Executives: Greg Waller - VP, IR & Strategic Analysis Don Lindsay - President & CEO Ron Millos - SVP, Finance and CFO Dale Andres - SVP, Copper Ian Kilgour - COO & EVP Real Foley - Vice President, Coal Marketing Andrew Stonkus - SVP, Marketing and Sales Scott Wilson - Treasurer & Vice

President
Analysts: Sasha Bukacheva - BMO Capital Markets Ralph Profiti - Credit Suisse Greg Barnes - TD Securities Orest Wowkodaw - Scotia Bank Lucas Pipes - FBR & Company Chris Terry - Deutsche Bank Garrett Nelson - BB&T Capital Markets Justine Fisher - Goldman Sachs Jeremy Sussman - Clarkson David Wang -

Morningstar
Operator: Welcome to Teck Resources Q1 Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. This conference call is being recorded on Tuesday April 26, 2016. I would now like to turn the conference call over to Greg Waller, Vice President Investor Relations and Strategic Analysis.

Please, go ahead.

Greg Waller: Thanks very much, operator and good morning, everyone and thanks for joining us this morning for our first quarter 2016 results conference call. Before we begin, I'd like to draw your attention to the forward-looking information on slide 2. This presentation contains forward-looking statements regarding our business. However, various risks and uncertainties may cause actual results to vary and Teck does not assume the obligation to update any forward-looking statement.

With that, I'd like to turn the call over to Don Lindsay, our President and CEO.

Don Lindsay: Thanks, Greg and good morning, everyone. I will begin with a brief overview of our first quarter results and then Ron Millos, our CFO, will provide additional color from our perspective, we will then conclude with a Q&A session where Ron, myself and several additional members of our senior management team would be happy to answer any questions. Near term priorities that we set out in February when we reported our fourth quarter and full-year 2015 results have remained our focus in this first quarter. All of our mines were cash positive with the exception of Pend Oreille which is ramping up production after a restart and when I say cash positive, that means it is after sustaining capital and capitalized stripping.

Now, this is a reflection of our cost management program, the unit costs are down in each of our coal, copper and zinc business units. Construction on the Fort Hills project continues to progress well, under our share of the project capital from cash in Q1 and our target for the full year is to fund all of our shares of the project capital's miniatures internally. In total, there's only $1 billion remaining to project completion. Our liquidity remains strong and over $5 billion with our current cash balance of $1.3 billion and undrawn $3 billion U.S.-commited line of credit. Looking at an overview of Q1 results on slide 4, compared with the same quarter last year, revenue declined 16% to $1.7 billion, primarily due to lower prices for all of our principal products.

Overall, gross profit before depreciation and amortization was $464 million and bottom-line profit attributable shareholders was $94 million. After removing the unusual items, adjusted profit attributable to shareholders was $18 million or $0.$0.03 per share. Touching on some operational highlights from the first quarter on slide 5, our operations continue to perform well. The key story is cost management which I touched on earlier. On a USD basis, total cash unit costs, including capitalized stripping, were $68 per ton for coal, that's down $12 per ton from Q1 last year.

Copper cash unit costs, including capitalized stripping, again, are currently $1.49 per pound and that's down $0.26 per pound from the same period last year. And this reflects the impact of our cost reduction program, as well as a weaker CAD and lower oil prices compared with the same period last year. Turning to slide 6 and running through some additional highlights and the market outlook by business unit, starting with steelmaking coal, coal sales were higher than we originally expected and demand strengthened towards the end of the quarter. However, the coal price was lower in the first quarter, reflecting market conditions in December, when the Q1 benchmark price was struck. On a CAD basis, our average realized price was down $26 per ton to CAD102.

Production was down slightly, consistent to being weighted more heavily to the second half of the year as we had indicated last quarter. However, Line Creek had record quarterly production and Elkview and Greenhills both set new first quarter production records. The water treatment facility at Line Creek is now achieving 100% of its designed target, so we're very pleased with that. Our cost reduction efforts continue to produce significant results in coal, helped by lower diesel prices. In CAD terms, we lowered site costs by $6 per ton and transportation costs were down $2 per ton.

Looking forward to Q2, coal prices have been agreed with the majority of our customers, based on $84 per ton for the highest quality products and we expect total sales of at least 6.5 million tons. We also expect that our Q2 realized price will reflect a smaller discount to the benchmark price and as spot price assessments are currently significantly above early contract price. Looking at slide 7, the outlook for steelmaking coal market has improved in the last two months, quite significantly. The quarterly contract price of $84 per ton represents the first increase since Q3 of 2013. Spot price assessments have continued to rise since that price was set in mid-March and are now significantly higher than the benchmark price.

