank you. With that, operator, please open the line for questions.

Certainly. First question is from Orest Wachodaw with Scotiabank. Please go ahead.

Hi, good morning. Wondering if we can get a bit more color on the QB2 ramp. Obviously, really strong performance in November, December. January impacted by the extended eighteen month eighteen day shutdown.

What's the performance been like since it restarted? And do you think QB2 is on track to reach that sort of steady state full nameplate by mid year. I'm wondering if anything's come out of the shutdown that may perhaps either advance that or delay that.

Hi, Orest. Thank you very much for that question. Overall, I would say the ramp up is progressing well and it's continues to be in line with what we would call normal course or benchmark ramp up timetables. We have planned quarterly shutdowns. They're embedded in our operating plans, and we've communicated that previously. And as you highlighted, we did have an extended shutdown for eighteen days in January to conduct maintenance reliability work and to complete some tailings lifts as part of the operational ramp up. That eighteen day shutdown is fully reflected. In the guidance range of 230,000 to 270,000 tonnes. For 2025. And post that shutdown, the plants and the with with our underlying operational plans. So we do have good confidence in achieving the guidance range that we've set out. As you've seen, we've mentioned a few things, for example, having lower grades towards the start of the year and higher grades towards the back end of the year. And processing some more transitional ore at the front end of the year, which is you know can lead to lower recoveries. But all of that is fully accounted for the guidance range that we've put forward.

And we're very pleased with the way that the plant and the operation as a whole is operating. [indiscernible] Thanks. And just as a follow-up, what what is the planned cadence for Future Maintenance Shutdowns At QB2 for the rest of the year, like is it sort of like a week, a quarter now starting in Q2 or just what's planned?

Yeah, look, that's a reasonable assumption in Orest. Overall, the online time for the plant is expected to be around 92%. That does imply a shut down of around seven days in every quarter. As we did last year, we've typically been having those shutdowns the first month, of each quarter and going forward in twenty twenty five, we expect to maintain a similar cadence.

Okay. So nothing no longer shutdowns currently planned beyond what we saw in January.

That's correct.

Okay.

Thank you very much. Thanks, Horace.

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

Yes. Thank you. Good morning, everyone. So the balance sheet is undeniably strong. And so there is how should we reconcile Jonathan, the [indiscernible] capital allocation framework the fact that under our estimates and consensus outside estimates, you're going to generate anywhere between €1,000,000,000 to €2,000,000,000 can again or more per year in the coming years of free cash flow.

How do we reconcile this strong balance sheet? You can expect an allocation of framework or returning money to shareholders and Teck potential M and A where Teck goes and buys smaller projects or smaller companies. Even though it does have a very robust pipeline of projects. Or maybe we just see more outsized returns to shareholders as you have done in the last few years? This is a key question that we are discussing with investors and purely as you know, the potential for M and A I'll say, risk in a way is something that then yes, we would like to see how you from your perspective and the Board perspective you are looking at this.

Yes. Carlos, thanks very much for that question. It was a fair broad one. Look, the capital allocation approach that we've changed here in the business is very much focused on value creation. For our shareholders. We do have a very strong balance sheet, as Chris outlined. We reduced debt quite significantly last year. And we are currently running a net cash position on that balance sheet Also, we do still have a very significant outstanding authorization of share buybacks that we will continue to execute through the course of this year. That's in the range of $1,800,000,000 of cash still to be deployed through the buyback of our shares. And as Crystal mentioned, we're in the market executing on that every day in addition to the base dividend that we have and that we've maintained. Through this year. We've always said that if we continue to generate cash in excess of the needs of the business, that will make its way through the capital allocation framework. And under that framework, we do have the potential to return a further 30% or 100% of cash that in excess of our needs.

