Top mining risks and opportunities through the eyes of Teck's Jonathan Price

Paul Mitchell: Hi everyone. My name is Paul Mitchell. I'm the Global Mining and Metals Leader at EY, and I'm very happy today to have Jonathan Price, President and CEO of Teck Resources, with us.

Jonathan's joining me to have a discussion about our 2024 Mining Risks and Opportunities Report. Jonathan, thank you very much for making the time.

I know it's a very busy time of the year. I know you've had a big year, which no doubt we’ll touch on in terms of what we're doing but thank you very much for agreeing to spend some time with us today and talk to our clients and other people about what they thought about the risk report.

Jonathan Price: Thank you, Paul. It's great to have the opportunity to catch up, and of course always happy to talk to these issues.

Paul Mitchell: Excellent. Great. We might jump straight into it. I guess what I call the social issues, so ESG, license to operate and climate change, topped our survey for the third year in a row. I particularly like the fact that it’s ESG that’s number one rather than the other one.

I think that sort of says to me that, you know, we've got a plan to cover license to operate and climate change, but ESG is broad and changing, and I think I really like the fact that tops the list because it means people are looking forward.

What I guess I'm keen to understand from yourself is, how have you seen these issues and the opportunities change over the last three years?

You know, they seem to have developed and got richer and deeper. So just keen for your perspective on those.

Jonathan Price: Yeah, I think one thing that's really interesting is we've sort of seen a convergence of both the issue and the opportunity, if you like, over the last 12 months or more. On the one hand, now there's this broad recognition that the world won't meet its climate change objectives without more critical minerals like copper to assist with decarbonization through electrification.

On the other hand, the bar is being raised in terms of increasing environmental and social expectations around how we deliver those minerals.

So it's sort of interesting in that we're being asked to do more than we've ever done before in terms of the rate of mining and the rate of extraction. But of course that needs to be done in a more responsible way, creating less impact than it's ever been done before, and that I think is a huge challenge for the mining sector. It's also a huge opportunity, of course, in terms of the market dynamics that sit behind that. But it's not just the challenge for the industry; it's a challenge for governments and other stakeholders.  

You know, from our perspective, we know that having a strong ESG record is essential to be able to build and operate mines. It's fundamental to what we do. It's sort of part of the Teck brand and DNA, if you like, but it's also the right thing to do.

You know, we have a responsibility to society to make sure that we're doing this the right way. And I think if you don't have that track record of being a good performer in ESG or responsible mining, you're just not going to get the support you need from governments, communities, Indigenous peoples and then frankly, you shouldn't. You know, if you can't demonstrate your commitment and progress in terms of performance against those sorts of criteria, then you shouldn't really have access to these resources.

And, you know, we at Teck have prioritized sustainability for many, many years, and we genuinely see it as a competitive advantage. And I'll say more about that in a moment. But, you know, if you look at what we've done in Chile recently with the QB2 project that we've been building, all of these things come together in one sense in that we've built in the region of Tarapacá in northern Chile, the first full-scale desalination plant to use seawater instead of local freshwater. Of course, the Atacama Desert doesn't have water, and by building a desal plant, we were able to hand back our water licenses to the state, where they'll be used by communities for agriculture and those sorts of things.

We've contracted 100% renewable power for those operations, a combination of solar and wind in Chile, and we've been working on local relationships there with communities and Indigenous groups many years before we started permitting, in fact. And today, we have 22 agreements in place to share in the operation’s benefits. So some of the key areas of when we talk about ESG being things like decarbonization, use of water, community relationships have come together around a project that will allow us to significantly increase our production of the critical mineral, in this case copper, to supply to the world to assist with electrification and decarbonization.

And the reason I talked about this being a competitive advantage is, I firmly believe in future that opportunities for new projects and development of new projects will go increasingly to those of us in the industry who do take ESG very seriously and do have a track record of operating successfully in that way. It will also allow us to attract the best talent because, increasingly, people are interested in corporate purpose, but they're just interested in companies that do the right thing consistently and have a good track record.

But it also, frankly, goes to operational resilience. If you have good relationships with the stakeholders, with your communities, you're less likely to run into those issues that could see an operation shut down or disrupted through blockades, for example. Again at the QB2 peak construction, there we had a total workforce of around 26,000 people operating in this area, and we didn't have any significant disruptions to our construction activities whatsoever.

And again, that goes to the relationship, and it goes to the focus of these issues. So I do think it's a competitive advantage, and I think it's something that the industry is going to have to be very focused on if we have to meet these sort of twin requirements of produce more than you've ever produced before but do that with a lower impact than has ever been done previously.

