| Summary of Significant Accounting Policies | 3.
Summary of Significant Accounting
Policies The significant accounting policies applied in the
preparation of these consolidated financial statements are set out
below. These policies have been consistently applied to all periods
presented, unless otherwise stated.
Basis of Presentation Our consolidated financial statements include the
accounts of Teck Resources Limited and all of its subsidiaries. Our
significant operating subsidiaries include Teck Metals Ltd. (TML),
Teck Alaska Incorporated (TAK), Teck Highland Valley Copper
Partnership (Highland Valley Copper), Teck Coal Partnership (Teck
Coal), Teck Washington Incorporated (TWI), Compañia Minera
Teck Quebrada Blanca S.A. (Quebrada Blanca) and Carmen de
Andacollo. All subsidiaries are entities that we control,
either directly or indirectly. Control is defined as the exposure,
or rights, to variable returns from involvement with an investee
and the ability to affect those returns through power over the
investee. Power over an investee exists when our existing rights
give us the ability to direct the activities that significantly
affect the investee’s returns. This control is generally
evidenced through owning more than 50% of the voting rights or
currently exercisable potential voting rights of a company’s
share capital. All of our intra-group balances and transactions,
including unrealized profits and losses arising from intra-group
transactions, have been eliminated in full. For subsidiaries that
we control but do not own 100% of, the net assets and net profit
attributable to outside shareholders are presented as amounts
attributable to non-controlling Certain of our business activities are conducted
through joint arrangements. Our interests in joint operations
include Galore Creek Partnership (Galore Creek, 50% share), Fort
Hills Energy Limited Partnership (Fort Hills, 20.89% share) and
Waneta Dam (66.7% share), which operate in Canada and Antamina
(22.5% share), which operates in Peru. We account for our interests
in these joint operations by recording our share of the respective
assets, liabilities, revenue, expenses and cash flows. We also have
an interest in a joint venture, NuevaUnión (50% share), in
Chile that we account for using the equity method (Note 14).
During the year ended December 31, 2017, our
share of the Fort Hills oil sands project increased from 20% to
20.89% on resolution of a commercial dispute between the Fort Hills
partners. We funded an increased share of the project capital in
the amount of $120 million, in consideration for the
additional interest in the project. Subsequent to December 31,
2017, our share of the Fort Hills oil sands project increased by a
further 0.19% to 21.08% for consideration of approximately
$25 million. All dollar amounts are presented in Canadian
dollars unless otherwise specified.
Interests in Joint Arrangements A joint arrangement can take the form of a joint
venture or joint operation. All joint arrangements involve a
contractual arrangement that establishes joint control, which
exists only when decisions about the activities that significantly
affect the returns of the investee require unanimous consent of the
parties sharing control. A joint operation is a joint arrangement
in which we have rights to the assets and obligations for the
liabilities relating to the arrangement. A joint venture is a joint
arrangement in which we have rights to only the net assets of the
arrangement. Joint ventures are accounted for in accordance with
the policy “Investments in Associates and Joint
Ventures”. Joint operations are accounted for by recognizing
our share of the assets, liabilities, revenue, expenses and cash
flows of the joint operation in our consolidated financial
statements.
Investments in Associates and Joint Ventures Investments over which we exercise significant
influence but do not control or jointly control are associates.
Investments in associates are accounted for using the equity
method, except when classified as held for sale. Investments in
joint ventures as determined in accordance with the policy
“Interests in Joint Arrangements” are also accounted
for using the equity method. The equity method involves recording the initial
investment at cost and subsequently adjusting the carrying value of
the investment for our proportionate share of the profit or loss,
other comprehensive income or loss and any other changes in the
associate’s or joint venture’s net assets, such as
further investments or dividends. Our proportionate share of the associate’s or
joint venture’s profit or loss and other comprehensive income
or loss is based on its most recent financial statements.
Adjustments are made to align any inconsistencies between our
accounting policies and our associate’s or joint
venture’s policies before applying the equity method.