As you know, we also have a stable of projects in the portfolio. And when we went through the use of proceeds from the sale of EBR, last year one of the things we said we would do is reserve some cash for the development of what we consider to be low cap intensity and high returning projects that we have in the portfolio one of those being the Highland Valley copper mine life extension here in British Columbia. Another being the Zaffronal project in Peru Teck the other Dreamfield being the San Nicolas project in Mexico Teck. We continue to focus on the organic growth in the business because we see that as being the most value accretive path for our shareholders. We are, of course, very aware of the M and A activity in the sector that is spoken about. [indiscernible] focus remains creating as much value as we can for our shareholders and we believe that the projects we have in the portfolio are a great way to achieve that. So it's a good position to be in. It gives us resilience. It gives us options, but we will maintain our focus on creating value for shareholders and executing on the plans that I think we've clearly set out.

Great. Thank you. And just very short follow-up It's software now arguably the greenfield project that as of now we'll be next So we are quite advanced on Zaffronau, as you know, in terms of how the environmental permit associated with that, And as you see from our disclosures around our copper growth spend, this year, We are increasing the spend there, you know, reflect of a project that is close to a sanctioned decision. We continue to work very hard on San Nicolas as well. We see that as a very attractive very attractive option. And ultimately, the economics of those projects the progress of the other permits that are required to actually take a project through into execution and the completion the right level of engineering work that needs to be done prior to sanction will determine which of those projects is up for sanction first. I think you can see from our disclosures that Zaporinale today is in a very strong position. [indiscernible] Thanks Carlos.

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

Hi, Jonathan.

Two questions from me on QB. The first one is on the topic of a potential tie up or some sort of JV with Koloasi. We've seen an interesting deal announced today by Anglo and Kadelco, and it would seem that from a value unlock perspective, this is a a fairly obvious area for tech and the other companies involved. Can you give any color on where the discussions are? And other factors why this isn't being looked at or pursued more aggressively? And my second question is on QB costs. Just looking at the absolute costs in Q4, they did go up quite significantly. Is there anything in there that you can talk to that should unwind? Because looking at it, it's seems like there's a lot of cost that has to come out through 2025 for you to hit the unit cost guidance.

Liam, thank you for those questions. I'll, in a moment, hand the second question over to Crystal. But just starting with your question on QB Kailuaase and as we've discussed before, we do recognize the potential value of some form of tie up between those two operations, and it's something that we've done a good deal of work on. To understand the various ways in which that value could be unlocked. As we've also consistently said, number one focus remains on optimizing value for Teck shareholders and we look at all the decisions we made through that lens. Right now, our focus remains on the ramp up of QB to full production and steady state. And as we've spoken about previously, the optimization and debottlenecking of that plant, which will be some of the most capital efficient unlock of tonnes that we have anywhere in the portfolio. So remains key focus for us. We have, as you would expect, had a level of engagement around around the opportunities with QBI Kayoassie, with the partners on the other side. But as you'd appreciate those discussions are confidential in nature and of course, we can't say anything more about those at this point in time.

Other than to reaffirm that we recognize the value potential there and we will always act in the best interest of Teck shareholders in terms of how we maximize value And with that, I'll hand over to Crystal on the cost question.

Hi, Leanne. Thanks for your question. I think you've you've drawn out the key point just in the context of as we look forward, expecting a significant reduction in in QB costs as we move to more stabilized production levels through through 2025 and we complete the demobilization of of contractors that supported the ramp up through 2024. In the fourth quarter, of course, we saw an increase in volume that does drive a modest increase in operating costs as we have higher electricity and supplies. And when you balance that over higher production, that should normalize. There were also some one time costs that we incurred [indiscernible] We mentioned the settlement of two zero three of our labor contracts, which were of course a good outcome. Those lead to to bonuses paid to those unions as we resolve those contracts. So we do continue to expect a decline in our unit costs for QB and for the copper business as we move into into 2025 and we see an uptick in our production levels. As well as in the molybdenum credits we expect in 2025.

Okay. Thanks, Liam.

The next question is from Craig Hutchinson with TD Cohen. Please go ahead.