Paul Mitchell: I think QB2 is a fantastic example. I like to talk about, you know, promoting net positive within the mining industry. Our brand tends to suffer from people that really don't understand the industry, and we talked so much about net zero and how great that is, and we need to do that on carbon. But I really like highlighting the things that are net positive, and that's a fantastic example of being net positive on water. And it does, particularly in that part of the world, it creates a fantastic environment.

So I guess you raise Chile and operating in Chile, how have you found the differences in dealing with these sort of social issues and dealing with operational issues if you compare Canada with Chile and with Peru? Do you do you notice big differences between the three? I guess a lot of our clients are interested, particularly in the emerging countries.

Jonathan Price: Yeah, they are different. I mean, the sort of the overall frameworks and priorities are largely consistent, but the way they're applied on a local level can be very different, of course.

And again, if you contrast something like QB in the Atacama in Chile to our Red Dog Zinc mine, which is in Alaska, the water management challenges, for example, associated with both of those are completely different.

In the Atacama Desert, of course, you've got water scarcity. You've got communities that need that water for agriculture and just, you know, maintaining a basic standard of living, essentially. So you find yourself in a situation where you build a desalination plant and that's not a trivial investment, as you would know in terms of the cost of both constructing and operating one of those facilities.

On the other hand, you look at Red Dog and what we're finding up there in Alaska is that warmer weather is causing the permafrost to thaw. So we're getting increased amounts of naturally occurring minerals and metals in the water and generally just higher levels of water. And there's a risk there that that causes instability to the infrastructure that we have, of course, where we've got concentrators and other large pieces of kit operating up there.

So we've had to do a few things in the Red Dog context. One, we've had to put in place water treatment systems to account for these changes in natural conditions, and we have to work collaboratively with regulators on long-term permitting and treatment solutions to support ongoing operations in that environment.

On the other hand, then, we are having to essentially apply air conditioning to the ground, or cooling to the ground, to maintain structural stability associated with the land and the operations that we have on the way.

So you have very different issues, both related to water, but of course, diametrically opposed, in one area where you've got too little water in one area you've got too much water.

There are other issues as well that are of course inherently local. You mentioned on sort of wanting the industry to be net positive. One area where Teck has made a commitment over the last year or so has been on nature, and we have said that we will work towards a nature-positive future by 2030.

And what that means is going beyond the direct impact of our mining activities. So it's not just enough to rehabilitate what we're doing, but we have committed to conserve and reclaim at least three hectares for every one hectare of land that we affect through mining.

So we will accelerate the pace of reclamation, but we are also investing in conservation. And in 2022 and into 2023, we've helped to conserve and restore more than 50,000 hectares of land in communities that are close to our operations.

And the other issue, of course, that is inherently local is community and Indigenous relations. You can't sort of paint all of those with the same brush wherever they exist. However, again, there's some common threads there. You know, in all cases, you need to make sure you're engaging with those communities. You need to make sure you're really listening and understanding what's important to those communities.

And then you're putting in place programs or agreements that will support the specific needs of those communities. So there's an interesting balance here, I think, between having a commitment to do the right thing everywhere, establishing standards that become minimum standards that you will deploy wherever you are in the world, irrespective of what local standards are. You know, it's absolutely appropriate to exceed those local standards in many cases. But you do need to be very focused on what the local needs are, and therefore there are differences.

I mean the one thing I wouldn't say is it’s not necessarily harder to operate in one region or another. It's just different, and that's when you need local expertise and local personnel and local partnerships there to make sure you understand those differences, and you have teams on the ground working to tackle the things that are truly important to the local people rather than assuming from a head office far away that you know best, which of course, is never the case.

Paul Mitchell: Yeah, absolutely. It's the things that, you know, do a bit more research on the nature-positive one that sounds really interesting in terms of what you're doing there. 

Jonathan Price: And it's actually something that the ICMM will be committing to as well across the membership in terms of nature positive. We'll say more about that publicly in the near term, but it's something we've been very focused on as an industry of decarbonization for many years, which has been you know, obviously incredibly important and continues to be so.

But I think the threat of nature loss and the need to act on nature with a degree of urgency now is front and center for all of us. And, as land owners, essentially in the mining industry, I think we have a really good opportunity to make a very positive impact in that area.

Paul Mitchell: Absolutely. Changing tack a little bit. I really liked the fact that capital came in number two this year in terms of risks and opportunities. I think a couple of times where it's been outside the top five, I've sort of wondered, whether people filling in the survey are working in a different industry to the one I'm working in when I think of the criticality of capital. You talked about, you know, stakeholders and the energy transition and what's happening in the world. Are you feeling, that with this need to develop more critical minerals, to get more out, even though there is some complexity, that we're starting to get some support from capital markets, or is it new capital sources that are really paying the difference here?  