Adjustments are also made to account for depreciable assets based
on their fair values at the acquisition date of the investment and
for any impairment losses recognized by the associate or joint
venture. If our share of the associate’s or joint
venture’s losses were equal to or exceeded our investment in
the associate or joint venture, recognition of further losses would
be discontinued. After our interest is reduced to zero, additional
losses would be provided for and a liability recognized only to the
extent that we have incurred legal or constructive obligations to
provide additional funding or make payments on behalf of the
associate or joint venture. If the associate or joint venture
subsequently reports profits, we resume recognizing our share of
those profits only when we have a positive interest in the
entity. At each balance sheet date, we consider whether
there is objective evidence of impairment in associates and joint
ventures. If there is such evidence, we determine the amount of
impairment to record, if any, in relation to the associate or joint
venture.
Foreign Currency Translation The functional currency of each of our subsidiaries
and our joint operations, joint ventures and associates is the
currency of the primary economic environment in which the entity
operates. Transactions in foreign currencies are translated to the
functional currency of the entity at the exchange rate in existence
at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies at the balance sheet date are
retranslated at the period end date exchange rates.
The functional currency of Teck Resources Limited,
the parent entity, is the Canadian dollar, which is also the
presentation currency of our consolidated financial statements. Foreign operations are translated from their
functional currencies, generally the U.S. dollar, into Canadian
dollars on consolidation. Items in the statements of income and
other comprehensive income are translated using weighted average
exchange rates that reasonably approximate the exchange rate at the
transaction date. Items on the balance sheet are translated at the
closing spot exchange rate. Exchange differences on the translation
of the net assets of entities with functional currencies other than
the Canadian dollar, and any offsetting exchange differences on net
debt used to hedge those assets, are recognized in a separate
component of equity through other comprehensive income (loss). Exchange differences that arise relating to
long-term intra-group balances that form part of the net investment
in a foreign operation are also recognized in this separate
component of equity through other comprehensive income (loss). On disposition or partial disposition of a foreign
operation, the cumulative amount of related exchange differences
recorded in a separate component of equity is recognized in the
statement of income.
Revenue
Recognition Sales of product, including by-product, For sales of steelmaking coal and a majority of
sales of metal concentrates, significant risks and rewards of
ownership pass to the customer when the product is loaded onto a
carrier specified by the customer. We generally retain title to
these products until we receive the first contracted payment,
solely to protect the collectibility of the amounts due to us,
which are typically received shortly after loading. A minority of
metal concentrate sales are made on consignment. For these
transactions, significant risks and rewards of ownership pass to
the customer at the time the product is consumed in the
customer’s processes. For sales of refined metal, significant risks and
rewards of ownership generally pass to the customer when the
product is loaded onto a carrier specified by the customer. For
these products, loading generally coincides with the transfer of
title.
Pricing agreements Steelmaking coal is sold under spot or average
pricing contracts. The selling price in average pricing contracts
is determined based on quoted price assessments over a specific
period and the sale may occur before, during or subsequent to this
period. For certain of our steelmaking coal contracts, prices are
determined based on quoted price assessments in a period subsequent
to the date of sale. For all steelmaking coal sales under average
pricing contracts, the price is determined on a provisional basis
at the date of sale, and revenue is recorded at that time based on
estimated prices. For spot sales contracts, pricing is final when
the product is shipped. The majority of our cathode and metal concentrates
are sold under pricing arrangements where final prices are
determined by quoted market prices in a period subsequent to the
date of sale. For these sales, the price is determined on a
provisional basis at the date of sale, and revenue is recorded at
that time based on estimated prices. Adjustments are made to customer receivables in
subsequent periods based on movements in quoted market prices or
published price assessments (for steelmaking coal) up to the date
of final pricing. As a result, the value of our cathode,
concentrate and steelmaking coal sales receivables changes as the
underlying commodity prices vary, and this adjustment mechanism has
the characteristics of a derivative. Accordingly, the fair value of
the embedded derivative is adjusted each reporting period by
reference to forward market prices or published price assessments
(for steelmaking coal), and the changes in fair value are recorded
as an adjustment to other operating income (expense).