Hi, good morning guys.

Just a question on the Highland Valley life extension. There's a note in your MD and A to saying that there's have you seen a challenge by when the indigenous government organizations that's delayed the approval process of the EA Does that have to be resolved before the EA Teck be can be issued or can you get the EA and then resolve these issues after the fact? And I guess just maybe as a follow-up, do you have a sort of anticipated timeline for, I guess, solving it or getting any additional impact benefit agreements with those that don't have them already.

Yes, great. Thank you for asking question. It's a good one. And as you can imagine, it's a file we're working very hard on at the moment. We are in the final phases of the EA process for the mine life [indiscernible] And the dispute process that we've referenced is a formal established that environmental assessment process, which is designed to resolve issues. As noted, we have secured agreements with other indigenous government organizations that are involved the approval process for Highland Valley mine life extension, and we got those coming through in December and January. And we do continue to engage with SSN who are the party that has disputed the approval of this project. Look, we have a very long track record of working successfully with with indigenous nations and sharing the benefits of the operation and of future growth with those nations. And we do remain confident in our ability to move forward successfully. We also have a good track record of permitting here specifically in British Columbia. And it's worth noting that the province of British Columbia recently announced that they would be working to fast track permitting on this project. So we do have a lot of support.

With respect to this and we remain confident in getting this done, getting the approvals we need. It's a project that we believe has compelling returns and we do expect to be in a position to sanction it later this year.

Okay, great. And maybe just a follow-up question. You guys mentioned you got the permit for the road restoration of Red Dog.

The step up in growth capital this year versus last, is that include spending on the road this year or is that a separate line item?

Yes, it does include that Craig, you're exactly right.

Okay. Great. Thanks, guys.

The next question is from Lawson Winder with Bank of America Securities. Please go ahead. Thank you, operator. Good morning, Jonathan and Chris Thanks for the update.

Ask about capital allocation in zinc. And so just pointing to Zinc showing some signs of life in 2024 and Teck having a range of projects in Zinc. And also noting that to maintain the current zinc business, it will require significant investment. When you think about allocating capital to the various projects Are the zinc and copper segments separate buckets or could there be a situation where zinc prices point to higher IRRs and as a result you deemphasize copper growth.

Look, I think we look at capital allocation holistically across the entire organization. We're Teck contemplating that separately for copper and zinc. Everything has to compete for the capital we have. And compete on the range of metrics that we've spoken about before and particularly returns. [indiscernible] Look, I think we see the fundamentals for zinc to be attractive. There is strong demand. For zinc and perhaps the demand growth outlook is not as compelling as it is for copper, but we've seen a dearth of new supply in zinc for many, many years. No major zinc projects coming through. And at Red Dog, of course, we have a world class Tier one operation. And while that comes to end of current around 02/1931, we have a couple of very high quality ore bodies nearby and that is where the spending is being directed today. To understand the potential future of Red Dog and the potential for a significant life extension there. So based on those fundamentals, based on the quality of the project we have at Red Dog, We continue to see that as a core part of the portfolio. Of course, in addition to Red Dog, we do get zinc concentrate from Antamina.

And in future, in the event we sanction San Nicolas, that will be a further source of zinc concentrate for us. So we hold a strong position in that market right now. Provided the fundamentals remain intact, we would continue to want to maintain a strong position in that market into the future.

Okay. Thanks, Jonathan. And then just looking at another asset that has a significant zinc compliant, Your Mexican asset has the political situation in Mexico evolved any more favorably at this point? And what's your thinking in terms of actually making a decision to invest capital [indiscernible] Yes. So we remain highly interested in the San Nicolas project. It's a relatively small, simple flow sheet. It will have a low capital intensity very high grade, which means it will deliver strong margins through its life. We're closely monitoring the mining environment in Mexico Teck I was in Mexico City in January and had an opportunity to meet with President Scheinbaum and talk to her about Saint Nicholas and about mining more generally. While at the present time, it's to be a priority for this legislation on mining, given it has its hands full with its neighbor to the north. We do see longer term a focus there on foreign direct investment, a focus on building critical minerals supply chain and capability. And I would say the signals we get from the administration are encouraging.