Jonathan Price: I think we are starting to see that, Paul. I mean this need for more critical minerals and the development of new mines and capacity of course is now being widely discussed by governments, by society. It's in the media and of course it's now front and center for capital markets as well.

I think it generally took the world a little while to catch up to this theme. There was a lot of discussion around, we're going to build new renewable infrastructure, we're going to build electric vehicles and battery manufacturing plants. And slowly, people started to look upstream and scratch their heads and say, well, where's all the metal going to come from?

And I think there's been a significant maturation in that discussion over the over the last year. There's a huge opportunity there, of course, for capital markets because the demand outlook for some of the metals very closely linked to electrification is extremely compelling, and people talk a lot about nickel. They talk a lot about copper, in particular copper, I think, because of the two megatrends that sit behind that: one being urbanization, with this estimate that an additional two billion people will be living urban centers by 2050, and the other decarbonization, as we have to work through this need for renewable power transmission infrastructure or electric vehicles, etc.

There's these two huge demand drivers that sit behind copper and, frankly, it's an industry that's been underinvested for the last decade. So, you know, the question now comes, well, can you build more mines more quickly?

It's really difficult because if you haven't been investing in exploration or early-stage project development for a decade or more, the answer is generally no because the timelines are long.

Now at Teck, we've maintained significant exploration programs over many decades, and we've done that through cycles. We actually now have significant portfolio projects in our portfolio that are capable of execution. We're coming to the end of QB2 in Chile, but we've got a project called San Nicolas in Mexico, Zafranal in Peru. We've got Galore Creek in British Columbia.

We've got other projects through those jurisdictions where we can make more investments in the years to come to bring more production to market. And I think, for the first time I can remember, having been in the mining industry for a long time, the question is coming, how do you accelerate these projects? How do you deploy more capital more quickly?  

Now, of course, that capital has to be deployed to projects that offer an attractive return to investors. But as people look at the supply-demand constraints ahead of us and the constructive view for market fundamentals and pricing, there's increasing confidence that those returns will follow.

So I do think we've seen a shift, Paul, and it's a recognition of the critical role of critical minerals and therefore the mining industry in this. But that's sort of juxtaposed against this challenge we have now of underinvestment over many years and an industry that's running as fast as it can to catch up.

So it will be interesting to see how that plays out over the years ahead.

Paul Mitchell: Yeah, absolutely. And digital was our number-five risk and opportunity this year. And I know the RACE program has had a transformative effect on Teck.

I guess it would be really keen to hear what were the key success factors from your perspective in the RACE program, the things that made it work? And perhaps if you're happy to give us a sneak peek at where you think digital will go next.

Jonathan Price: Yeah, it has been a real focus for Teck over a number of years now.

It's interesting, actually, that we are Microsoft's largest consumer of cloud data in Western Canada, which tells you something about how far the mining industry has moved in this regard.

As you would know, we have sensors, of course, on all sorts of equipment now around our operations, and we're generating huge amounts of data, which we're applying advanced analytics and machine learning to actively day to day around these sites.

You know, the focus for us has been very much on machine learning, automation, with the aim of improving productivity, safety and sustainability as well.

We have seen an increase in some areas of truck productivity of up to 10%. We're able to reduce drilling and fuel costs, and we can optimize material going to processing plants.

We have sensors and shovels, which allows us to understand what material looks like before it hits processing plants. We can use algorithms then to adjust conditions before that material arrives so we maintain yields, we maintain recoveries rather than, you know, what we've had to do historically, which is sort of react to whatever it is that we're processing at any point in time.

So there are real benefits to using fairly simple tools and algorithms here, that applying them and embedding them in sort of the operating system as part of the way we work on a day-to-day basis. And this is not just improving yields and recoveries, but it's improving operational stability and predictability, which is very important for us.

You know, as we look ahead, I suppose, for how we use this from a transformation perspective, it's how do we scale these technologies?

We've been quite successful at learning in one site and deploying elsewhere. So our application of autonomous vehicles, or autonomous trucks at our Highland Valley Copper mine in British Columbia, we've been able to apply that learning to the startup of the QB2 mine in Chile, where we've gone with autonomous out of the gate.

We'll do a similar thing now as we take these algorithms I've spoken about that we use for processing conditions, again at Highland Valley Copper, we'll shift that across the QB.

So I think for us, it's about how quickly we can scale, we can replicate, we can use the learnings in one site for another, and we can drive these things forward as quickly as possible.

