EXHIBIT 99.1
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ANNUAL INFORMATION FORM
February 26, 2007
TECK COMINCO LIMITED
Suite 600, 200 Burrard Street
Vancouver, British Columbia
V6C 3L9
An additional copy of this Annual Information Form
may be obtained upon request from the Corporate Secretary,
Teck Cominco Limited at the above address or from the company's
web site - www.teckcominco.com
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TABLE OF CONTENTS
NOMENCLATURE................................................................III
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION.........................III
GLOSSARY OF TECHNICAL TERMS..................................................VI
CORPORATE STRUCTURE...........................................................1
NAME, ADDRESS AND INCORPORATION............................................1
INTERCORPORATE RELATIONSHIPS...............................................2
GENERAL DEVELOPMENT OF THE BUSINESS...........................................2
THREE-YEAR HISTORY.........................................................2
2004....................................................................2
2005....................................................................3
2006....................................................................4
DESCRIPTION OF THE BUSINESS...................................................5
GENERAL....................................................................5
Product Summary.........................................................6
INDIVIDUAL OPERATIONS......................................................8
Zinc....................................................................8
Coal...................................................................11
Copper.................................................................15
Gold...................................................................18
Oil Sands..............................................................21
Exploration............................................................22
Mineral Reserves and Resources.........................................23
SAFETY AND ENVIRONMENTAL PROTECTION.......................................30
SOCIAL AND ENVIRONMENTAL POLICIES.........................................31
HUMAN RESOURCES...........................................................32
TECHNOLOGY................................................................32
FOREIGN OPERATIONS........................................................32
COMPETITIVE CONDITIONS....................................................33
RISK FACTORS..............................................................33
Risks Inherent in the Mining and Metals Business.......................33
Commodity Price Fluctuations and Hedging...............................34
Competition for Mining Properties......................................35
Competition in Product Markets.........................................35
Future Market Access...................................................36
Reserve and Resource Estimates.........................................36
Currency Fluctuations..................................................37
Interest Rate Risk.....................................................37
Environment, Health and Safety Regulations.............................37
Aboriginal Title Claims................................................38
Foreign Activities.....................................................38
Risks Associated with Fort Hills.......................................39
Greenhouse Gas Emissions...............................................39
Accounting Policies and Internal Controls..............................40
Legal Proceedings......................................................40
DIVIDENDS....................................................................41
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DESCRIPTION OF CAPITAL STRUCTURE.............................................41
GENERAL DESCRIPTION OF CAPITAL STRUCTURE..................................41
RATINGS...................................................................42
MARKET FOR SECURITIES........................................................43
TRADING PRICE AND VOLUME..................................................43
DIRECTORS AND OFFICERS.......................................................44
DIRECTORS.................................................................44
OFFICERS..................................................................46
AUDIT COMMITTEE INFORMATION...............................................48
Mandate of Audit Committee.............................................48
Composition of the Audit Committee.....................................48
Pre-Approval Policies and Procedures...................................49
External Auditor Service Fees..........................................49
OWNERSHIP BY DIRECTORS AND OFFICERS.......................................50
LEGAL PROCEEDINGS............................................................50
TRANSFER AGENTS AND REGISTRARS...............................................50
MATERIAL CONTRACTS...........................................................50
INTERESTS OF EXPERTS.........................................................50
ADDITIONAL INFORMATION.......................................................51
SCHEDULE A..................................................................A-1
AUDIT COMMITTEE MANDATE..................................................A-1
SCHEDULE B..................................................................B-1
REPORT ON RESOURCES DATA BY INDEPENDENT QUALIFIED
RESOURCES AUDITOR...................................................B-1
SCHEDULE C..................................................................C-1
REPORT OF MANAGEMENT AND DIRECTORS ON DECEMBER 2006 OIL AND GAS
DISCLOSURE..........................................................C-1
Note: All currency references are to Canadian dollars unless otherwise noted.
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NOMENCLATURE
In this Annual Information Form, unless the context otherwise dictates, "we",
"Teck Cominco" or the "Company" refers to Teck Cominco Limited and its
subsidiaries and a reference to Teck Cominco Metals refers to our wholly-owned
subsidiary, Teck Cominco Metals Ltd., and its subsidiaries.
CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION
This Annual Information Form and certain documents incorporated by reference in
this Annual Information Form contain certain forward-looking information and
forward-looking statements as defined in applicable securities laws. These
statements relate to future events or our future performance. All statements
other than statements of historical fact are forward-looking statements. The
use of any of the words "anticipate", "plan", "continue", "estimate", "expect",
"may", "will", "project", "predict", "potential", "should", "believe" and
similar expressions is intended to identify forward-looking statements. These
statements involve known and unknown risks, uncertainties and other factors
that may cause actual results or events to differ materially from those
anticipated in such forward-looking statements. These statements speak only as
of the date of this Annual Information Form or as of the date specified in the
documents incorporated by reference in this Annual Information Form, as the
case may be. These forward-looking statements include but are not limited to,
statements concerning:
o prices and price volatility for zinc, copper, coal, gold and other
products and commodities that we produce and sell as well as oil,
natural gas and petroleum products;
o the long-term demand for and supply of zinc, copper, coal, gold and
other products and commodities that we produce and sell;
o our premiums realized over London Metal Exchange cash and other
benchmark prices and the sensitivity of our financial results to
changes in metals and minerals prices;
o treatment and refining charges;
o our strategies and objectives;
o our interest and other expenses;
o our tax position and the tax rates applicable to us;
o political unrest or instability in countries such as Peru and its
impact on our foreign assets, including our interest in the Antamina
copper, zinc mine;
o the timing of decisions regarding the timing and costs of construction
and production with respect to, and the issuance of the necessary
permits and other authorizations required for, certain of our
development and expansion projects, including, among others, the Fort
Hills Project;
o the timing of achievement of commercial production at the Pogo mine;
o our estimates of the quantity and quality of our mineral and oil
reserves and resources;
o the production capacity of our operations;
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o our planned capital expenditures and our estimates of reclamation and
other costs related to environmental protection;
o our future capital and mine production costs and production levels,
including the costs and potential impact of complying with existing and
proposed environmental laws and regulations in the operation and
closure of various operations;
o our cost reduction and other financial and operating objectives;
o our exploration, environmental, health and safety initiatives;
o the availability of qualified employees for our operations, including
our new developments;
o the satisfactory negotiation of collective agreements with unionized
employees;
o the outcome of legal proceedings and other disputes in which we are
involved;
o general business and economic conditions;
o the outcome of our coal sales negotiations and negotiations with metals
and concentrate customers concerning treatment charges, price
adjustments and premiums; and
o our dividend policy.
Inherent in forward-looking statements are risks and uncertainties beyond our
ability to predict or control, including risks that may affect our operating or
capital plans; risks generally encountered in the development of mineral and
oil and gas properties such as unusual or unexpected geological formations,
unanticipated metallurgical difficulties, ground control problems, adverse
weather conditions, process upsets and equipment malfunctions; risks associated
with labour disturbances and unavailability of skilled labour; fluctuations in
the market price of our principal commodities which are cyclical and subject to
substantial price fluctuations; risks created through competition for mining
and oil and gas properties; risk associated with lack of access to markets;
risks associated with mineral and oil and gas reserve and resource estimates;
risks posed by fluctuations in exchange rates and interest rates, as well as
general economic conditions; risks associated with environmental compliance and
changes in environmental legislation and regulation; risks associated with our
dependence on third parties for the provision of transportation and other
critical services; risks associated with non-performance by contractual
counterparties; risks associated with aboriginal title claims and other title
risks; social and political risks associated with operations in foreign
countries; risks of changes in tax laws or their interpretation; and risks
associated with tax reassessments and legal proceedings.
Actual results and developments are likely to differ, and may differ
materially, from those expressed or implied by the forward-looking statements
contained in this Annual Information Form. Such statements are based on a
number of assumptions which may prove to be incorrect, including, but not
limited to, assumptions about:
o general business and economic conditions;
o interest rates and foreign exchange rates;
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o the supply and demand for, deliveries of, and the level and volatility
of prices of zinc, copper, coal and gold and our other primary metals
and minerals as well as oil, natural gas and petroleum products;
o the timing of the receipt of regulatory and governmental approvals for
our development projects and other operations;
o the availability of financing for our development projects on
reasonable terms;
o our costs of production and our production and productivity levels, as
well as those of our competitors;
o power prices;
o our ability to secure adequate transportation for our products;
o our ability to procure equipment and operating supplies in sufficient
quantities and on a timely basis;
o our ability to attract and retain skilled staff;
o the impact of changes in Canadian-US dollar and other foreign exchange
rates on our costs and results;
o engineering and construction timetables and capital costs for our
development and expansion projects;
o costs of closure of various operations;
o market competition;
o the accuracy of our reserve estimates (including, with respect to size,
grade and recoverability) and the geological, operational and price
assumptions on which these are based;
o premiums realized over London Metal Exchange cash and other benchmark
prices;
o tax benefits and tax rates;
o the outcome of our coal price and refining and treatment charge
negotiations with customers;
o the resolution of environmental and other proceedings or disputes; and
o our ongoing relations with our employees and with our business partners
and joint venturers.
We caution you that the foregoing list of important factors and assumptions is
not exhaustive. Events or circumstances could cause our actual results to
differ materially from those estimated or projected and expressed in, or
implied by, these forward-looking statements. You should also carefully
consider the matters discussed under "Risk Factors" in this Annual Information
Form. We undertake no obligation to update publicly or otherwise revise any
forward-looking statements or the foregoing list of factors, whether as a
result of new information or future events or otherwise.