Remember every $1 increase in coal price generates around $35 million in additional EBITDA for us, depending, of course, on exchange rate and sales volumes. The market continues to get closer to being balanced. On the demand side, hot metal production improved in March with hot-rolled coil prices rising 20% to 55% from the lowest at the end of 2015, early 2016. Coking coal demand from a number of market areas, including China, also appears to be improving. The March numbers issued last week show Chinese imports of coking coal rebounded to over 5 million tons in the month and in fact, they were up 73% so far for the quarter, for the first quarter this year.

On the supply side, closures on mono-economic mines have continued, as the U.S. coal companies work their way through bankruptcy proceedings. And then recent weather issues in Australia also seemed to have disrupted more production than was originally understood. In addition, there have been announcements in China that are supported to steelmaking coal. A severe mining accident has focused the government on health and safety issues, resulting in a one-month production halt at some Xiangsi mines that could potentially eliminate some capacity and importantly, the government has also requested mines to cut operating days from 330 days per year to 276 days, as part of a supply-side reform and this has reportedly created a coal supply tightness in the domestic market.

Longer term the 13th five-year plan calls for total coal capacity to be significantly reduced as part of the rationalization of the coal and steel industries. And again, this would be positive for seaborne coal. Encouraged by these developments and this is part of the reason it has driven the recent improvements in coal production. Now, with the shipment that has finally broken the $100 mark. We're excited about that.

Turning to our base metals business, starting with copper on slide 8, compared with Q1 last year, revenue was down due to a substantially lower-realized price, even though sales volumes were up. Copper production was up overall, with higher grades and recoveries in Antamina, higher throughput at Highland Valley and Andacollo. Now, this is partially offset by lower production at the cost reduction at Quebrada Blanca. Our cost-reduction efforts have also produced significant results in copper, C1 unit costs, net of byproduct credits were down $0.24 to $1.29. Looking at the copper market on slide 9, consensus estimates have the oversupply of 2016 is small 300,000 to 400,000 tons.

This typically incorporates a disruption allowance of around 6%, based on a 20 million ton global production plan. An additional 2% of disruption would eliminate the surplus completely. Historically, annual disruptions have actually been 7% to 9%. In 2015 disruptions were at the top end of historical range at 8.5%. Year to date, we're already at around 5%, but that is before the impact of more recent news out of Chile.

Post 2016, new mine supply declined significantly. Little new capital has been committed to mine development over the past three years. Consensus estimate is that the market will move into significant deficit, beginning in 2017. Proper inventories on the terminal markets are not substantial at around 500,000 tons on a combined basis which is less than two weeks of consumption. Every $0.01 per pound change in copper price impacts our EBITDA by $9 million, again, depending on exchange rates and sales volumes.

Now, is our zinc business unit results are summarized on slide 10. And please note that Antamina's zinc-related results are reported in our copper business unit, as zinc is considered to be a byproduct there. Revenues were down slower sales volume from Red Dog, due to timing of shipments and a lower-realized zinc price. Zinc in cost reproduction, though, was up due to higher zinc grades and higher throughput at Red Dog. Refined zinc production was also higher, reflecting operating performance at trail.

Overall, gross profit before depreciation and amortization was down due to the lower average zinc price. On slide 11, the zinc market is poised for change due to rapidly depleting inventories. A supply-demand imbalance has been in place since around late 2012 and it has recently accelerated due to additional mine closures. Around 1.5 million tons of capacity has been removed from the market over the past three years. At the same time, demand growth remains positive and is expected to outpace supply curtailment.

There's been sufficient inventory to fund the deficit to date, but that may not continue for much longer. We will likely see combined terminal market stocks go below the 600,000-ton level within the next month as zinc metal stocks could be at critical levels within the year. The market tightness should also continue to draw additional unreported stocks, as we have seen recently. It has also moved treatment charges significantly in favor of the mines. A major portion of the concentrates imported to China last year is simply not available this year.

To source the same number of zinc units, China will be forced to import zinc metal instead. And this shift has already started, as reflected in the import numbers of the past few months, the March numbers issued last week show net imports of zinc concentrates are down 30% from Q1 last year, as you would expect and net imports of zinc metal are up almost 200% year to date. Every $0.01 per pound increase in the zinc price generates an additional $14 million of EBITDA, again, depending on exchange rates and sales volumes. Trades and update on Fort Hills on slide 12, the project continues to track closely to plan. We're now more than 55% through construction, modularization programs are due to reach their peak activity in Q2.