But, this all has to start, I think, Paul, with business challenges and opportunities. We're not developing the technology for technology’s sake, we're looking at our operations. We're saying where are our biggest challenges and opportunities? Can technology be a solution and, if so, what technology tools do we match to those various challenges and opportunities?

But I think it's an area that we'll continue to invest in and the industry as a whole will have to use to drive better productivity. It goes back to that point on mining more with lower impact. The greater productivity we can have, the greater chance we have of achieving those two things.

Paul Mitchell: Absolutely. The first message I was giving in the mining industry was if you if you forget about costs and productivity, you're out of business. It's one I've remembered all my career, certainly.

Just a final question. You've obviously been in the press with the transaction with Glencore around the coal assets. We've got that Vale Base Metals transaction that's being talked about in Canada at the moment. We've had business models on the risks and opportunity list the last couple of years, and I think, we've seen lots of portfolio changes and lots of adjustments in terms of asset classes that people are investing in.

Are you seeing other changes in business models? And, if so, what are some of those, and what do you think are some of the changes that we'll see emerging in the next couple of years?

Jonathan Price: Yeah, I mean, I think a big one, Paul, you touched on it in terms of reference to what we and others are doing at the moment is that for many years, there was a big focus on diversification and that made a lot of sense when China started growing at the rates it did in the early to mid-2000s.  

It needed more of every commodity and therefore you could, whether it was base or bulks, you could sort of invest for growth in all of those and ultimately you would be pretty confident that the demand was going to be there for a period of time. I think what we see now is a bit of a divergence where there is, you know, still a solid outlook for bulk commodities, things like iron ore and steelmaking coal, but they're not really growth commodities anymore.

They're going to be required for decades to come. Blast furnace steel isn't going away any time soon. So what we'll see there is sort of stable demand and therefore not a lot of growth for new investment.

And that leads you to a business model that surrounds continuing to focus on productivity what you have, maximizing the cash flows that you generate and sort of becoming something of a yield play for investors, so giving that cash flow back to investors because they don't have other uses for growth in new capacity.

On the other hand, when you look at the metals businesses these days, given the demand outlooks here, given the decline rates of existing mines, there is a need for more growth, and again, that's sort of a different business model.

Yes, we'll continue to return cash to shareholders because you always have to strike that balance with growth, but there will be a significant proportion of cash flow generated going to fuel new growth in those businesses. And they are different businesses to operate, running sort of a mature production business with a focus on productivity, cost reduction, etc. vs. one on growth is different. And there's increasingly a different investor set for those businesses. So it's really a response to both of those things.

In my view and, in particular, you know, the mining industry, we always complain about the fact we're undercapitalized relative to other industries, given how important and fundamental we are and partly because it's a hard industry to understand. It's particularly hard to understand when you're running a diversified portfolio and you've got to sort of wrap your brain around numerous different commodities with different demand drivers.

So I think a simplification of portfolios here, which are more focused on fewer thematics, so you know, you could call electrification a thematic or critical minerals a thematic, but if you can create portfolios that are focused around those thematics, it makes it much easier for the generalist investor to say, hey, I believe investment in decarbonization is real. I believe that's going to be led through electrification. Critical minerals associated with that are going to be important. Let me do a quick screen to see, you know, who has the portfolios that will grow into that thematic.

I think that's the opportunity that many of us are now seeing, and that's why you're seeing this move from a separation from base metals or from carbon-intensive commodities, to those that are actually going to be part of the solution from an electrification perspective here.

So I think there are a number of drivers that are interesting here from a business model perspective, and I expect we will see more of that in the years ahead.  

Paul Mitchell: Excellent. Jonathan, I know you've got a busy day ahead and I just want to thank you for your time. It was excellent. It was great to get your reflections.

Look forward to watching Teck over the next couple of years and excited to see what you do for yourselves and for the Canadian mining industry.

Teck is such an important part of Canada's fantastic mining industry. It's going to be great to watch as you go.

Anything you want to say as we finish up?

Jonathan Price: It's great to catch up, Paul. Your report every year is something that I and the rest of the industry look out for with great interest because it is good to see how these risks are shifting year on year and how the views of investors and those who participate in the industry are moving around. So it's always very interesting.

I think we are well set at Teck. We're very excited about the future. It has been a busy year, as you say. I think we're very excited about this focus that we will have now on base metals and copper in particular. And this opportunity to continue to provide materials that the world is going to need while doing that in an increasingly responsible manner.

And I just think we're very well positioned to do that and the future looks very bright for us and for the industry as a whole.

Paul Mitchell: Excellent. Thanks Jonathan, talk soon.

Jonathan Price: Cheers Paul. Thanks very much.