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GLOSSARY OF TECHNICAL TERMS
ball mill: a rotating horizontal cylinder in which ore is ground using metal
balls.
bitumen: a naturally occurring heavy viscous crude oil.
carbon-in-pulp: a process used to recover gold that has been dissolved after
cyanide leach agitation.
cathode: an electrode in an electrolytic cell which receives electrons and
which represents the final product of an electrolytic refining process.
clean coal: coal that has been processed to separate impurities and is in a
form suitable for sale.
coke: the substance formed when coking coal is heated to a very high
temperature in the absence of air, primarily used in the process of steel
making in integrated steel mills.
concentrate: a product containing valuable minerals from which most of the
waste mineral in the ore has been eliminated in a mill or concentrator.
crude oil: unrefined liquid hydrocarbons, excluding natural gas liquids.
custom concentrate: concentrate sold to third party smelters for smelting.
dore: unrefined gold and silver bullion bars.
drift: a horizontal passage from one underground working place to another and
parallel to the strike of the ore.
extraction: means the process by which bitumen is separated from sand, water
and other impurities.
flotation: a method of mineral separation in which a froth created in water by
a variety of reagents floats certain finely crushed minerals, whereas other
minerals sink, so that the valuable minerals are concentrated and separated
from the waste.
grade: the classification of an ore according to its content of economically
valuable material, expressed as grams per tonne for precious metals and as a
percentage for most other metals.
hard coking coal: a type of metallurgical coal used primarily for making coke
in integrated steel mills.
indicated mineral resource: that part of a mineral resource for which quantity,
grade or quality, densities, shape and physical characteristics, can be
estimated with a level of confidence sufficient to allow the appropriate
application of technical and economic parameters, to support mine planning and
evaluation of the economic viability of the deposit. The estimate is based on
detailed and reliable exploration and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes that are spaced closely enough for geological and
grade continuity to be reasonably assumed.
inferred mineral resource: that part of a mineral resource for which quantity
and grade or quality can be estimated on the basis of geological evidence and
limited sampling and reasonably assumed, but not verified, geological and grade
continuity. The estimate is based on limited information and sampling gathered
through appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes.
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KIVCET furnace: a smelting furnace which produces lead bullion and slag.
measured mineral resource: that part of a mineral resource for which quantity,
grade or quality, densities, shape, and physical characteristics are so well
established that they can be estimated with confidence sufficient to allow the
appropriate application of technical and economic parameters, to support
production planning and evaluation of the economic viability of the deposit.
The estimate is based on detailed and reliable exploration, sampling and
testing information gathered through appropriate techniques from locations such
as outcrops, trenches, pits, workings and drill holes that are spaced closely
enough to confirm both geological and grade continuity.
metallurgical coal: various grades of coal suitable for making steel, such as
coking coal.
mill: a plant in which ore is ground and undergoes physical or chemical
treatment to extract and produce a concentrate of the valuable minerals.
mineral reserve: the economically mineable part of a measured or indicated
mineral resource demonstrated by at least a preliminary feasibility study. This
study must include adequate information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at the time of reporting,
that economic extraction can be justified. A mineral reserve includes diluting
materials and allowances for losses that may occur when the material is mined.
mineral resource: a concentration or occurrence of diamonds, natural solid
inorganic material, or natural solid fossilized organic material including base
and precious metals, coal, and industrial minerals in or on the earth's crust
in such form and quantity and of such a grade or quality that it has reasonable
prospects for economic extraction. The location, quantity, grade, geological
characteristics and continuity of a mineral resource are known, estimated or
interpreted from specific geological evidence and knowledge.
oil sands: means sand and rock material that contains bitumen.
ore: naturally occurring material from which minerals of economic value can be
extracted at a reasonable profit.
orebody: a contiguous, well defined mass of material of sufficient ore content
to make extraction economically feasible.
probable mineral reserve: the economically mineable part of an indicated and,
in some circumstances, a measured mineral resource demonstrated by at least a
preliminary feasibility study. This study must include adequate information on
mining, processing, metallurgical, economic, and other relevant factors that
demonstrate, at the time of reporting, that economic extraction can be
justified.
proven mineral reserve: the economically mineable part of a measured mineral
resource demonstrated by at least a preliminary feasibility study. This study
must include adequate information on mining, processing, metallurgical,
economic, and other relevant factors that demonstrate, at the time of
reporting, that economic extraction is justified.
pressure leaching: extracting a soluble metallic compound from an ore or
concentrate by dissolving it in a chemical solvent, accelerated by means of
increased temperature and pressure.
raw coal: coal that has been removed or exposed for removal from a mine, but
that has not been processed.
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refinery: a plant in which metal or minerals are extracted from an ore or
concentrate, or in which metallic products of a smelting process are refined to
higher purity.
roasting: the treatment of sulphide ore or concentrate by heat and air, or
oxygen-enriched air, in order to oxidize sulphides and remove other elements.
semi-autogenous grinding (SAG): a method of grinding rock into fine particles
in which the rock itself performs some of the function of a grinding medium,
such as steel balls.
shaft: a vertical or inclined passageway to an underground mine through which a
mine is worked, e.g., for ventilation, moving personnel, equipment, supplies
and material, including ore and waste rock.
slag: a substance formed by way of chemical action and fusion at furnace
operating temperatures: a by-product of the smelting process.
smelter: a plant in which concentrates are processed into an upgraded product
by application of heat.
stope: an underground excavation formed by the extraction of ore.
strike: the direction, course or bearing taken by a structural surface as it
intersects the horizontal.
sulphide: a mineral compound containing sulphur but no oxygen.
synthetic crude oil: means crude oil produced by upgrading bitumen to a mixture
of hydrocarbons similar to light crude oil produced either by the removal of
carbon (coking) or the addition of hydrogen (hydrotreating) which alters the
original hydrocarbon mark in the upgrading process.
tailings: the effluent that remains after recoverable metals have been removed
from the ore during processing.
thermal coal: coal that is used primarily for its heating value and that tends
not to have the carbonization properties possessed by metallurgical coals.
treatment and refining charges: the charge a mine pays to a smelter to cover
the cost of conversion of concentrates into refined metal.
TV:BIP: means a measure of the total volume mined relative to the bitumen
in-place and expressed as cubic metres of material mined per cubic metre of
bitumen.
upgrading: means the process of converting bitumen into synthetic crude oil.
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CORPORATE STRUCTURE
NAME, ADDRESS AND INCORPORATION
Teck Cominco Limited, previously Teck Corporation, was continued under the
Canada Business Corporations Act in 1978. It is the continuing company
resulting from the merger in 1963 of the interests of The Teck-Hughes Gold
Mines Ltd., Lamaque Gold Mines Limited and Canadian Devonian Petroleum Ltd.,
companies incorporated in 1913, 1937 and 1951 respectively. Over the years,
several other reorganizations have been undertaken. These include our merger
with Brameda Resources Limited and The Yukon Consolidated Gold Corporation in
1979, the merger with Highmont Mining Corporation and Iso Mines Limited in
1979, the consolidation with Afton Mines Ltd. in 1981, the merger with
Copperfields Mining Corporation in 1983, and the merger with Cominco Ltd. in
2001. On July 23, 2001, Cominco Ltd. changed its name to Teck Cominco Metals
Ltd. and on September 12, 2001, we changed our name to Teck Cominco Limited.
Since 1978, the Articles of the Company have been amended on several occasions
to provide for various series of preferred shares and other corporate purposes.
On January 19, 1988, our Articles were amended to provide for the subdivision
of our Class A common shares and Class B subordinate voting shares on a
two-for-one basis. On September 12, 2001, the Articles were amended to effect
the name change described above and to convert each outstanding Class A common
share into one new Class A common share and 0.2 Class B subordinate voting
shares and to enact "coattail" takeover bid protection in favour of the Class B
subordinate voting shares. See "Description of Capital Structure" at page 41 of
this Annual Information Form for a description of the attributes of the Class A
common shares and Class B subordinate voting shares.
On November 28, 2003 our Articles were amended to provide for the designation
of 790,000 preference shares as "Preference Shares Series 1" and by designating
550,000 preference shares as "Preference Shares Series 2." On April 1, 2006,
both series of Preferred Shares expired, in accordance with their terms.
The registered and principal offices of Teck Cominco are located at 200 Burrard
Street, Vancouver, British Columbia.
Teck Cominco Limited - 2006 Annual Information Form Page 1
INTERCORPORATE RELATIONSHIPS
Our financial statements consolidate the accounts of all of our subsidiaries.
Our material subsidiaries as at December 31, 2006 which are wholly-owned are
listed below. Indentation indicates that the voting securities of the relevant
subsidiary are held by the subsidiary listed immediately above.
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JURISDICTION OF INCORPORATION/FORMATION/
COMPANY NAME CONTINUATION
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Teck Financial Ltd. Bermuda
Teck Base Metals Ltd. Bermuda
Teck Cominco Metals Ltd. Canada
Teck Cominco Coal Partnership Canada
Cominco Mining Partnership British Columbia
Teck Cominco American Incorporated Washington, U.S.A.
Teck Cominco Alaska Incorporated Alaska, U.S.A.
Teck-Hemlo Inc. Ontario
Teck Gold Limited Canada
Teck-Pogo Inc. Alaska, U.S.A.
Teck Resources Inc. Colorado, U.S.A.
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In addition to the wholly-owned subsidiaries listed above, we own, directly or
indirectly:
(i) a 97.5% partnership interest in the Highland Valley Copper partnership;
(ii) a 15% limited partnership interest in Fort Hills Energy Limited
Partnership;
(iii) through Teck Cominco Coal Partnership, a 40% partnership interest in
the Elk Valley Coal Partnership;
(iv) through Teck Base Metals Ltd., a 22.5% indirect share interest in
Compania Minera de Antamina S.A., which owns the Antamina copper zinc
mine in Peru; and
(v) a 50% ordinary share interest in Lennard Shelf Pty Ltd. which owns the
Lennard Shelf zinc operation in Western Australia.
GENERAL DEVELOPMENT OF THE BUSINESS
THREE-YEAR HISTORY
2004
LME cash zinc and copper prices in 2004 averaged US$0.48 and US$1.30 per pound
respectively compared with US$0.38 and US$0.81 in 2003. Published molybdenum
prices increased to an average of US$19 per pound in 2004 from US$5 per pound
in 2003. At the end of the year, the molybdenum price was US$30 per pound. Coal
prices also increased from US$45 per tonne to US$52 per tonne in 2004.
Teck Cominco Limited - 2006 Annual Information Form Page 2
These price increases were somewhat offset by a weaker US dollar. Higher prices
substantially improved earnings and cash flows at all of our major operations.
In March 2004, we completed the purchase of an additional 33.57% interest in
HVC, through the exercise of a right of first refusal, for US$73 million. The
additional interest contributed $75 million to earnings during 2004.