Our share of the remaining CapEx to project completion is currently $1 billion. We look forward to the completion of the project in the second half of 2017 and the additional earnings in cash flow that we expected to generate. With that, I'll turn it over to Ron Millos.

Ron Millos: Thanks, Don. I've summarized our changes in cash for the quarter on slide 13.

Our cash flow from operations and working capital was $373 million. On the outflow side, we spent $298 million on capital projects, including Fort Hills and we also paid $215 million interest and principal on our debt. Our capitalized stripping costs were $159 million and the effect of our change rate changes on our cash and cash equivalents was a reduction of $97 million. After these items, proceeds from sale investments and other assets, expenditures on financial investments and other assets and distributions to non-controlling interests. We ended the quarter with cash and short term investments of around $1.5 billion and are now, as Don mentioned earlier, at about $1.3 billion.

This is consistent with our year-end targets for a cash balance of greater than $500 million and for our $3 billion credit facility to remain drawn. That assumes our budget and commodity prices exchange rate and that we meet our 2016 guidance for production costs and capital spending and it also assumes that we maintain our existing U.S.-debt levels and have no unusual transactions. Moving on to the next slide, our first quarter pricing adjustments are summarized. We had positive pricing adjustments for the first time since second quarter of 2014 and that's all due to the rise in the prices for our key commodities since the end of 2015. We had $27 million in positive pricing adjustments compared with a negative pricing adjustments of $44 million in the same quarter last year.

Please note that these adjustments are based on the change in the quarter end prices, opposed to averages. Copper was up $0.06 per pound from the end of 2015 to the end of Q1 of 2016 and zinc was up $0.08 per pound in the same period. And these adjustments are included in our income statement under Other Operating Income and Expense. And the chart on the right represents the simplified relationship between the change in copper and zinc prices and the reported settlement adjustment. It usually provides a good estimate of our pricing adjustments each quarter.

In the first quarter settlement adjustments were right on the line. And as a reminder, our refining and treatment charges in the CAD-USD exchange rate should be considered in your analysis of the impact of price changes in the adjustment and you should also consider taxes and royalties when analyzing the impact on our profits. Turning to the balance sheet and liquidity on slide 15, Teck is in solid financial position with over $5 billion of liquidity as of today. We currently have roughly $1.3 billion in cash, no debt due until 2017. Further out, our average maturities are less than $600 million per year.

In the first quarter we have drawn an additional $45 million on the $1.2 billion facility, taking that total up to $785 million and our revolving credit facility of $3 billion and remains undrawn at this time. As a reminder, there are no financial covenants in our public debt indenture, just one financial covenant in our bank credit agreement which requires us to maintain a debt-to-debt-plus-equity ratio below 50%. We're well below our 50% debt-to-debt equity covenant at 35% at the end of March and our net debt-to-net-debt-plus-equity ratio was 31%. And with that, I will turn it back to Don.

Don Lindsay: Thanks, Ron.

So, in summary on slide 16, our near term priorities are currently, first, in keeping all of our operations cash flow positive, second, funding the 2016 portion of Fort Hills from internal sources and then third, maintaining a strong financial position, including our 2016 targets for a year-end cash balance of more than $500 million and for our $3 billion credit facility to remain undrawn and we're tracking to those goals. With that, we'd be happy to answer any questions. I do want to say that some of our management team members are on the line in different locations, so there may be a pause after you ask the question as we sort out who's going to answer that particular question.

Operator: [Operator Instructions]. The first question is from Sasha Bukacheva from BMO Capital Markets.

Please go ahead.

Sasha Bukacheva: I wanted to ask a question regarding your plans for Q2. I understand your targets at the CIA submission by the end of the year so it would be helpful to get some of your thoughts on timing, copper price that might be required for the go-ahead decision. If I recall the last capital estimate on the project was oversized [indiscernible] which kind of makes it a fairly capital intensive proposition and what it might contribute to your portfolio with respect to copper volumes and when that might go into production. Thank you much.

Dale Andres: We do intend to submit the [indiscernible] EIA submission in the second half of 2016. There will be an approval process so a sanctioned decision would be more towards potentially not before the end of 2017 and first production towards the end of 2021 and assuming it goes forward at that time. As far as copper production, the first 10 years would be an average of 248,000 to 250,000 tons a year of copper contained and that’s good-quality concentrates and relatively low cash costs as well. So we’re still progressing through the final details of the submission and we’re on track to submit that in the second half year.

Sasha Bukacheva: Okay, and Dale do you have a sense of for what copper price might be required to make a go-ahead decision or the range depending on where you think you can do with the CapEx and operating costs?