Streaming transactions The treatment of upfront and ongoing payments
received from counterparties under streaming arrangements depends
on the specific terms of the arrangement. For arrangements we have
entered into to date, we consider these transactions to be a
disposition of a portion of the associated mineral properties, and
therefore do not recognize revenue for payments received under
these arrangements. Any deferred consideration recorded for
streaming transactions and any ongoing payments received from our
streaming transactions are recognized in profit as a reduction of
cost of sales as deliveries are made under the respective streaming
transaction.
Financial Instruments We recognize financial assets and liabilities on
the balance sheet when we become a party to the contractual
provisions of the instrument.
Cash and cash equivalents Cash and cash equivalents include cash on account,
demand deposits and money market investments with maturities from
the date of acquisition of three months or less, which are readily
convertible to known amounts of cash and are subject to
insignificant changes in value. Cash is classified as loans and
receivables. Cash equivalents are classified as available-for-sale.
Trade receivables and payables Trade receivables and payables are non-interest
Investments in marketable securities Investments in marketable securities are classified
as available-for-sale available-for-sale At each balance sheet date, we assess for any
objective evidence of an impairment in value of our investments and
record such impairments in non-operating
Debt Debt is initially recorded at fair value, less
transaction costs. Debt is subsequently measured at amortized cost,
calculated using the effective interest rate method.
Derivative instruments Derivative instruments, including embedded
derivatives, are classified as at fair value through profit or loss
and, accordingly, are recorded on the balance sheet at fair value.
Unrealized gains and losses on derivatives held for trading are
recorded as part of other operating income (expense) or
non-operating non-derivative
Hedging Certain derivative investments may qualify for
hedge accounting. For fair value hedges, any gains or losses on
both the hedged item and the hedging instrument are recognized in
the same line item in profit.
For cash flow hedges, any unrealized gains and
losses on the hedging instrument relating to the effective portion
of the hedge are initially recorded in other comprehensive income
(loss). Gains and losses are recognized in profit upon settlement
of the hedging instrument, when the hedged item ceases to exist, or
when the hedge is determined to be ineffective. For hedges of net investments in foreign
operations, any foreign exchange gains or losses on the hedging
instrument relating to the effective portion of the hedge are
initially recorded in other comprehensive income (loss). Gains and
losses are recognized in profit on the ineffective portion of the
hedge, or when there is a disposition or partial disposition of a
foreign operation being hedged.
Inventories Finished products, work in-process, in-process For work in-process When inventories have been written down to net
realizable value, we make a new assessment of net realizable value
in each subsequent period. If the circumstances that caused the
write-down no longer exist, the remaining amount of the write-down
on inventory not yet sold is reversed. We use both joint-product and by-product in-process By-product by-products Supplies inventory is valued at the lower of
weighted average cost and net realizable value. Cost includes
acquisition, freight and other directly attributable costs.
Property, Plant and Equipment
Land, buildings, plant and equipment Land is recorded at cost and buildings, plant and
equipment are recorded at cost less accumulated depreciation and
impairment losses. Cost includes the purchase price and the
directly attributable costs to bring the assets to the location and
condition necessary for them to be capable of operating in the
manner intended by management. Depreciation of mobile equipment, buildings used
for production, and plant and processing equipment at our mining
operations is calculated on a units-of-production The expected useful lives are as follows:
•
Buildings and equipment (not used in production)
2
— 50 years
•
Plant and equipment (smelting operations)
3
— 30 years
Mineral properties and mine development costs The cost of acquiring and developing mineral
properties or property rights, including pre-production
Waste rock stripping costs incurred in the
production phase of a surface mine are recorded as capitalized
production stripping costs within property, plant and equipment
when it is probable that the stripping activity will improve access
to the orebody, when the component of the orebody or pit to which
access has been improved can be identified, and when the costs
relating to the stripping activity can be measured reliably. When
the actual waste-to-ore life-of-component waste-to-ore Once available for use, mineral properties and mine
development costs are depreciated on a units-of-production units-of-production Underground mine development costs are depreciated
using the block depreciation method, where development costs
associated with each distinct section of the mine are depreciated
over the reserves to which they relate.