The Partnership Agreement establishing Elk Valley Coal provided that we could
increase our interest in Elk Valley Coal by up to 5% from an initial 35%, to
the extent that operating synergies realized by Elk Valley Coal and
distributable cash generated by the Elkview mine (collectively, "Incremental
Returns") exceeded certain cumulative targets during the four year period from
April 1, 2003 to March 31, 2007. An independent engineering firm was retained
to assist in the determination of Incremental Returns. Following receipt of the
opinion of the independent engineer, the Company and Fording Canadian Coal
Trust reached agreement in July 2004 on the amount of Incremental Returns and
the resulting adjustments to our interest in Elk Valley Coal. Our initial 35%
interest was increased by 3% effective April 1, 2004, and was increased by an
additional 1% on each of April 1, 2005 and April 1, 2006, bringing our total
direct interest in Elk Valley Coal to 40% on April 1, 2006.
In May 2004, following the withdrawal of an appeal in relation to the issuance
of a key environmental permit, site construction began at the Pogo gold project
in Alaska. Elk Valley Coal also commenced the development of the Cheviot pit at
the Cardinal River mine.
On December 15, 2004, we completed the sale of our 85% interest in Refineria de
Cajamarquilla S.A., which owns the Cajamarquilla zinc refinery in Peru, for
proceeds of $168 million after repayment of debt related to Cajamarquilla of
$56 million. Under the agreement of purchase and sale, we are entitled to
receive additional price-linked payments of approximately US$365,000 for each
US$0.01 that the average annual price of zinc exceeds US$0.454 per pound in
each of the years from 2005 to 2009 inclusive. In addition, if the purchaser
elects to expand the refinery during the first three years following the sale,
we are entitled to an additional payment of US$12.75 million in year one,
declining to US$4.25 million in year three.
As a result of the record earnings and operating cash flow in 2004, we finished
the year with cash balances of over $900 million against long-term debt of $627
million. In November 2004, we announced that we were increasing the semi-annual
dividend payable to shareholders of record on December 31, 2004 from $0.10 to
$0.20, bringing the total annual dividend for 2004 to $0.30 per share.
2005
In 2005, prices for our principal products increased in comparison to 2004. LME
cash zinc and copper prices averaged US$0.63 and US$1.67 per pound respectively
compared with US$0.48 and US$1.30 in 2004. Published molybdenum prices
increased to an average of US$32 per pound in 2005 up from US$19 per pound in
2004. Realized coal prices increased dramatically from US$52 per tonne to US$99
per tonne in 2005. Higher prices significantly improved earnings and cash flows
at all of our major operations, although results at Canadian operations were
somewhat adversely affected by a weaker US dollar.
In April 2005, we announced that we were increasing the semi-annual dividend
payable to shareholders of record on June 30, 2005 from $0.20 to $0.40 per
share.
Teck Cominco Limited - 2006 Annual Information Form Page 3
In April 2005, Donald R. Lindsay was appointed our President and Chief
Executive Officer, succeeding David Thompson and in October 2005, Ronald A.
Millos was appointed Senior Vice President, Finance and Chief Financial
Officer, succeeding John Taylor.
In November 2005, pursuant to an agreement with UTS Energy Corporation ("UTS")
and Petro-Canada, we subscribed for a 15% interest in the Fort Hills Energy
Limited Partnership, which is developing the Fort Hills oil sands project in
Alberta, Canada.
Construction of the Pogo project in Alaska progressed to substantial completion
by the end of 2005. In September 2005 we announced that we would extend the
life of the Highland Valley copper mine by 5 years to 2013.
In September 2005 we issued US$300 million aggregate principal amount of ten
year notes and US$700 million aggregate principal amount of 30 year notes. The
net proceeds of the offering will be used to repay indebtedness maturing in
2006 and to fund new investment opportunities, including our investment in the
Fort Hills oil sands project, and for general corporate purposes.
As a result of record earnings and operating cash flow in 2005 as well as our
issuance of debt securities, our cash and temporary investments at December 31,
2005 was $3.1 billion against long term debt of $1.7 billion including the
current portion of long term debt, excluding our exchangeable debentures.
2006
Prices for our principal products increased further in 2006. LME cash zinc and
copper prices averaged US$1.49 and US$3.05 per pound respectively compared with
US$0.63 and US$1.67 in 2005. Molybdenum prices declined somewhat to US$25 per
pound compared to US$32 per pound in 2005. Realized coal prices increased from
US$99 per tonne to US$113 per tonne in 2006. Revenues increased significantly
over 2005, due mainly to substantially higher copper and zinc prices and higher
refined metal sales from the Trail operations. Commodity price increases were
offset somewhat by a weaker U.S. dollar.
In April 2006, we announced that we were further increasing the semi-annual
dividend on our Class A common and Class B subordinate voting shares,
commencing with the dividend payable to shareholders of record on June 19,
2006, from $0.40 per share to $1.00 per share.
On May 8, 2006, we announced an offer to acquire all of the outstanding common
shares of Inco Limited. We subsequently amended and extended our offer. The
offer expired on August 17, 2006 when insufficient shares were tendered to
satisfy the minimum tender condition. In December 2006, we tendered all of our
Inco shares to a competing bid for cash proceeds of $770 million. After the
settlement of our Inco exchangeable debentures and payment of transaction costs
related to our offer for Inco, our pre-tax gain on the disposition of our
investment in Inco was $120 million.
On June 29, 2006, our Class B subordinate voting shares were listed on the New
York Stock Exchange under the ticker symbol "TCK".
In January 2006, Ronald J. Vance was appointed our Senior Vice President,
Corporate Development. In May 2006, Peter G. Kukielski was appointed our
Executive Vice President and Chief Operating Officer and in August 2006, Boyd
Payne was appointed President and Chief Executive Officer of Elk Valley Coal
Partnership.
Teck Cominco Limited - 2006 Annual Information Form Page 4
During the year, new collective agreements were entered into at the Line Creek,
Elkview and Fording River coal mines, the Antamina copper, zinc mine in Peru
and the Highland Valley copper mine.
In June 2006, we completed the exchange of approximately $112 million principal
amount of exchangeable debentures due 2024 and issued 11,489,368 Class B
subordinate voting shares in connection with the transaction.
Our cash and temporary investments as at December 31, 2006 was $5.3 billion as
against long-term debt of $1.5 billion. .
DESCRIPTION OF THE BUSINESS
GENERAL
Teck Cominco is engaged primarily in the exploration for, and the development
and production of, natural resources. We have interests in the following
principal mining and processing operations as at February 26, 2007:
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TYPE OF OPERATION JURISDICTION
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Trail Zinc/Lead Refinery British Columbia, Canada
Red Dog Zinc/Lead Mine Alaska, USA
Pend Oreille Zinc/Lead Mine Washington, USA
Lennard Shelf Zinc/Lead Mine Western Australia
Antamina Copper/Zinc Mine Ancash, Peru
Highland Valley Copper/Molybdenum Mine British Columbia, Canada
Elkview Coal Mine British Columbia, Canada
Fording River Coal Mine British Columbia, Canada
Greenhills Coal Mine British Columbia, Canada
Coal Mountain Coal Mine British Columbia, Canada
Line Creek Coal Mine British Columbia, Canada
Cardinal River Coal Mine Alberta, Canada
David Bell/Williams Gold Mine Ontario, Canada
Pogo Gold Mine Alaska, USA
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Our principal products are zinc concentrate, metallurgical coal, copper
concentrate and refined metals including zinc, lead, indium and germanium. We
produce gold from three operating mines. We also sell electrical power that is
surplus to our requirements at the Trail metallurgical operations. We have a
15% interest in Fort Hills Energy Limited Partnership, which is developing the
Fort Hills oil sands project in Alberta.
Teck Cominco Limited - 2006 Annual Information Form Page 5
The following table sets out our revenue by product for each of our last two
financial years:
REVENUE BY PRODUCT
PRODUCT 2006 2005
$(000's) % $(000's) %
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Zinc (1) 2,191 34% 945 21%
Copper (2) 1,922 29% 1,208 27%
Coal 1,177 18% 1,173 27%
Other (3) 1,249 19% 1,089 25%
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TOTAL 6,539 100% 4,415 100%
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(1) Zinc revenues include sales of refined zinc and zinc concentrate
(2) Copper revenues include silver by-product revenues from the Antamina,
Highland Valley and Hemlo mines
(3) Other revenues include gold, lead, molybdenum, chemicals, and power sales
PRODUCT SUMMARY
Zinc
Our principal markets for zinc concentrates are Asia and Europe. Approximately
25% of Red Dog's concentrate production is sold to our metallurgical operations
at Trail, BC. The balance of Red Dog's production is distributed to customers
in Europe and Asia by ship.
Our principal markets for refined zinc are United States and Asia. Refined zinc
produced at Trail is distributed to customers in the United States by rail
and/or truck and to customers in Asia by ship.
All of our revenues from sales of refined zinc and zinc concentrates (other
than Red Dog and Pend Oreille concentrates treated at Trail) are derived from
sales to third parties. We strive to differentiate our products by producing
the alloys, sizes and shapes best suited to our major customers' needs.
All of the zinc and lead concentrates produced by our Pend Oreille mine in
Washington State are shipped by truck to the Trail metallurgical operations.
Trail's supply of zinc and lead concentrates other than those sourced from our
own mines is provided through long-term and spot contracts with mine producers
in North America, South America and Australia.
We have substantial long-term frame contracts for the sale of zinc concentrates
from the Red Dog mine to customers in Asia and Europe.
Treatment and refining charges rise and fall depending upon the supply of zinc
concentrates in the market and the demand for custom zinc concentrates by the
zinc smelting and refining industry. In 2006 zinc concentrate treatment charges
declined to record low levels as the tightness in the concentrate market
continued. In spite of expected increases in mine production during 2007, we
expect the concentrate market to remain tight. The price of zinc fluctuates
with the overall supply and demand for refined zinc. Slowing supply of zinc
concentrate coupled with demand growth for refined zinc by China has, in large
part, driven the price of refined zinc in the last two years.
Teck Cominco Limited - 2006 Annual Information Form Page 6
Copper Concentrates
Our principal market for copper concentrates is Asia, with lesser amounts sold
in Europe and North America. Copper concentrates produced at Highland Valley
Copper are distributed to customers in Asia by rail to a storage facility in
Vancouver, British Columbia, and from there by ship. Copper concentrates
produced at Antamina are transported by a slurry pipeline to a port at Huarmey,
Peru and from there by ship to customers in Europe, Asia and North America.