Dale Andres: So we have been working through the revision of the project and changes in scope in terms of how we're going to be handling the tailings and that's going to reduce capital cost quite substantially in the order of $1 billion.

So once we finish that process and then we do all of our financial scenarios and look at different prices so it would be premature to give you an actual answer, but I would put it this way that we know that this is going to be a low-cost operation. In the first five years of operation it's minds a dome [ph] of mineralization that has 50% higher grade [Technical Difficulty] tripled the [indiscernible] credit and a zero strip ratio effectively for the first as well. So it will be very economic. The key is to get the permits and get it built, so we’re looking for it as Dale says the earliest we could make a construction decision is really early 2018. So that depends on the process in Chile but that would sort of be what we would expect.

Operator: Thank you. The following question is from Ralph Profiti from Credit Suisse. Please go ahead.

Ralph Profiti: Two questions if I may. The first is whether or not Don you can give me an update on how many tons of planned curtailments have actually been put in place in global cooking coal and your thoughts on whether the markets are strong enough from what you're saying to be able to absorb a slowdown in the rate of implementation of these plant closures except for maybe the bankruptcies.

Don Lindsay: I get a report every week with exact numbers down to the decimal point answering that which of course is a bit theoretical but I'm going to turn it over to [indiscernible] to answer.

Real Foley: So there's been over 65 million tons of production cuts since the start of 2014 and we estimate that around 60% of those cuts have been implemented to-date. So yes pricing has started to improve from mid-February but at the same time the stronger Canadian and Australian currencies offset around half the price increase. So by all measure pricing remains low and the low pricing environment continues to be announcements of new production cuts. So if you look at 2016 since the start of 2016 there has already been an additional 18 million tons of production cuts that have been announced.

So the reality of those cuts is that United States producers continue to be impacted the most with exports February year to date down around 31 million tons on an annualized basis. That compares to 34 million tons of exports for full-year 2015 and 44 million tons in 2014. So expectations are that U.S. exports could be down more in the remainder of the year as a result of those announcements of production curtailments are continuing to come.

Ralph Profiti: The second question is on transportation costs in the coal business and how the fuel pass-throughs are reflected in the $34 per ton reflected in Q1.

Have we seen the low-end or is there some lag in the formulation that will keep us at or below the guidance at current diesel prices?

Don Lindsay: Certainly on year we’re seeing transport prices of $1 to $2 below budget. Most of that is in fact due to the reduced diesel prices. We expect that to basically continuing so far as the [indiscernible] prices don’t increase. No change during the year we will see that trend continue.

Operator: The following question is from Greg Barnes from TD Securities.

Please go ahead.

Greg Barnes: I want to go back to real, can you tell us in the coal market what's real and what isn't real? Is there some speculative element going on there that’s pushing the coke and coal prices as you set up over $100 a ton now?

Real Foley: So the current market tightness is a result of improved demand and supply fundamentals and there is also stronger macro indicators in China that support the steel input. The hot metal production in March globally improved and the hot roll coil prices also increased 25%, 65% depending on which markets from the lows that we have seen in late 2015 and 2016. Coke and coal demand from a number of market areas including China also appears to be improving. March Chinese imports of coke and coal as Don mentioned rebounded to over 5 million tons and year to date seaborne imports are up around 6% or about half 0.5 million tons and that is due to domestic supply reportedly being tighter due to longer new year holidays, but also production curtailments at some of the mines in [indiscernible] after severe mining accidents.

We're also seeing supply-side reforms being announced and those could further constrain the domestic supply. So the latest announcements include shorter working schedule at the mines, so reducing the working days from around 330 days to 275 days and the 13 five-year plan is also calling for about 500 million of coal capacity reduction. The implemented supply cuts that I’ve talked about earlier are also removing tons from the seaborne supply. So out of the 65 million tons of supply cuts that have been announced to-date 60% of those cuts we estimate around 60% of those cuts have been implemented to-date. And in addition also we saw some weather issues in Australia during the first quarter and those seem to have disrupted production more than what's original expected.

We also need to mention that the Canadian and Australian currencies also offset around half the price gain that we saw in steel making coal so far. So looking at all this as Don mentioned we're encouraged to see those developments and we see coal prices adding gone up as a result of those developments.

Greg Barnes: So just to put you on the spot a little bit if the production to 276 working days of implemented what would that represents in tons of production reduction?

Real Foley: So that’s would bring the mines to about 80%, 85% of operating capacity. What is difficult to say Don, is how much of that is steelmaking coal and how much of it is energy coal because so far the announcements have not given a split between both met coal and thermal coal.

Greg Barnes: So bottom-line is the market has timed up dramatically and has rebalanced and the prices we’re seeing today is supported by the fundamentals?