Exploration and evaluation costs Property acquisition costs are capitalized. Other
exploration and evaluation costs are capitalized if they relate to
specific properties for which resources, as defined under National
Instrument 43-101,
Development costs of oil sands properties The costs of acquiring, exploring, evaluating and
developing oil sands properties are capitalized when it is expected
that these costs will be recovered through future exploitation or
sale of the property. Capitalized development costs of oil sands
properties are tangible assets. These assets are not depreciated as
they are not currently available for use. When proven and probable
reserves are determined and development is completed, capitalized
development costs for oil sands properties are reclassified to
mineral properties within property, plant and equipment.
Construction in progress Assets in the course of construction are
capitalized as construction in progress. On completion, the cost of
construction is transferred to the appropriate category of
property, plant and equipment, and depreciation commences when the
asset is available for its intended use.
Impairment of non-current The carrying amounts of assets included in
property, plant and equipment are reviewed for impairment whenever
facts and circumstances indicate that the carrying amounts are less
than the recoverable amounts. If there are indicators of
impairment, the recoverable amount of the asset is estimated in
order to determine the extent of any impairment. Where the asset
does not generate cash flows that are independent from other
assets, the recoverable amount of the cash-generating unit (CGU) to
which the asset belongs is determined. The recoverable amount of an
asset or CGU is determined as the higher of its fair value less
costs of disposal and its value in use. An impairment loss exists
if the asset’s or CGU’s carrying amount exceeds the
estimated recoverable amount, and is recorded as an expense
immediately.
Fair value is the price that would be received from
selling an asset in an orderly transaction between market
participants at the measurement date. Costs of disposal are
incremental costs directly attributable to the disposal of an
asset. For mining assets and oil sands development costs, when a
binding sale agreement is not readily available, fair value less
costs of disposal is usually estimated using a discounted cash flow
approach, unless comparable market transactions on which to
estimate fair value are available. Estimated future cash flows are
calculated using estimated future commodity prices, reserves and
resources, and operating and capital costs. All inputs used are
those that an independent market participant would consider
appropriate. Value in use is determined as the present value of the
future cash flows expected to be derived from continuing use of an
asset or CGU in its present form for those operating assets where
value in use exceeds the fair value less costs of disposal. These
estimated future cash flows are discounted to their present value
using a pre-tax pre-tax post-tax Indicators of impairment for exploration and
evaluation assets are assessed on a project-by-project Tangible assets that have been impaired in prior
periods are tested for possible reversal of impairment whenever
events or significant changes in circumstances indicate that the
impairment may have reversed. Indicators of a potential reversal of
an impairment loss mainly mirror the indicators present when the
impairment was originally recorded. If the impairment has reversed,
the carrying amount of the asset is increased to its recoverable
amount, but not beyond the carrying amount that would have been
determined, net of depreciation, had no impairment loss been
recognized for the asset in the prior periods. A reversal of an
impairment loss is recognized into profit immediately.
Repairs and maintenance Repairs and maintenance costs, including shutdown
maintenance costs, are charged to expense as incurred, except when
these repairs significantly extend the life of an asset or result
in a significant operating improvement. In these instances, the
portion of these repairs relating to the betterment is capitalized
as part of plant and equipment.
Borrowing costs We capitalize borrowing costs that are directly
attributable to the acquisition, construction or production of an
asset that takes a substantial period of time to construct or
prepare for its intended use. We begin capitalizing borrowing costs
when there are general or specific borrowings, expenditures are
incurred, and activities are undertaken to prepare the asset for
its intended use. The amount of borrowing costs capitalized cannot
exceed the actual amount of borrowing costs incurred during the
period. All other borrowing costs are expensed as incurred. We discontinue the capitalization of borrowing
costs when substantially all of the activities necessary to prepare
the qualifying asset for its intended use or sale are complete. In
addition, we cease capitalization of borrowing costs when there is
suspension of activities to prepare an asset for its intended use
or sale. Capitalization recommences when the activities are
restarted. Capitalized borrowing costs are amortized over the
useful life of the related asset.