The copper concentrate business is cyclical. Treatment charges rise and fall
depending upon the supply of copper concentrates in the market and the demand
for custom copper concentrates by the copper smelting and refining industry. In
2007, significant increases in Chinese smelting capacity are expected to lead
to reductions in copper concentrate treatment charges. The price of copper
fluctuates with the comparative supply and demand for refined copper. Demand
growth for refined copper by China has, in large part, driven the relatively
high price of refined copper in the last two years.
Metallurgical Coal
Our principal markets for metallurgical coal are the hard coking coal markets
in Asia and Europe. Processed coal is shipped by rail to the Westshore and
Neptune Terminals in the lower mainland of British Columbia and from there by
ship to customers, or directly by rail to North American customers or by rail
and ship through Thunder Bay Terminals in Thunder Bay, Ontario. Rail service to
the five Elk Valley mines is provided by Canadian Pacific Railway, and Canadian
National Railway provides rail service to the Cardinal River mine in central
Alberta.
Substantially all of Elk Valley Coal's production is sold under evergreen or
long-term agreements with coal prices that are negotiated annually.
Elk Valley Coal competes primarily with producers in Australia and the United
States. The supply of coal in global markets and the demand for hard coking
coal among world steel producers has historically provided for a competitive
seaborne market. Coal pricing is generally established in US dollars and the
competitive positioning among producers can be significantly affected by
exchange rates. The competitive position of Elk Valley Coal continues to be
determined primarily by the quality of its various coal products and its
reputation as a reliable supplier, as well as by its production and
transportation costs compared to other producers throughout the world.
The seaborne hard coking coal markets are cyclical in nature. Over-supply in
the years 1997 - 2000 and the economic downturn in a number of Asian countries
caused prices to drop by more than 30%. Demand strengthened in 2003 and prices
strengthened significantly through 2004 and 2005. In 2006 hard coking coal
prices moderated slightly from record levels in 2005, in part due to
substitution by consumers of lower quality coking coals for hard coking coal.
Teck Cominco Limited - 2006 Annual Information Form Page 7
INDIVIDUAL OPERATIONS
ZINC
Mining Operations
RED DOG MINE, UNITED STATES (ZINC, LEAD)
The Red Dog zinc-lead mine, concentrator and shipping facility in the Northwest
Arctic Borough near Kotzebue, Alaska, commenced production in December 1989 and
began shipping concentrates in July 1990. The Red Dog mine is 100% owned and
operated by Teck Cominco Alaska Incorporated, subject to a royalty as described
below.
The mining method employed is conventional drill and blast open pit mining. The
main pit has an expected life of six years at current rates of production.
Additional reserves have been identified in the vicinity of the processing
facilities sufficient to extend the life of the operation by a further 18 years
for a remaining mine life of 24 years. The mineral processing facilities employ
conventional grinding and sulphide flotation methods to produce zinc and lead
concentrates.
The mine and concentrator properties are leased from, and are being developed
under the terms of a development and operating agreement with the NANA Regional
Corporation, Inc. ("NANA"), a native Alaskan development corporation. NANA
receives an annual advance royalty equal to the greater of 4.5% of the net
smelter return from the mine or US$1 million until we have recovered our
capital investment plus an interest factor (the "Capital Pool"). After those
amounts have been recovered, we will pay NANA a percentage of the net proceeds
of production from the mine, starting at 25% and increasing to 50% by
successive increments of 5% at five-year intervals. Advance royalties paid will
be recoverable against the 25% royalty on net proceeds of production. The
actual date on which the royalty becomes payable will be affected by a number
of factors, including zinc and lead prices, capital expenditures and the
cumulative amount of advance royalties. We estimate that the payment of the 25%
royalty will commence in the 4th quarter of 2007 if average zinc and lead
prices realized in 2006 prevail in 2007. In addition to the royalties payable
to NANA, the operation is subject to state and federal income taxes.
All contaminated water from the mine area and waste dumps is collected and
contained in a tailings impoundment and seasonally discharged through a water
treatment plant. Mill process water is reclaimed from the tailings pond. The
mine and an associated port facility operate under effluent permits issued by
the United States Environmental Protection Agency and air permits issued by the
State of Alaska. The operation is in material compliance with all of its
permits and related regulatory instruments and has obtained all of the permits
that are material to its operations, although additional permits will be
required in the future as mining extends beyond the main pit. The State of
Alaska has certified a renewal of Red Dog's NPDES water discharge permit which
is expected to be issued by the United States Environmental Protection Agency
early in 2007.
Red Dog is comprised of a number of sedimentary hosted exhalative (SEDEX)
lead-zinc sulphide deposits hosted in Mississippian-age to Pennsylvanian-age
sedimentary rocks. The orebodies are lens shaped and occur within structurally
controlled (thrust faults) plates, are relatively flat-lying and are hosted by
marine clastic rocks (shales, siltstones, turbidites) and lesser chert and
carbonate rocks. Barite rock is common in and above the sulphide units.
Silicification is the dominant alteration type.
Teck Cominco Limited - 2006 Annual Information Form Page 8
The sulphide mineralization consists of semi-massive to massive sphalerite,
pyrite, marcasite and galena. Common textures within the sulphide zone include
massive, fragmental, veined and, rarely, sedimentary layering.
Approximately 25% of the zinc concentrate produced at Red Dog is shipped to our
metallurgical facilities at Trail, British Columbia and the balance to
customers in Asia and Europe. The lead concentrate production is also shipped
to Trail and to customers in Asia and Europe. The majority of concentrate sales
are pursuant to long-term contracts at market prices subject to annually
negotiated treatment charges. The balance is sold on the spot market at prices
based on prevailing market quotations. The shipping season at Red Dog is
restricted to approximately 100 days per year because of sea ice conditions and
Red Dog's sales are seasonal with the majority of sales in the last five months
of each year. Concentrate is stockpiled at the port facility and is typically
shipped between July and October.
PEND OREILLE MINE, UNITED STATES (ZINC, LEAD)
We own 100% of the Pend Oreille mine, near Metaline Falls, Washington, which
began commercial production in early 2004. All of the concentrate from Pend
Oreille is trucked to our Trail metallurgical operations for processing.
Pend Oreille holds all permits necessary for its operation and is in material
compliance with these permits.
The Pend Oreille mine is a carbonate hosted zinc-lead ore body situated within
the Metaline Formation in the southern portion of the Kootenay arc, an arcuate,
narrow belt of sedimentary, volcanic and metamorphic rocks separating
Precambrian metasediments to the east and Mesozoic volcanic and sedimentary
units to the west. Metaline carbonates host the known zinc-lead deposits within
the district.
Mineralization at the Pend Oreille mine is located within the Yellowhead
horizon of the Metaline Formation, an intensely altered stratabound dolomitic
solution breccia, which has been invaded and replaced by fine grained pyrite
with lesser zinc and lead sulphides. The sulphide zone has relatively simple
mineralogy. Sphalerite and galena are the two ore minerals of interest. Gangue
minerals include pyrite, dolomite and calcite.
The Pend Oreille mine is an underground mine. The mineral processing facilities
employ conventional grinding and sulphide flotation methods to produce high
quality zinc and lead concentrates. Annual mill throughput in 2006 was 552,000
tonnes of ore, producing 59,000 tonnes of zinc concentrate and 11,200 tonnes of
lead concentrate. A major review of reserves and mine planning in 2006 has
substantially reduced our estimate of reserves at Pend Oreille. Although
reserves and the remaining mine life are highly sensitive to metal prices, we
anticipate a further mine life of at least four years. See "Mineral Reserves
and Resources" at page 23 of this Annual Information Form.
PILLARA MINE, LENNARD SHELF, AUSTRALIA (ZINC)
We own a 50% share interest in Lennard Shelf Pty Ltd., which owns the Pillara
underground mine in the Kimberly region of Western Australia, 2,500 kilometres
northeast of Perth and 360 kilometres east of Broome along the Great Northern
Highway. We acquired our interest in the Lennard Shelf mine in 2003, when the
mine was placed on care and maintenance by a receiver acting for the vendor.
Mining operations resumed in 2007 following a $26 million redevelopment
program. The operation is expected to produce 70,000 to 80,000 tonnes per year
of zinc and 15,000 tonnes of lead in concentrate over an anticipated mine life
of four years. Concentrate shipments are expected to start in the second
quarter of 2007.
Teck Cominco Limited - 2006 Annual Information Form Page 9
The Pillara deposit consists of coarse-grained zinc-lead mineralization within
limestones, typical of a Mississippi Valley type deposit. Mining at Pillara is
by sublevel uphole benching. Ground conditions are generally good. Access to
the mine is by a single entry decline which is used for access as well as ore
and waste haulage to surface.
Zinc and lead concentrates are trucked 350 kilometres to Derby where they are
loaded via a barge to ocean-going ships. Lennard Shelf holds all permits
necessary for its operation and is in material compliance with those permits.
Refining and Smelting
TRAIL METALLURGICAL OPERATIONS
Teck Cominco Metals owns and operates the integrated smelting and refining
complex at Trail, British Columbia. The complex's major products are refined
zinc and lead. It also produces silver and gold, germanium dioxide, indium,
cadmium and copper compounds as metal co-products, along with a variety of
sulphur products and ammonium sulphate fertilizers.
Trail's zinc operations consist of six major metallurgical plants, one
fertilizer plant and two specialty metal plants. The facility has an annual
capacity of approximately 295,000 tonnes of refined zinc. Zinc concentrates are
initially treated in roasters or pressure leach facilities. The zinc and other
elements are put into solution before the zinc is purified and electroplated
onto cathodes in an electrolytic refining plant. Refined zinc is produced by
remelting the zinc cathodes and then casting the zinc into various shapes,
grades and alloys to meet customer requirements. A range of valuable metals,
including indium and germanium, are extracted as co-products. Lead
concentrates, recycled batteries, residues from the zinc circuits and various
other lead- and silver-bearing materials are treated in the KIVCET flash
furnace and electro-refined into lead in the refinery. Silver and gold are also
recovered from this circuit after further processing.
Metallurgical effluent and drainage water from the smelter site that requires
treatment is collected in ponds and treated through a water treatment plant.