Don Lindsay: Yes, that’s about it Greg, I mean we're very close to the zone of balance, our estimate is we’re somewhere around 5 million tons of sold [ph] outside the zone of balance on the hard coke and coal side.

So if you look at a total seaborne market of 165 million to 170 million tons we’re very close to that zone of balance, in fact the fundamentals have improved.

Greg Barnes: And Don just a follow-up question, at the beginning of the year there seem to be some urgency around infrastructure asset sales. I think you said it was priority number one for you when you look at the M&A side of your business. Is that still the case or are you less concerned about where your liquidity stands and the need to do any asset sales?

Don Lindsay: Well I think it's fair comment, at the beginning of the year particularly if you remember in the middle of January it was a pretty dark period and infrastructure sales related financing was a high priority. That's not to say it's not a priority now but certainly we feel less urgency.

We have got a strong tailwind in both coal and zinc and our cost performance [indiscernible] I would have to say it was excellent and so we're going to take our time and get it right but we’re still looking at it for sure. We’re still working on it, but we do feel we’re in it much.

Operator: The following question is from Orest Wowkodaw from Scotia Bank. Please go ahead.

Orest Wowkodaw: Based on your balance for Q2 you’re going to do at least 13 million tons of coal in the first half of the year.

You’ve commented all about your annual guidance of 25 to 26, is there a possibility of going over the 26 and if so, at what point does that that start negatively impacting unit costs if you have to start pushing overtime or extra shifts that kind of stuff? Thank you.

Don Lindsay: With field [ph] demand as strong as we saw in March and as [indiscernible] just described, if that carries on our customers or products will carry on at the same rates. We recall last year we did have a summer shutdown and reduced production to reduce inventories at mine site [indiscernible], we don’t have anything like that planned this year and at this rate certainly doesn't look like there would be a need to do that. In terms of whether staying at that rates would affect costs over to you Ian.

Ian Kilgour: We have some flexibility in our production right at the moment' but don't have any current plans to increase production and of course we will take it as the market progresses during the year to see which way we should go.

But essentially no change to guidance at this point in terms of does the extra production costs more money, in general no, at this point. We wouldn’t expect that incremental production would be at a higher unit costs.

Orest Wowkodaw: Okay. And just as a follow-up, your costs in Q1 of 77 a ton were well below the bottom end of the annual guidance. Is there anything that we should think about in terms of why costs would trend higher during the year assuming no change in diesel pricing from here?

Don Lindsay: Q1 is normally a fairly clean quarter in terms of maintenance whereas Q2 and to some extent Q3 we tend to focus our plant maintenance during the summer months.

So we expect to have slightly higher repair costs in those quarters .So that's the reason why you might see Q1 would be below average.

Orest Wowkodaw: Do you still think you're going to get to at least 80 a ton for the year?

Don Lindsay: We're going to be trying as hard as we can to continue to reduce costs. Our teams at the mines have been practiced in reducing costs now since about August 2012 when sort of change of direction first came and they basically get better at it the more you do it, the more things you think about and we've also got some specific focus areas on maintenance costs and supply cost so we're going to be working very hard to do better than guidance, but time will tell.

Operator: Thank you. The following question is from Lucas Pipes from FBR & Company.

Please go ahead.

Lucas Pipes: I wanted to follow up a little bit on the coke and coal market. I know we’ve focused on this this morning, it seems like if we’re within the striking distance and let's say demand continues to maybe recover a little bit. Sometimes would actually have to come back. And I was curious to hear what price do you think production would come back or some of these shutdowns that you say are still ongoing might be reversed and also where you see spare capacity in the system? Is it Western Canada maybe your operations? Is it Australia? Is it the U.S.? Where would the incremental ton come from? Thank you.

Real Foley: It's a good question on price so maybe to put it in perspective and talk about margins to start. When McKenzie is estimating that a price of $95, they are still around 20% to 25% of the seaborne hard coke and coal operating at negative margins. So it's still low pricing by all measures and if you look at steelmaking coal prices from mid-February they have improved, but as mentioned earlier the stronger Canadian and Australian are offsetting around half that gain. As to production, the U.S. producers probably continue to be impacted most we need to go back and look at when those production cuts were made and what the pricing levels were at that time and the fact that there is a number of companies actually most of the U.S.

producers now our bankruptcy or assets are being sold so that would seem to indicate that at the current pricing level it is still not high enough to bring back capacity and typically for capacity to return it takes time in a sense that users probably want to make sure the price will continue and will be at a level that's allows them to be margin positive not only for a period of time but also for medium to long term if they were to restart operations, rehire employees, bring back equipment on site.