Leased assets Leased assets from which we receive substantially
all of the risks and rewards of ownership of the asset are
capitalized as finance leases at the lower of the fair value of the
asset or the estimated present value of the minimum lease payments.
The corresponding lease obligation is recorded within debt on the
balance sheet. Assets under operating leases are not capitalized,
and rental payments are expensed based on the terms of the
lease.
Goodwill We allocate goodwill arising from business
combinations to each CGU or group of CGUs that are expected to
receive the benefits from the business combination. The carrying
amount of the CGU or group of CGUs to which goodwill has been
allocated is tested annually for impairment or when there is an
indication that the goodwill may be impaired. Any impairment is
recognized as an expense immediately. Should there be a recovery in
the value of a CGU, any impairment of goodwill previously recorded
is not subsequently reversed.
Income Taxes Taxes, comprising both income taxes and resource
taxes, are accounted for as income taxes under IAS 12, Income Taxes
and are recognized in the statement of income, except where they
relate to items recognized in other comprehensive income (loss) or
directly in equity, in which case the related taxes are recognized
in other comprehensive income (loss) or equity. Current taxes receivable or payable are based on
estimated taxable income for the current year at the statutory tax
rates enacted or substantively enacted less amounts paid or
received on account. Deferred tax assets and liabilities are recognized
based on temporary differences (the difference between the tax and
accounting values of assets and liabilities) and are calculated
using enacted or substantively enacted tax rates for the periods in
which the differences are expected to reverse. The effect of
changes in tax legislation, including changes in tax rates, is
recognized in the period of substantive enactment. Deferred tax assets are recognized only to the
extent that it is probable that future taxable profits of the
relevant entity or group of entities in a particular jurisdiction
will be available, against which the assets can be utilized. Deferred tax liabilities are recognized for taxable
temporary differences arising on investments in subsidiaries, joint
ventures and associates. However, we do not recognize such deferred
tax liabilities where the timing of the reversal of the temporary
differences can be controlled without affecting our operations or
business, and it is probable that the temporary differences will
not reverse in the foreseeable future. Deferred tax assets and liabilities are not
recognized if the temporary differences arise from the initial
recognition of goodwill or an asset or liability in a transaction,
other than in a business combination, which will affect neither
accounting profit nor taxable profit. We are subject to assessments by various taxation
authorities, who may interpret tax legislation differently than we
do. The final amount of taxes to be paid depends on a number of
factors, including the outcomes of audits, appeals or negotiated
settlements. We account for such differences based on our best
estimate of the probable outcome of these matters.
Employee Benefits
Defined benefit pension plans Defined benefit pension plan obligations are based
on actuarial determinations. The projected unit credit method,
which sees each period of service as giving rise to an additional
unit of benefit entitlement and measures each unit separately to
build up the final obligation, is used to determine the defined
benefit obligations, the related current service costs and, where
applicable, the past service costs. Actuarial assumptions used in
the determination of defined benefit pension plan assets and
liabilities are based upon our best estimates, including discount
rates, salary escalation, expected health care costs and retirement
dates of employees. Vested and unvested costs arising from past service
following the introduction of changes to a defined benefit plan are
recognized immediately as an expense when the changes are made. Actuarial gains and losses can arise from
differences between expected and actual outcomes or changes in
actuarial assumptions. Actuarial gains and losses, changes in the
effect of asset ceiling rules and return on plan assets are
collectively referred to as remeasurements of retirement benefit
plans and are recognized immediately through other comprehensive
income (loss) and directly into retained earnings. Measurement of
our net defined benefit asset is limited to the lower of the
surplus in the defined benefit plan and the asset ceiling. The
asset ceiling is the funded status of the plan on an accounting
basis, less the present value of the expected economic benefit
available to us in the form of refunds from the plan or reductions
in future contributions to the plan. We apply one discount rate to the net defined
benefit asset or liability for the purposes of determining the
interest component of the defined benefit cost. This interest
component is recorded as part of finance expense. Depending on the
classification of the salary of plan members, current service costs
and past service costs are included in either operating expenses or
general and administration expenses.