The smelter operates under a variety of permits, including effluent and air
emission permits issued by the British Columbia Ministry of Environment. The
operation is in material compliance with all of its environmental permits and
has obtained all of the permits that are material to its operations.
Teck Cominco Metals also owns the Waneta hydroelectric power plant near Trail.
It has an installed capacity of 450 megawatts and an annual average output of
approximately 2,700 gigawatt hours of energy. This plant, pursuant to
agreements with B.C. Hydro and Fortis Inc., provides electric power to the
Trail metallurgical operation. The operation of Waneta and other hydroelectric
plants in the watershed is governed by the Canal Plant Agreement (CPA), a
contractual arrangement with B.C. Hydro and other related parties under which
we receive approximately 2,700 gigawatt hours per year of energy even during
low water years. A new CPA that extends the existing arrangements through 2035
has been executed by all parties and has received regulatory approval.
During the first quarter of 2007 we completed the upgrade of the fourth
generating unit at Waneta which will provide an additional 50 gigawatt hours
per year of energy and increase the installed capacity to 475 megawatts. We
will receive a corresponding increase in our entitlement under the CPA.
We also own a 15 kilometre transmission line from Waneta to the United States
power distribution system. Power that is surplus to our needs at Trail
Metallurgical Operations is sold at prevailing market rates in Canada and the
United States.
Teck Cominco Limited - 2006 Annual Information Form Page 10
COAL
Elk Valley Coal Partnership, Canada
We hold our metallurgical coal mining interests through our 40% direct interest
in Elk Valley Coal (other than the Bullmoose mine which will be transferred to
Elk Valley Coal when reclamation is complete). We hold a 39.836% interest in
Elk Valley Coal through the Teck Cominco Coal Partnership, a partnership
between Teck Cominco (99.992%) and Teck-Bullmoose Coal Inc. (0.008%). Quintette
Coal Partnership (which is directly and indirectly wholly-owned by us) owns an
additional 0.164% interest in Elk Valley Coal. Teck Cominco Coal Partnership is
the managing partner of Elk Valley Coal. The remaining 60% interest in Elk
Valley Coal is held by Fording Limited Partnership, a wholly-owned subsidiary
of FCCT.
In addition to our 40% direct interest in Elk Valley Coal, we own an
approximate 8.74% interest in FCCT, representing a further 5.25% effective
interest in Elk Valley Coal.
Elk Valley Coal is a general partnership established under the laws of the
Province of Alberta. In its capacity as managing partner of Elk Valley Coal,
Teck Cominco Coal Partnership manages and makes all decisions relating to the
business and affairs of Elk Valley Coal, subject to obtaining the approval of
Fording Limited Partnership in respect of certain enumerated matters. These
matters include certain fundamental changes with respect to Elk Valley Coal,
and approval of an annual operating and capital plan and budget for Elk Valley
Coal.
Elk Valley Coal has a $200 million five-year revolving floating rate, annually
extendible credit facility that can be used for general operating purposes. Elk
Valley Coal has also given an unsecured guarantee, limited in recourse as
against Teck Cominco to the assets of Elk Valley Coal and our interest therein,
with respect to borrowings by FCCT under FCCT's $400 million credit facility,
which was initially incurred principally in connection with the financing of
the transaction pursuant to which we acquired our interest in Elk Valley Coal.
The FCCT and Elk Valley Coal credit facilities have the same attributes, terms
and conditions.
While the foregoing guarantee is in place, FCCT may not sell its interest in
Elk Valley Coal or carry on any business other than in respect of Elk Valley
Coal or its industrial minerals business substantially as currently conducted,
unless in our reasonable judgment the carrying on of such business could not,
under any reasonably foreseeable circumstances, have an adverse effect on the
financial condition of FCCT.
Elk Valley Coal has six operating mines. It wholly owns Fording River, Coal
Mountain, Line Creek and Cardinal River, has a 95% partnership interest in the
Elkview mine, and has an 80% joint venture interest in the Greenhills mine. The
Cardinal River mine is located in west central Alberta. The other five mines
are located in close proximity to each other in the Elk Valley region of
southeast British Columbia. All of Elk Valley Coal's mines are open pit
operations and are designed to operate on a continuous basis, 24 hours per day,
365 days per year. Operating schedules can be varied depending on market
conditions and are subject to shutdowns for maintenance activities. All of the
mines are accessed by two lane all-weather roads which connect to public
highways. All the mines operate under permits granted by Provincial and Federal
regulatory authorities. Provincial remediation reclamation permits are placed
to permit all facets of the mining process. From time to time each of the mines
may require additional permits in respect of the location of additional dumps
and tailings impoundment areas that will be required as mining operations
proceed. All permits necessary for the current operations of the mines are in
hand and in good standing.
Teck Cominco Limited - 2006 Annual Information Form Page 11
The following chart lists significant coal rights held by Elk Valley Coal as at
December 31, 2006:
- -------------------------------------------------------------------------------------------------
Mineral Holdings (thousand Crown Lease
hectares, rounded) Fee Simple and License Total
- -------------------------------------------------------------------------------------------------
Coal
British Columbia 39 68 107
Alberta 1 39 40
- -------------------------------------------------------------------------------------------------
All Mines and Minerals except
Petroleum & Natural Gas
British Columbia 10 - 10
- -------------------------------------------------------------------------------------------------
TOTAL 50 107 157
- -------------------------------------------------------------------------------------------------
In British Columbia, coal licenses are issued for one-year terms and have an
initial cost of $7 per hectare, increasing by $5 per hectare every five years
to a maximum of $30 per hectare. Elk Valley Coal currently pays license fees
ranging from $7 to $30 per hectare. Coal leases are granted for periods of 30
years and have an annual cost of $10 per hectare. In Alberta, Crown leases are
granted by the provincial government and are generally issued for 15 years.
Annual lease rentals are approximately $3.50 per hectare. In the past, renewals
of these licences and leases have generally been granted although there can be
no assurance that this will continue in the future.
Five of Elk Valley Coal's six coal mines operate in British Columbia and are
therefore subject to mineral taxes. British Columbia mineral tax is a 2-tier
tax with a minimum rate of 2% and a maximum rate of 13%. A minimum tax of 2%
applies to operating cash flows, as defined by the regulations. A maximum tax
rate of 13% applies to cash flows after taking available deductions for capital
expenditures and other permitted deductions. Alberta Crown royalties are
assessed on a similar basis, at rates of 1% and 3%, and apply to the Cardinal
River mine.
Elk Valley Coal's mines employ conventional open-pit mining techniques and coal
preparation plants. Following mining, the coal is washed using a variety of
conventional techniques and conveyed to coalor gas fired dryers for drying.
Processed coal is conveyed to clean coal silos or other storage facilities for
storage and load-out to railcars.
COAL TRANSPORTATION AND SALES
Elk Valley Coal typically transports approximately 90% of its coal shipments
from the Elk Valley Coal mines to west-coast ports in British Columbia pursuant
to long-term rail contracts. Rail service to the five mines located in the Elk
Valley is provided by Canadian Pacific Railway Limited ("CPR") pursuant to an
agreement expiring March 31, 2009. Rail service to the Cardinal River mine is
provided by Canadian National Railway Company pursuant to an agreement expiring
December 2007.
Westshore Terminals Ltd. provides ship-loading services at Roberts Bank for
approximately 75% of Elk Valley Coal's metallurgical coal pursuant to long-term
contracts. Elk Valley Coal has requested a review of the loading rate for the
Elkview operations effective April 1, 2005. The relevant contract provides that
if the parties cannot agree on appropriate adjustments to the rate, the matter
will be settled by arbitration. An arbitrator found against Elk Valley Coal in
connection with this review and Elk Valley Coal has appealed the arbitral
decision. Neptune Terminals, in which Elk Valley Coal has a 46% ownership
interest, provides ship-loading services for the balance of Elk Valley Coal's
metallurgical coal loaded at
Teck Cominco Limited - 2006 Annual Information Form Page 12
the west coast. Approximately 10% of Elk Valley Coal's metallurgical coal
products are shipped from the mine sites to eastern North American customers
either directly by rail or by rail and ship via Thunder Bay Terminals in
Thunder Bay, Ontario.
Elk Valley Coal's coal is sold principally under evergreen contracts at
annually negotiated prices. Coal is generally priced, particularly in Asia and
Europe, on an annual basis for the 12-month period beginning April 1 in each
year, referred to as a "coal year".
ELKVIEW MINE, CANADA
Elk Valley Coal has a 95% partnership interest in the Elkview mine. The
remaining 5% is held equally by Nippon Steel Corporation and POSCO, a Korean
steel producer, each of which acquired a 2.5% interest in 2005 for US$25
million. The Elkview mine is an open pit coal mine located in the Elk Valley in
southeastern British Columbia. The mine has a current annual design capacity of
5.5 million tonnes of clean coal but is currently undergoing an expansion
program to increase the capacity to 7 million tonnes per year by the end of
2007. Capacity may be restricted for reasons including availability of truck
tires and actual production will depend on sales volumes. At 2006 production
rates, the Elkview mine is estimated to have a remaining reserve life of 51
years.
The mine is a conventional open pit operation comprised of 14,700 hectares of
coal lands of which 4,100 hectares have been mined or are scheduled for mining.
The mine proper and the associated fee simple lands at Elkview mine cover a
portion of the Crowsnest coal field that runs from just north of the Elkview
property to 20 kilometres south of the City of Fernie, British Columbia. The
mineral reserves associated with the Elkview mine lie in the Mist Mountain
formation of the Crowsnest coal field with the mine exploiting 16 coal seams in
the area of Baldy and Natal Ridge, just outside the Town of Sparwood, British
Columbia, bounded by Michel Creek to the south and the Elk River to the west.
Annual in-fill drilling programs are conducted to confirm and update the
geological model used to develop the yearly mine plans.
The coal produced is a high-quality mid-volatile hard coking coal. Lesser
quantities of lower grade hard coking coal are also produced. The Elkview mine
uses conventional open pit truck/shovel mining methods. The preparation plant,
which has a capacity of 7 million tonnes per year of clean coal, is a
conventional coal washing plant, using standard technology of cycloning and
heavy media flotation.
FORDING RIVER MINE, CANADA
The Fording River mine is located 29 kilometres northeast of the community of
Elkford, in southeastern British Columbia. The mine is a conventional open pit
operation comprised of 20,304 hectares of coal lands of which 4,220 hectares
have been mined or are scheduled for mining.