Lucas Pipes: And maybe just to stay on the macro side a little bit, there has been a lot of major discussion among market observers here as to what is exactly driving this rebound demands? Is it ultimately a restock cycle in China? I was curious Real, what are you hearing from your contact on the ground in China? Is this demand uptick sustainable? Is this more something seasonal? What is your feel at this moment?

Real Foley: So maybe to address the first part of your comment with respect to restocking, stocks in China are currently very low and they continue to be very low. So whether it's on the coal or steel side there hasn’t been restocking at the end of 2016 or early 2016 as we typically see. If we go back and we look at the last two years, coke and coal stocks, steelmaking coal stocks at ports are down plus 10 million tons if you look at sample end-users they are down 5 million tons plus and to-date we're not seeing a big uptick in steelmaking coal stocks in China. Other markets pretty much since the global financial crisis anecdotal evidence would suggest that the steelmakers are running with pretty little inventory and that was a result of a pretty thin margin on steel and that the fact that the steel industry is actually in pretty tough shape right now just like the coal industry has been for a number of years.

So as we look at what is happening in the market lately, steel prices are up 25% to 65% since the lows in late 2015, early 2016 so we're seeing demand for steelmaking coal come back. We’re seeing demand for steel products also supporting those price increases on the steel side.

Lucas Pipes: Maybe I can just added one quick follow-up and that is could you give us a little bit more sense as to on the back of this improving market into the decision for Teck to potentially increase production over the course of the year, what are you looking for and maybe Don you can comment on that. What would cause Teck to increase production for this year?

Don Lindsay: I think I'll just turn it back to Ian for that--

Ian Kilgour: Actually at this point we have no intention to increase production. We do have a little bit of flexibility in terms of what our mines are capable of, but at this point we will be continuing to really focus on cost reduction, continuing cost reduction through the rest of the year and maximizing our margin that way.

Operator: The next question is from Chris Terry from Deutsche Bank. Please go ahead.

Chris Terry: Just a couple of questions for me. Just on the copper side, pretty similar I guess thinking about the rest of the year and the way you’re lining up versus guidance. Recognize that Highland Valley copper cost may come up a little bit but are you still comfortable with your guidance for copper cash cost, you seem a little bit conservative?

Dale Andres: I think similar to the comments Ian, made on the coal position.

We’re having tremendous success in our cost reduction programs. We're focused on similar initiatives and we’re leveraging off those initiatives companywide so that would be across supply management and maintenance as well. And a particular focus on our contracting costs within copper as well. So we’re quite pleased with the performance in the first quarter. As you mentioned the grades at Highland Valley do decrease as the year progresses.

I think it's going to be particularly noticeable in the first quarter but we do anticipate cash costs as a result of that great decline to go up as the year progresses but particularly in the fourth quarter. Right now we're targeting to come in at the low end of the range or below it, but it really does depend on exchange rates, fuel prices and the continued success of our cost reduction program.

Chris Terry: And just on slide 13 when you have cash change waterfall, are you able to break up the $215 million of debt interest and principal repayments into the different components?

Don Lindsay: It's substantially all interest. The principal payments would be less than $10 million and that would just be on our capital leases, small amount of capital lease payments that we make.

Chris Terry: How do we think about other quarters for that component? Just against your interest expense that you're recording in the P&L?

Don Lindsay: Yes.

The big payments would be in the first quarter and the third quarter for the interest is what the payments are scheduled.

Operator: The following question is from Garrett Nelson from BB&T Capital Markets. Please go ahead.

Garrett Nelson: It seems that steelmakers spreads, are there incentive to produce has improved significantly since the beginning of the year in China, in North America and elsewhere and that steel producers basically can afford to pay more for that coal and raw materials in general and they are also looking to procure more raw materials given that improvement in their profitability. Would you agree with that statement?

Don Lindsay: I agree with that statement and I will put pressure on Real Foley to get our fair share of, Real?

Real Foley: Yes, that would be a fair statement.

Garrett Nelson: Okay. And as a company who speaks with steel companies on a daily basis and a company that's particularly levered to Asia, maybe just some color regarding any shift in demand that Teck have seen personally in the last month or so since the Q2 benchmark was struck. Is the phone ringing a lot more? And how long do you think this positive momentum from met coal can last?

Real Foley: So Garrett, we're seeing increased demand from a number of market areas and I guess that reflects both, improvements in pricing and improvement in demand. So far there's no change to our market distribution really compared to 2015. So our sales split is around 70% or so to Asia, around 20% or so to zero and 5% each to North and South America.