Defined contribution pension plans The cost of providing benefits through defined
contribution plans is charged to profit as the obligation to
contribute is incurred.
Non-pension We provide health care benefits for certain
employees when they retire. Non-pension non-pension
Termination benefits We recognize a liability and an expense for
termination benefits when we have demonstrably committed to
terminate employees. We are demonstrably committed to a termination
when, and only when, there is a formal plan for the termination
with no realistic possibility of withdrawal. The plan should
include, at a minimum, the location, function and approximate
number of employees whose services are to be terminated, the
termination benefits for each job classification or function, and
the time at which the plan will be implemented without significant
changes.
Share-Based Payments The fair value method of accounting is used for
share-based payment transactions. Under this method, the cost of
share options and other equity-settled share-based payment
arrangements is recorded based on the estimated fair value at the
grant date, including an estimate of the forfeiture rate, and
charged to other operating income (expense) over the vesting
period. For employees eligible for normal retirement prior to
vesting, the expense is charged to other operating income (expense)
over the period from the grant date to the date they are eligible
for retirement. Share-based payment expense relating to
cash-settled awards, including deferred, restricted and performance
share units, is accrued over the vesting period of the units based
on the quoted market value of Class B subordinate voting
shares. Performance share units (PSUs) have an additional vesting
factor determined by our total shareholder return in comparison to
a group of specified companies. PSUs and performance deferred share
units (PDSUs) issued in 2017 also have a vesting factor determined
by the ratio of the change in our earnings before interest, taxes,
depreciation and amortization (EBITDA) over the life of the share
unit to the change in a specified weighted commodity price index.
As these awards will be settled in cash, the expense and liability
are adjusted each reporting period for changes in the underlying
share price as well as changes to the above-noted vesting factors,
as applicable.
Share Repurchases Where we repurchase any of our equity share
capital, the excess of the consideration paid over book value is
deducted from retained earnings.
Provisions
Decommissioning and restoration provisions Future obligations to retire an asset and to
restore a site, including dismantling, remediation and ongoing
treatment and monitoring of the site related to normal operations,
are initially recognized and recorded as a provision based on
estimated future cash flows discounted at a credit-adjusted
risk-free rate. This decommissioning and restoration provision is
adjusted at each reporting period for changes to factors including
the expected amount of cash flows required to discharge the
liability, the timing of such cash flows and the discount rate. The provisions are also accreted to full value over
time through periodic charges to profit. This unwinding of the
discount is charged to finance expense in the statement of
income.
The amount of the decommissioning and restoration
provision initially recognized is capitalized as part of the
related asset’s carrying value. The method of depreciation
follows that of the underlying asset. For a closed site or where
the asset that generated a decommissioning and restoration
provision no longer exists, there is no longer any future benefit
related to the costs, and as such, the amounts are expensed through
other operating income (expense). For operating sites, a revision
in estimates or a new disturbance will result in an adjustment to
the provision with an offsetting adjustment to the capitalized
asset retirement cost. During the operating life of an asset, events such
as infractions of environmental laws or regulations may occur.
These events are not related to the normal operation of the asset.
The costs associated with these provisions are accrued and charged
to other operating income (expense) in the period in which the
event giving rise to the liability occurs. Changes in the estimated
liability resulting in an adjustment to the provision are also
charged to other operating income (expense) in the period in which
the estimate changes.
Other provisions Provisions are recognized when a present legal or
constructive obligation exists as a result of past events, and it
is probable that an outflow of resources that can be reliably
estimated will be required to settle the obligation. Where the
effect is material, the provision is discounted using an
appropriate credit-adjusted risk-free rate.
Research and Development Research costs are expensed as incurred.
Development costs are only capitalized when the product or process
is clearly defined; the technical feasibility has been established;
the future market for the product or process is clearly defined;
and we are committed, and have the resources, to complete the
project.
Earnings per Share Earnings per share is calculated based on the
weighted average number of shares outstanding during the year. For
diluted earnings per share, dilution is calculated based upon the
net number of common shares issued should “in-the-money” |