Construction of Fording River as a 3 million tonne per year operation was
commenced in 1969. It has operated continuously since that time. Coal mined at
Fording River is primarily metallurgical coal, although a small amount of
thermal coal is also produced. An expansion program was completed in 2005 at
Fording River. The current annual production capacity of the mine is 8.9
million tonnes and the preparation plant is 10 million tonnes. Annual in-fill
drilling programs are conducted to refine mine plans and confirm and update the
geological model.
The majority of current production is derived from the Eagle Mountain pit.
Proven and probable reserves at Fording River are projected to support mining
at 2006 production rates for a further 29 years. Fording River's reserve areas
include Eagle Mountain, Turnbull, Henrietta, and Castle Mountain.
Teck Cominco Limited - 2006 Annual Information Form Page 13
GREENHILLS, CANADA
The Greenhills mine is located eight kilometres northeast of the community of
Elkford, in southeastern British Columbia. The mine site is comprised of 10,092
hectares of coal lands of which approximately 2,200 hectares have been mined or
are scheduled for mining. Greenhills holds a forest licence and manages a 7,610
hectare forest located outside the active mining area.
The Greenhills operation was constructed in the early 1980s and has operated
continuously since 1993. Coal mined at Greenhills is primarily metallurgical
coal, although a small amount of thermal coal is also produced. The current
annual production capacities of the mine and preparation plant (on a 100%
basis) are 5.1 and 5 million tonnes, respectively.
Greenhills is operated under a joint venture agreement (the "Greenhills Joint
Venture Agreement") among Elk Valley Coal, POSCO Canada Limited ("POSCAN") and
POSCAN's parent, POSCO. Pursuant to the agreement, Elk Valley Coal has an 80%
interest in the joint venture while POSCAN has a 20% interest. The mine
equipment and preparation plant are owned by Elk Valley Coal and POSCAN in
proportion to their respective joint venture interests. Under the Greenhills
Joint Venture Agreement, Elk Valley Coal is the manager and operator of
Greenhills. Elk Valley Coal and POSCAN bear all costs and expenses incurred in
operating Greenhills in proportion to their respective joint venture interests.
POSCAN, pursuant to a property rights grant, has a right to 20% of all of the
coal mined at Greenhills from certain defined lands until the Greenhills Joint
Venture Agreement terminates on the earlier of: (i) the date the reserves on
the defined lands have been depleted; and (ii) March 31, 2015.
Production is derived from the Cougar reserve, which is divided into two
distinct pits, Cougar North and Cougar South. Cougar North has been fully
developed and currently produces the bulk of the coal for the mine. Development
and pre-stripping of Cougar South is underway and is expected to provide a
long-term source of coal. Proven and probable reserves at Greenhills are
projected to support mining at 2006 production rates for a further 23 years.
COAL MOUNTAIN, CANADA
The Coal Mountain mine is located 30 kilometres southeast of Sparwood in
southeastern British Columbia. The mine site is comprised of 2,521 hectares of
coal lands of which approximately 950 hectares are currently being mined or are
scheduled for mining. Coal Mountain produces both metallurgical and thermal
coal. The current annual production capacities of the mine and preparation
plant are 2.7 and 3.5 million tonnes, respectively. Proven and probable
reserves at Coal Mountain are projected to support mining at 2006 production
rates for a further 13 years.
Teck Cominco Limited - 2006 Annual Information Form Page 14
LINE CREEK, CANADA
The Line Creek mine is located approximately 25 kilometres north of Sparwood in
southeastern British Columbia. Line Creek supplies metallurgical and thermal
coal to a variety of international and domestic steel producers and Pacific Rim
electric utilities. The Line Creek property consists of 8,124 hectares of coal
lands of which approximately 1,150 hectares are currently being mined or are
scheduled for mining.
The mine is a conventional open pit operation. Raw coal is transferred to an 11
kilometre coal conveyor for transportation to a processing plant, where it is
crushed, cleaned, and dried using conventional technology. The current annual
production capacities of the mine and preparation plant are 2.5 and 3.5 million
tonnes, respectively.
The metallurgical and thermal coal at Line Creek is mined from 9 seams lying in
a syncline. The seams average 2 to 13 metres in thickness, with the thickest
seam reaching 15 metres in several places. Line Creek has an estimated
remaining reserve life of approximately 7 years.
CARDINAL RIVER MINE, CANADA
The Cardinal River mine is located approximately 42 kilometres south of Hinton,
Alberta. In 2005, Elk Valley Coal completed the development of the Cheviot
Creek pit located approximately 20 kilometres south of the Cardinal River coal
plant. The total capital cost for the haul road, pit development, plant
refurbishment and mobile fleet was approximately $120 million. The current
annual production capacities of the mine and preparation plant are 2.2 and 2.8
million tonnes, respectively. At 2006 production rates, Cardinal River is
expected to have a mine life of approximately 32 years.
COPPER
Copper Operations
ANTAMINA MINE, PERU (COPPER, ZINC)
We own indirectly 22.5% of the Antamina copper, zinc project in Peru, with the
balance held indirectly by BHP Billiton (33.75%), Xstrata plc (33.75%) and
Mitsubishi Corporation (10%). The participants' interests are represented by
shares of Compania Minera Antamina S.A. ("CMA"), the Peruvian company that owns
and operates the project. Our interest is subject to a net profits royalty of
1.667% on the project's free cash flow after recovery of capital costs and an
interest factor on 60% of project expenditures.
The Antamina project property consists of numerous mining concessions and
mining claims (including surface rights) covering an area of approximately
14,000 hectares. CMA also owns a port facility located at Huarmey and an
electrical substation located at Huallanca. In addition, CMA holds title to all
easements and rights of way for the 302 kilometre concentrate pipeline from the
mine to CMA's port at Huarmey.
The deposit is located at an average elevation of 4,200 metres, 385 kilometres
by road and 270 kilometres by air north of Lima, Peru. Antamina lies on the
eastern side of the Western Cordillera in the upper part of the Rio Maranon
basin, a tributary of the Amazon River.
Teck Cominco Limited - 2006 Annual Information Form Page 15
The mine is an open pit, truck/shovel operation. The ore is crushed at the rim
of the pit and conveyed through a 2.7 kilometre tunnel to a coarse ore
stockpile at the mill. It is then processed utilizing a SAG mill, followed by
ball mill, grinding and flotation to produce separate copper, zinc, molybdenum
and lead/bismuth concentrates. A 302 kilometre long slurry concentrate
pipeline, approximately 22 centimetres in diameter, with a single pump station
at the minesite transports copper and zinc concentrates to the port where they
are dewatered and stored prior to loading onto vessels for shipment to
refineries and smelters world-wide.
Power for the mine is taken from the Peru national energy grid through an
electrical substation constructed at Huallanca. Water requirements are sourced
from a dam-created reservoir upstream from the tailings impoundment facility.
The tailings impoundment facility is located next to the mill and waste dumps
are located adjacent to the pit. Fresh water from mill operations is collected
and contained in the tailings impoundment area. Mill process water is reclaimed
from the tailings pond. The operation is subject to water and air permits
issued by the Government of Peru and is in material compliance with those
permits. The operation holds all of the permits that are material to its
operations.
The Antamina polymetallic deposit is skarn hosted. It is unusual in its
persistent mineralization and predictable zonation, and has a SW-SE strike
length of more than 2,500 metres and a width of up to 1,000 metres. The deposit
is located mainly between elevation 4,350 and 3,790 metres, but outcrops up to
elevation 4,650 metres. The deepest drill hole, which terminated at 3,632
metres elevation, was still in mineralized skarn. The skarn is well zoned
symmetrically on either side of the central intrusion with the zoning used as
the basis for four major subdivisions being a brown garnet skarn, green garnet
skarn, wollastonite/diopside/green garnet skarn and a marbleized limestone with
veins or mantos of wollastonite. Other types of skarn, including the massive
sulphides, massive magnetite, and chlorite skarn, represent the remainder of
the skarn and are randomly distributed throughout the deposit.
Proven and probable reserves are sufficient for a remaining mine life at
current production rates of approximately 18 years. Drilling is planned for
2007 to further define resources outside the current pit boundary.
Antamina has entered into long-term copper and zinc concentrate agreements with
major smelting companies and refineries which in aggregate account for over 85%
of the mine's production of copper and zinc concentrates. The price of copper
and zinc concentrate under these long-term sales agreements is based on LME
prices at the time of the sale with treatment and refining charges negotiated
with reference to current world market terms. The remaining copper and zinc
concentrate is sold to affiliates of the Antamina project sponsors. Molybdenum
concentrates are sold to third party refiners on market terms.
Highland Valley Mine, Canada (Copper)
We have an aggregate 97.5% partnership interest in the Highland Valley copper
mine located near Kamloops, British Columbia. The remaining 2.5% is held
indirectly by third parties through their interests in Highmont Mining Company.
Highland Valley is also a significant producer of molybdenum.
Our current interest is held through an 11.4% direct interest in the Highland
Valley Copper Partnership ("HVC") and a 50.001% interest in the Highmont
Partnership, which holds a 5% interest in HVC. Our remaining 83.6% interest is
held directly and indirectly through Teck Cominco Metals. The property
comprising the Highland Valley Copper mine consists of mineral leases, mineral
claims and crown grants which will be kept in good standing beyond the shutdown
of operations. The mine covers a surface area of approximately 34,000 hectares
and HVC holds the surface rights to that area pursuant to various leases,
claims and licenses.
Teck Cominco Limited - 2006 Annual Information Form Page 16
The Highland Valley mine is located adjacent to a highway connecting Merritt,
Logan Lake, and Ashcroft, British Columbia. The mine itself is approximately 80
kilometres southwest of Kamloops, and approximately 200 kilometres northeast of
Vancouver. The mine operates throughout the year. Power is supplied by B.C.
Hydro through a 138kv line which terminates at the Trans Canada Highway west of
Spuzzum in the Thompson Valley. Mine personnel live in nearby areas, primarily
Logan Lake, Kamloops, Ashcroft, Cache Creek, and Merritt.
The mine is an open pit operation. The mill, which uses semi-autogenous
grinding and conventional flotation to produce metal in concentrate from the
ore, has the capacity to process 136,000 tonnes of ore per day. Water from mill
operations is collected and contained in a tailings impoundment area. Mill
process water is reclaimed from the tailings pond. The operation is subject to
water and air permits issued by the Province of British Columbia and is in
material compliance with those permits. The operation holds all of the permits
that are material to its operations.