And as a reminder our sales to North America are mostly on an annual contract basis so that business has been set at the beginning of this year or actually late in 2015. So far not much of a change, but definitely more inquires.

Garrett Nelson: Okay and then are there positive implications for the improvement on the steel side that you see for your zinc segment also given that 50% of zinc demand is steel galvanizing?

Andrew Stonkus: Yes, we're seeing firm demand on our key North American markets in particular now that trade actions have been implemented on galvanized products from our offshore into the United States. So the steel mills in North America are running at very solid rates, order books for steel mills to high levels and metal premiums are holding up as well. So the overall demand for zinc metal in North America is strong and demand for our Asian metal demand is holding up firmly as well.

On the heels or on the back of the supply cuts we've seen in the mining sector for the zinc mines closing and the fact that the deficit market is -- we're well into the deficit market and the metal inventories are being drawn down quite rapidly.

Operator: The next question is from Justine Fisher from Goldman Sachs. Please go ahead.

Justine Fisher: This might be the question that I feel like I do keep asking over and over again but is there any update on the discussion with the banks regarding the 2017 LC facility? And I know there was a slightly larger amount drawn at the facility at the end of this quarter. What's the update on how much the company expects might ultimately be drawn on the facility? Is there still -- what sort of chances that the full amount is drawn?

Dale Andres: Sure.

The draw this quarter is based on the spending of a counterparty building the pipelines and the storage tanks so that amount will slightly increase. The maximum amount that could be drawn on this is about $1.1 billion and that assumes that all the [indiscernible] counterparty ask for it under the terms of the agreement. They can ask for security, we have the ability to give them a plan that says we think we will be able to honor this obligation if they accept that then we won't have to put the security in place and some have accepted it and some haven't. And I should point out the draws on this facility are not included or considered debt for purposes of the debt equity calculation. So that 785 that we have, we expect that will be growing as the counterparties spend the money.

On the discussion, on the two year facility, we have been watching the improvements in the commodity markets and the debt markets and we don't feel that we're in a huge rush to progress the discussions but we have had some preliminary discussions with the banks to update them on our improvements in the business and we expect that in the near term that we will start discussions on that facility.

Justine Fisher: The second question is on asset sales. Have improvement in the commodity and the credit market made the company less focused on asset sales or have they made the focus on asset sales less urgent? Are you guys still pursuing them let's say with the same kind of bigger and timeline that you were when you talked about them at your investor day?

Don Lindsay: Yes, so another version of a similar question from before. The asset sales we talked about, they make sense fundamentally that if you can sell things at 15 times EBITDA and your company only trades between 5 to 7 times EBITDA it makes sense to do them anyway whether there is an extremely low commodity price environment or improving [indiscernible]. So we're still working on them because theoretically they should make sense.

Do we feel lesser? Yes a little bit but the thing makes sense anyway to look at it and work on anyway so we're still working on it and there are a bunch of sort of details related to that that you have to work through and discussions sort of go at a certain pace with potential buyers and so we will keep working on it but we don't really have a timeline when you would see result, but in principle they make sense to do so, yes. We will likely do them at some point but we don’t feel as much urgency because as I said earlier there is a strong tailwinds in both the steelmaking coal business and zinc.

Operator: The next question is from Jeremy Sussman from Clarkson. Please go ahead.

Jeremy Sussman: How much coal inventory do you guys have on the ground? And I guess what levels would you be comfortable going to if spot prices were to continue to improve and you were looking to kind of take advantage of that market?

Don Lindsay: Yes, what we normally take -- one or two weeks inventory at the mines and two to three weeks to ports.

We need to do that because a lot of our coal goes out as blends from each of our mines and we how varying requirements from our customers to provide them with the different qualities of coal they like -- so we like to keep sufficient inventory so that we can always provide the quality to our customers which is fundamentally important to our reputation. We wouldn’t be planning to take inventories down to any low-level because of spot prices rising.

Jeremy Sussman: It's been a while since I've been able to ask a question like that on the call front--

Don Lindsay: We’re very happy to be able to contemplate the possibility.

Jeremy Sussman: Yes exactly. Just a quick follow-up on the cost side, obviously first quarter coal costs were strong, better than annual guidance implies.

Clearly, I guess Q2 plant maintenance could affect things just a little bit quarterly speaking, but are you still comfortable with annual levels that you've given previously?

Don Lindsay: Yes, really it's a little bit early to be modifying guidance going forward, we will look to see what happens in Q2 and see whether the situation changes.

Operator: The following question is from [indiscernible] from JPMorgan. Please go ahead.