Particularly given the commodities that San Nicolas will be producing Teck particularly given the truck record of being responsible in our approach to developing operating mines that both ourselves and Agneco Eagle bring to the table. Now we don't see any negative immediate impact relation to San Nicolas. So we continue to do our study work. But it would be fair to say, of course, that we won't make a sanctioned decision and we won't commit significant dollars to further investments on the ground in Mexico until such time as we have certainty of permitting and the support of the government. But we remain optimistic. Fantastic. Thanks, Jonathan.

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

Great. Maybe just on QB. Could you remind us how much you had mentioned at capitalizing costs, how much you're capitalizing at the moment? Is it just interest or is it other like costs as well?

And will you stop capitalizing those then maybe a second on trail. It's going to be free cash flow negative last year. It's likely to be even more cash flow negative this year. And what does it take to decide to close Trail? And I know you said strategically important, but maintain that view of strategic importance?

I'll come back to your second question on trail in a moment. Due to Crystal for the first question on QV costs.

Yes. Thank you. And maybe just a bit of a clarifying capitalizing ramp up costs associated with QB that was in Q4 of twenty twenty three. In through 2024, we've been we have not been capitalizing interest, on the project. Of course, construction was complete in the first quarter with the port and molybdenum plant in the in the second quarter. So no longer capitalizing interest depreciating the assets there. And we haven't been capitalizing ramp up costs in 2024. So the only capitalization you're seeing at QB is in relation to sustaining capital costs and to a very minor extent capitalized stripping.

Thanks, Crystal. And then moving on to Trail, Miles, a couple of comments there. We've been very focused on profitability and cash generation at Trail and we've made a number of changes to support that. We've implemented cost reductions at the site in relation to maintenance and non routine work. We've reduced headcount at the site and with new leadership there, worked on a whole series of cost reduction opportunities across the operation. We have reduced our refined zinc production this year in the context of the TC environment. And that again will directly improve Trail's profitability and cash generation. The kids set plant that we did a significant amount of maintenance on is now operating very well. And our production of lead in particular is very strong. And we do also have the option at trial to sell excess power to generate cash flows as needed. So we've taken a very commercial focus the way that we're operating Trail right now I'm very pleased with the early results that we are seeing there. And I think Trail is doing the things it needs to do to continue to earn place in the portfolio from a profitability and cash flow generation perspective.

The other comments I would make on Trail that it really is particularly in the current context, quite a strategic asset. It's key to our portfolio, particularly that integration with the Red Dog mine. And gives us optimal market access for the Red Dog concentrate. Importantly though, it produces a number of metals which have become quite strategic and important in the current context. Of the relationship between Canada and The U. S, we estimate that Trail would be the fourth largest producer of Germanium In The World And The Only Primary Producer Of Germanium In North America. And this is the time where China cut off or restricted supplies of germanium into The U. S. And Teck critical component for for defense spending, for example, and goes directly to that national security agenda. So In a foundationally it's absolutely critical that we achieve profitability and cash flow generation from trial and I'm confident that we're on the right path there. And Teck secondly, there's a compelling strategic overlay with Trail being part of an integrated flow sheet that we have with How much revenue do you get from Germanium And The Smaller Metals? Is That Becoming A Meaningful Stream That Will Surprise To The Upside Given What's Happening.

Yes. So It's, Look, It's Relatively Small In In Terms Of The Direct Revenue And Cash Flow Profitability Impact On The Business. It Has, I Think, Is A Lot Of Ancillary Strategic Benefits From A Relationship Perspective In A Period Of Time Where Trade Relations Are Strained. That Flows All The Way Back Upstream To The Outlook For The Red Dog mine, which of course is in The U. S. In Alaska. And as we look forward to the future expansions of Red Dog, the proportion of specialty metals in that concentrate will actually increase So we think it's interesting for a number of reasons, but the again, just on trial core focus there is on profitability and cash generation. And we're in good shape there with a number of the changes that have recently been made and the new operating strategy that that team has put in place for 2025.