Ore is mined from two main sources, the Lornex and Valley pits, as well as from
the Highmont pit. These are located in the Guichon Batholith which hosts all of
the ore bodies located in the area. The Lornex ore body occurs in Skeena Quartz
Diorite host rock, intruded by younger pre-mineral Quartz Porphyry and Aplite
Dykes. The Skeena Quartz Diorite is an intermediate phase of the Guichon
Batholith and is generally a medium to coarse grained equigranular rock
distinguished by interstitial quartz and moderate ferromagnesian minerals. The
sulphide ore is primarily fracture fillings of chalcopyrite, bornite and
molybdenite with minor pyrite, magnetite, sphalerite and galena.
The host rocks of the Valley deposit are mainly porphyritic quartz monzonites
and granodiorites of the Bethsaida phase of the Batholith. These rocks are
medium to coarse-grained with large phenocrysts of quartz and biotite. The
rocks of the deposit were subjected to hydrothermal alteration followed by
extensive quartz veining, quartz-sericite veining, and silicification. Bornite,
chalcopyrite and molybdenum were introduced with the quartz and quartz-sericite
veins and typically fill angular openings in them. Accessory minerals consist
of hornblende, magnetite, hematite, sphene, apatite and zircon. Pre-mineral
porphyry and aplite dykes intrude the host rocks of the deposit.
In February 2007 we announced that we would proceed with a plan to extend the
mine life of Highland Valley Copper by approximately 6 years to 2019. The
capital cost associated with the mine life extension is approximately $300
million, which includes approximately $167 million of incremental stripping and
$133 million for additional mining equipment. Two in-pit crushers in the Valley
pit will also be relocated in 2007. Copper concentrate production over the
extension period is expected to average approximately 295,000 tonnes per annum.
During a transitional period of higher strip ratios and lower grades,
concentrate production will decline starting in 2007. Molybdenum production is
expected to range from 3 million to 8 million pounds per annum, averaging 5.3
million pounds over the remaining mine life. Head grades for the remaining mine
life are expected to average 0.353% copper at a strip ratio of 0.4:1.
Concentrates are transported by rail to customers in North America and to a
port in Vancouver for export overseas, with the majority being sold under
long-term sales contracts to smelters in several countries. Treatment and
refining charges under long term contracts are negotiated annually on a "brick"
system, under which annual negotiated treatment charges are averaged with prior
years' terms. The balance is sold on the spot market.
Teck Cominco Limited - 2006 Annual Information Form Page 17
Copper Projects
SAN NICOLAS PROJECT, MEXICO (COPPER, ZINC)
The San Nicolas property, which is located in Zacatecas State, Mexico, is a
major massive sulphide deposit containing copper, zinc, gold and silver. The
property is held by Minas de San Nicolas S.A. de C.V. ("MSN"), which is owned
40% directly by us and 60% by Minera Tama S.A. de C.V. ("Tama"). Tama in turn
is owned 65% by us and 35% by Western Copper Holdings Ltd. (now a subsidiary of
Goldcorp Inc.) resulting in our holding a net 79% interest in the property. Our
interest may vary depending on certain financing elections the parties may make
under the agreements governing the project. The project is being held on a care
and maintenance basis.
GOLD
HEMLO OPERATIONS, CANADA (GOLD)
We have a 50% joint venture interest in two gold mines in the Hemlo Gold Camp
located near Marathon, Ontario: the Williams and David Bell gold mines (the
"Hemlo Operations"). Homestake Canada Inc., a wholly-owned subsidiary of
Barrick Gold Corporation ("Homestake"), holds the remaining 50% joint venture
interest. Our share of production is subject to a 2.25% net smelter return
royalty at Williams and a 3% net smelter return royalty at David Bell.
The Hemlo Operations lie adjacent to the Trans-Canada Highway in the Hemlo
district of Ontario, and operate throughout the year. The mill located at the
Williams mine processes ore for both the Williams mine and the David Bell mine.
Power for the Hemlo Operations is taken from the Ontario Hydro grid, and
back-up standby diesel generators are available at the site to provide some
emergency support should the grid not be able to supply power. Water
requirements are sourced from Cedar Creek and personnel from both mines live in
nearby areas, the majority in Marathon, Ontario.
The Hemlo Operations operate a combined tailings management system including a
tailings basin and polishing pond. The property includes one tailings pond,
located approximately four kilometres from the Williams mill, and four waste
stockpiles located adjacent to the Williams open pit. Both operations comply
with certificates of approval for industrial wastewater and air, which are
administered by the provincial regulatory authorities. The Williams mill and
both mines hold all the necessary permits and certificates that are material to
the operations.
The Hemlo Operations are located in a small east-west trending archean
greenstone belt in central Ontario known as the Hemlo zone. The Williams mine
is located at the western end of the Hemlo zone, the David Bell mine is located
at the eastern end of the Hemlo zone, and Newmont Mining Corporation's Golden
Giant mine is located between the Williams and David Bell mines along the Hemlo
zone. The total length of the mineralized zone comprising the Williams, David
Bell and Golden Giant mines is over three kilometres.
The Williams and David Bell ore bodies lie at the contact between overlying
metasedimentary rocks and underlying felsic metavolcanic rocks. The Williams
ore zone dips north at 60-70 degrees and the David Bell ore zone dips north at
50-60 degrees. The ore zones continue to approximately 1,200 metres below the
surface and vary in width from 45 metres to 1 metre at Williams and from 15
metres to 1 metre at David Bell. The ore at both mines is hosted by three
principal rock types, feldspathised porphyry, muscovite schist and biotite
fragmental, and is characterized by gold, pyrite, molybdenite, and barite and
various arsenic, mercury, and antimony mineral species. Both main ore bodies
are composed of fine
Teck Cominco Limited - 2006 Annual Information Form Page 18
grained quartz-feldspar rock with gold occurring as finely disseminated
particles within the groundmass as well as with pyrite grains.
Our share of gold production from the Hemlo Operations is sold on a spot basis
at prevailing market prices at the time of production. We have also entered
into certain hedging contracts in respect of certain portions of our
production.
WILLIAMS MINE
The Williams mine, primarily an underground operation with some open-pit
mining, has been operating since 1985. The property comprising the Williams
mine consists of 11 patented mining claims and 6 leased claims. The mine covers
a surface area of approximately 270 hectares.
The Williams mine is one of the largest gold-producing mines in Canada. The
underground mine is accessed by a 1,300 metre production shaft, and mining is
carried out by longhole stoping with paste backfill. The Williams open pit mine
lies immediately above and adjacent to the underground mine, and ore from these
two sources and the David Bell mine is treated in the Williams mill. The mill
started production in 1985 at the rate of approximately 3,000 tonnes per day,
and capacity was expanded to 6,000 tonnes per day in late 1988. The Williams
mill was further expanded to 10,000 tonnes per day but currently operates at a
rate of approximately 9,000 tonnes per day as underground reserves are being
depleted. The Williams mill uses semi-autogenous grinding and a carbon-in-pulp
gold recovery circuit. Approximately 20% of the gold is recovered by a gravity
circuit.
In 2006 the Hemlo operations reached agreement with Newmont Mining Canada
granting Hemlo the right to explore, develop and mine the Interlake property,
which is the down dip extension of the Williams ore zone to the west of the
current property boundary. Exploration is planned for 2007 to test the
potential of the Interlake property.
The underground mine at Williams continues to transition its mining process to
the Alimak mining method. Williams is undergoing a strategic review of its life
of mine plan. Reserves and resources are expected to be revised following this
review. The mine life at Williams will depend on the results of this review,
expected by mid-2007.
DAVID BELL MINE
The property comprising the David Bell underground mine consists of granted
mining leases and mining claims, covering a surface area of approximately 274
hectares.
The David Bell mine was developed through a 1,160 metre production shaft, and
mining is by longhole stoping and Alimak methods with cemented paste fill. Ore
from the David Bell mine is transported to, and processed at, the nearby
Williams mill. The David Bell mine is scheduled to close in 2009 based on
current reserves.
POGO MINE, UNITED STATES (GOLD)
In June 1997, we entered into an agreement with Sumitomo Metal Mining America
Inc. and SC Minerals America Inc. to earn a 40% joint venture interest in the
Pogo gold deposit located in Alaska, 40 air miles (64 kilometres) from Delta
Junction at the terminus of the Alaska Highway. Access to the site is provided
by a new 50 mile all-season road from the Richardson Highway north of Delta
Junction to the property.
Teck Cominco Limited - 2006 Annual Information Form Page 19
The Pogo property is approximately 16,700 hectares in size. The mine area is
the subject of a mining lease, which requires annual rental payments. The
balance of the property is comprised of 1,281 state mining claims, each
requiring a specified nominal amount of annual assessment work.
Our 40% interest was earned by delivering a production commitment. Our interest
is subject to divestment should we not complete construction of the project and
bring the project to commercial production substantially in accordance with the
feasibility study by May 1, 2007. We are the project operator and are entitled
to a management fee.
The project consists of an underground mine and 2,500 tonne per day mill
expected to produce 350,000 to 450,000 ounces of gold per year over a 10 year
mine life. The mining methods are cut and fill and drift and fill. The mill
utilizes conventional milling, and gravity and carbon-in-pulp technology. The
gold from both the gravity and carbon-in-pulp circuits is produced as dore
bullion.
Construction of the Pogo Mine was completed in the first quarter of 2006 except
for the installation of the underground ore conveying system which was
completed in the second quarter. The final construction cost for the project
was US$350 million. The Pogo mine commenced operations in January with the
first gold bar poured on February 12, 2006.
Mill throughput did not reach design capacity in 2006 as originally planned as
it was limited by tailings filtration capacity and bottlenecks in the paste
backfill system. When operating, the overall plant was processing ore at 70% of
design capacity during the last half of 2006. The mill grinding and flotation
circuits were confirmed when the mill operated at design capacity of 2,500 tons
per day for short periods of time.
A third filter press was installed in the second half of 2006 to improve
filtration capacity and was commissioned in January 2007. Modifications to the
filtered tailings handling system to improve paste backfilling will be
completed in the first quarter of 2007. These two construction projects are
estimated to cost an additional US$21 million.