Unidentified Analyst: Couple of questions. On the level of credit facility last year on the initial draws there was some discussion about going back to the counterparties and potentially having some of it waived or renegotiated I believe it was for some purchase power type of agreements.

Can you comment on that and then what I'm very interested in is not only is the letter of credit facility due in 2017, but I'm also very interested given the commentary on asset sales etcetera and the year-end 2016 cash balance pro forma. I'm very interested in having you talk little bit about addressing the $200 million, $300 million maturities in 2017. Thank you.

Don Lindsay: Okay. The maturities in 2017 we’re hoping to end the year with at least the $500 million and no draws on the line of credit depending on where commodity prices go, we could use cash from operations if commodity prices improve from where they're at today to a sufficient degree -- we think we need about $350 million or so in cash to run the day-to-day affairs of the business.

We could also look at funding that from the $3 billion line of credit if need be. And then with regards to the power purchase agreements in Chile, if we can offsell the power that we have there to the creditworthy counterparty that maybe [Technical Difficulty] the counterparty of the power purchase agreement to waive the requirement that we put the letters of credit in place, but until we get to that position there's not much that can be done there.

Unidentified Analyst: So just circling back and I know we have spoken about this before, obviously the unsecured debt market is concerned about the potential issuance of secured debt. You've spoken about your capacity and then there's been some comments about desire. So can you talk a little bit about your thoughts on secured debt and managing the liquidity going forward? Thank you.

Scott Wilson: The debt markets are clearly improving, with respect to Teck options and I think we would have potentially alternatives in either of the secured or the unsecured market so as we have said before issuing secured debt would not be our preference but we recognize that it is probably the lowest cost form of debt that we could issue at this time but if there are other alternatives available we probably look hard at those as well.

Operator: The following question is from David Wang from Morningstar. Please go ahead.

David Wang: Just wondering on cost cuts, how much room left do you think you have for additional cost cuts? I know diesel [ph] and currency are probably non-controllable but within your operations do you have plans for cuts beyond this year's targets? I know you guys have a slide in back in investor day of showing improvements from mine productivity and contractors and play cost reductions, do you see further improvements beyond those targets for 2016?

Ian Kilgour: We’re basically focused on the targets that we’ve set. As we explained in the investor day we don't want to take away future options.

We don't want to damage our ability to produce in the future by doing things in the short term which would take away production options or cap our future production capacity. So we're very mindful of the need to carry on with cost reductions where we can while maintaining our capacity for the future.

David Wang: And on the coal market supply, I was wondering what your thoughts are on potential supply of remaining in place or coming online. So of that China's targeted capacity cuts, there is a lot of unused or non-operating capacity in China even for bulk of the capacity cuts come from that area and we also are seeing production ramp ups in Mozambique and potentially in Mongolia as well as a deep bench of advanced projects in Australia, the higher prices might have incentivized. What you think about this factors as offsets to the production that you see leaving the market?

Don Lindsay: So David, I guess the production cuts that have been announced in China, there's capacity reduction you’re right, part of the 13 five-year plan but there's also capacity reduction it seems in the short term as well with the reduction in operating days at the mines from 330 days to around 275 days.

On the various projects around the world we track what is announced and why we see additional production coming from some of the supply areas that you mentioned like Mozambique for instance, we also see that those announcements indicate that the ramp-up is slower than what's was originally anticipated. And with respect to projects generally there hasn't been much capital investment into future production let alone increased production at mine sites in the past couple of years because pricing environments were so low that the focus was more on survival as opposed to expansion for future demand.

Greg Waller: Operator, we're approaching the top of the hour. We're going to cut off questions here. We will turn it over to Don for some closing comments.

If anybody still on the call looking for questions we would be happy to respond to your call separately after this.

Don Lindsay: Okay, thanks, Greg. I guess I just want to say in closing that we're feeling pretty good here. The change in direction is real in both coal and zinc and the world is unfolding in a positive way. We see lots of opportunities, so looking forward to being able to report on that at the next quarterly call.

We did, after the last quarterly call, announced some retirement and evolution of our management team and I have to say this that the changeover has gone extremely smoothly and full credit to the guys in making that happen. While Tim Watson and Ray Reipas will be attending future quarterly calls, Rob Scott and Ian Kilgour for those two this is their last quarterly call. So I just want to publicly say thank you to you guys for tremendous contribution, both of you are real class act and we just want to acknowledge all of your efforts for getting us into real great shape here. Thank you very much to Ian and Rob. And with that I want to thank you to all of you on the line and we look forward to speaking to you after the second quarter.

Operator: Thank you. The conference has now ended. Please disconnect your lines at this time. Thank you for your participation.