Great. Thank you. Thanks, Myles. The next question is from Bill Peterson with JPMorgan. Please go ahead.

Yes. Hi. Good morning. Thanks for taking the questions.

Maybe on the growth projects, you spoke to the EA assessment of Highland Valley and a little bit on Mexico, but we think about higher level, I guess at this stage for 2025, you go through each project in terms of what's in your control versus local authorities? What should we be looking out for next steps? And I guess on Zaffronal in particular, you discussed the potential sanction decision. What are the key requirements you're looking for, whether it be market related or expectations on costs or IRRs you're looking forward to potentially sanction by year end.

Look, I mean, I think as ever the things that are in our control remain the studies and the completion of those studies, there remain the engineering work that we're undertaking in of course there remain the engagement with vendors and contract that ultimately will support the project. As is the case with any project, to a certain extent, permitting is beyond our control, but of course it's something that we engage on very heavily and it's something where we work very closely with the the regulators in a collaborative fashion. Through that process, I think all of these projects will have to earn their place in the portfolio and earn their place in terms of capital allocation. Course, we have a view that that is the case, which is why we are pursuing them as near term priorities. And the economics that we see associated with these projects are compelling. Offering a combination of strong IRRs, strong cash flow generation, strong EBITDA contribution to the group. And a meaningful contribution to our product base. So all of those things must be true ultimately for a project to be sanctioned. And for the risks to be appropriately managed. So we're comfortable with the portfolio that we have.

HBC being a brownfield mine life extension here in BC. And then two greenfield projects with Zafranal in Peru being one that Teck will construct and operate and then San Nicolas in Mexico under that fifty-fifty joint venture with Agnico Eagle, which will be constructed and ultimately operated by the joint venture company. So we're very happy with the shape of that portfolio. We'll continue to progress these projects to sanction decisions. And as I said, provided the financial metrics are there, We expect to sanction them and see them in their place in our portfolio going forward. Yes, thanks for that. And then I wanted to ask about cost maybe in a slightly different way than their prior question. First, you talked about the union, two out of three being negotiated one more to go. I guess, how should we think about a run rate impact to the model and costs And then I guess tying it one step further on the cost trajectory for QB2, as we think about the exit rate cost per pound given the expected output increases throughout the year? [indiscernible] Yeah.

I mean, I think in the context of sort of run rate costs, of course, Emma and the team can take you through more of the details. But I think in terms of labor costs, you can continue to assume sort of lower single digit inflation [indiscernible] I'll get Emma to follow-up with you offline. And then in terms of sort of run rate, I think in the way that we've talked about production escalating as we go through the year to more stable [indiscernible] QB, I think you can think about the cost in the same way as we've established our guidance with a lower end than a and a higher end and we've continued to disclose unit cost per QB to give you that indication. So I think I would see that as sort of a tale of two halves of the year similar to production. Thank you, Jonathan and Crystal. Thanks for those questions Phil.

That's all the time we have for questions today. I will now hand the call back over to Jonathan Price for closing remarks.

Thank you, operator, and thanks again to everyone joining us today.

Before we sign off, I did want to note that it is Fraser Phillips' last quarterly conference call with TEC before his retirement, I'd like to sincerely thank Fraser for his many contributions to TECK over the past eight years and wish him and his wife Kimberly all the very best for their next chapter. Meanwhile, we look forward to seeing many of you in person at a major mining conference in Florida next week. If you have any further questions, please reach out to Emma Chapman and to our IR team.

Enjoy the rest of your day.

This concludes today's conference call. You may disconnect your line Thank you for participating and have a pleasant day.