On October 19, 2006 a construction accident severely damaged electrical systems
at the mine site, resulting in a total loss of electrical power. Temporary
power was established using portable generators. Maintenance activities and
construction projects resumed on October 22, 2006, and underground mining on
October 28, 2006. Mill operations resumed December 14, 2006, when line power
was restored. There was a stockpile of 99,000 tonnes of ore on surface by year
end.
Commercial production is expected to be reached in April 2007 following
completion of the filter plant projects with full production by May 2007. Gold
production for 2007 is scheduled to be 340,000 ounces.
The property is subject to a 1.5% net smelter return royalty payable by the
venturers on the first two million ounces of gold produced. After the first two
million ounces of gold is produced, the 1.5% net smelter return royalty is no
longer payable. However, we (through our indirect wholly-owned subsidiary,
Teck-Pogo Inc. ("TPI")) must then pay Sumitomo Metal Mining America Inc. and SC
Minerals America Inc. a production royalty on TPI's share of any additional
ounces of gold that it takes as its share of production from the property. This
royalty on each ounce of gold to TPI's account is equal to the greater of 5% of
the price of gold and US$25.
Teck Cominco Limited - 2006 Annual Information Form Page 20
OIL SANDS
FORT HILLS PROJECT
On November 30, 2005, we acquired a 15% limited partnership interest in Fort
Hills Energy LP (the "Fort Hills Partnership"), which owns the Fort Hills oil
sands project. The other limited partners are Petro-Canada, with a 55% limited
partnership interest and UTS Energy Corporation ("UTS") with a 30% interest.
Relations among the partners are governed by a limited partnership agreement
and a unanimous shareholder agreement pertaining to the governance of Fort
Hills Energy Corporation, the general partner of the Fort Hills Partnership, in
which the limited partners hold pro rata share interests. Pursuant to the
limited partnership agreement, we are required to contribute 34% (or $850
million) of the first $2.5 billion of project expenditures made after March 1,
2005. This amount includes the subscription price for our 15% interest. The
partners will fund further project expenditures in proportion to their
respective partnership interests. Our share of project expenditures to the end
of 2006 was $109 million.
The Fort Hills Project is a project to develop, mine, extract and sell the
recoverable bitumen found in certain oil sands deposits underlying Alberta Oil
Sands Lease No. 7598060T05 ("Lease 5"), Alberta Oils Sands Lease No. 7281020T52
("Lease 52") and Alberta Oil Sands Lease No. 7400120008 ("Lease 8"),
(collectively, the "Leases"). The Leases are located approximately 90
kilometres north of Fort McMurray, Alberta. The Leases cover a contiguous area
of approximately 18,700 hectares on the east bank of the Athabasca River. The
current terms of Lease 5 and Lease 52 continue indefinitely, provided the mine
development plan approved by Alberta Energy is met. The development plan,
initially submitted by TrueNorth Energy L.P. ("TrueNorth"), a predecessor to
the Fort Hills Partnership, was amended in 2005 to provide for a commitment to
construct a mine with a capacity of 100,000 barrels per day of bitumen by 2011.
The development plan includes certain other interim milestones. Lease 8, which
is not subject to the Development Plan, covers approximately 2,286 hectares and
its primary term continues to 2015.
In February 2006 the Fort Hills Partnership acquired two additional oil sands
leases, Alberta Oil Sands Lease Nos. 437 and 438 for $60 million. These leases
cover approximately 5,250 hectares contiguous to the Leases. Integration of
these additional leases and Lease 8 into the project will be subject to full
regulatory review.
An affiliate of Petro-Canada acts as contract operator of the project pursuant
to an operating services contract. The contract operator has exclusive
authority to operate the project, subject to the oversight of a management
committee on which each of the shareholders of the general partner is
represented. Certain fundamental decisions concerning the project require
super-majority approval of the Management Committee. The Partnership Agreement
contemplates that the contract operator will market 100% of project production
on behalf of the partnership for a minimum initial period of 4 years after
first commercial production of bitumen. Subject to certain exceptions, limited
partners have a right of first refusal in the event of a transfer of another's
limited partnership interest.
In December 2006, the Fort Hills Partnership filed an application with the
Alberta Energy and Utilities Board to construct and operate an upgrader in
Sturgeon County, approximately 40 kilometres northeast of Edmonton. The
upgrader is expected to eventually process up to 340,000 barrels per day of
bitumen production from the Fort Hills mine and other sources to produce
280,000 barrels per day of synthetic crude oil. Engineering work is ongoing to
determine the appropriate production level for the first phase of the
operation. A design basis memorandum and preliminary cost estimate for the Fort
Hills project are expected to be completed by mid-2007.
Teck Cominco Limited - 2006 Annual Information Form Page 21
The current project development plan contemplates phased development of an
integrated project using conventional truck and shovel mining, an extraction
plant to extract bitumen from oil sands at the mine site, and an upgrader
producing marketable synthetic crude oil to be constructed in Sturgeon County
near Edmonton, Alberta. Sproule Associates Ltd. ("Sproule"), an independent
reserves evaluator, has audited for the Fort Hills Partnership an estimate of
contingent bitumen resources of the Fort Hills project in accordance with the
standards set out in the Canadian Oil and Gas Evaluation Handbook. The estimate
audited by Sproule includes a best estimate of the contingent bitumen resource
for the project (on a 100% basis) as at December 31, 2006, of 4.72 billion
barrels of recoverable bitumen, with a low estimate of 3.08 billion barrels and
a high estimate of 5.54 billion barrels. A "resource" for oil and gas reporting
purposes is different than a mineral resource. See "Risk Factors - Reserve and
Resource Estimates."
Other Oil Sands Interests
Under a joint bidding agreement with UTS Energy Corporation ("UTS"), we have
acquired a 50% interest in approximately 277,000 acres of oil sands leases in
the Athabasca region of Alberta. The total acquisition cost of these leases was
$164 million. We have advanced UTS its 50% share of lease acquisition costs. We
also hold an option to acquire a 50% interest in an oil sands lease known as
Lease 14 from UTS at fair market value.
Exploration
In 2006, our exploration expense was $72 million. Approximately 76% of
expenditures were dedicated to exploration for gold and copper and the balance
on nickel, diamonds and polymetallic projects. Of the total expenditures,
approximately 11% was spent in Canada, 13% in the United States, 17% in Turkey,
and 21% in Australia, with the remaining expenditures mostly incurred in Chile,
Mexico, Peru and Brazil.
Exploration is carried out through sole funding and joint ventures with major
and junior exploration companies. Exploration is focused on areas in proximity
to our existing operations or development projects in regions that we consider
have high potential for discovery. Planned expenditures for 2007 are
approximately $90 million excluding mine exploration and development projects,
with approximately 32% and 29% of planned expenditures on exploration for
copper and gold, respectively.
Teck Cominco Limited - 2006 Annual Information Form Page 22
MINERAL RESERVES AND RESOURCES
MINERAL RESERVES AT DECEMBER 31, 2006:
MINERAL RESERVES (1)
Proven Probable Total
- -----------------------------------------------------------------------------------------------------------------------------
tonnes grade tonnes grade tonnes grade Teck Cominco
(000's) (%) (000's) (%) (000's) (%) Interest
- -----------------------------------------------------------------------------------------------------------------------------
COPPER Antamina 22.5
Copper Ore 60,000 1.23 251,000 1.13 311,000 1.15
Copper Zinc Ore 32,000 1.05 90,000 1.14 122,000 1.12
92,000 1.17 341,000 1.13 433,000 1.14
Highland Valley 271,000 0.43 271,000 0.43 97.5
Zinc Antamina 32,000 3.2 90,000 2.7 122,000 2.8 22.5
Red Dog 16,000 20.2 52,700 16.7 68,700 17.5 100
Pend Oreille 1,500 6.8 1,200 5.9 2,700 6.4 100
Lennard Shelf 3,000 7.3 3,000 7.3 50
Lead Red Dog 16,000 5.6 52,700 4.3 68,700 4.6 100
Pend Oreille 1,500 1.2 1,200 1.0 2,700 1.1 100
Lennard Shelf 3,000 1.8 3,000 1.8 50
Molybdenum Antamina 60,000 0.040 251,000 0.037 311,000 0.038 22.5
Highland Valley 271,000 0.009 271,000 0.009 97.5
- -----------------------------------------------------------------------------------------------------------------------------
Coal (3) Fording River 115,000 112,000 227,000 40 (4)
Elkview 193,000 46,000 239,000 38 (4)
Greenhills 77,000 19,000 96,000 32 (4)
Coal Mountain 26,000 26,000 40 (4)
Line Creek 19,000 19,000 40 (4)
Cardinal River 32,000 24,000 56,000 40 (4)
- -----------------------------------------------------------------------------------------------------------------------------
tonnes grade tonnes grade tonnes grade Teck Cominco
(000's) (g.t)(2) (000's) (g/t) (000's) (g/t) Interest
- -----------------------------------------------------------------------------------------------------------------------------
Gold Williams 50
Underground 1,471 5.78 995 5.16 2,466 5.53
Open pit 7,810 1.71 5,424 1.74 13,234 1.72
David Bell 549 11.72 164 10.98 713 11.55 50
Pogo 6,290 17.03 6,290 17.03 40
See notes to Mineral Reserves and Resources tables at the top of page 25, after
the Mineral Resources table.
Teck Cominco Limited - 2006 Annual Information Form Page 23
Mineral Resources at December 31, 2006:
MINERAL RESOURCES (1)
Measured Indicated Inferred
- --------------------------------------------------------------------------------------------------------------------------------
tonnes grade tonnes grade tonnes grade Teck Cominco
(000's) (%) (000's) (%) (000's) (%) Interest
- --------------------------------------------------------------------------------------------------------------------------------
COPPER Antamina 22.5
Copper Ore 27,000 0.57 98,000 1.05 105,000 0.96
Copper Zinc Ore 11,000 0.53 44,000 1.11 18,000 0.89
38,000 0.56 142,000 1.07 123,000 0.95
Highland Valley 247,000 0.31 97.5
San Nicolas 1,880 0.73 78,100 1.34 7,020 1.28 79
Kudz Ze Kayah(8) 12,800 0.81 100
ZINC Antamina 11,000 1.1 44,000 2.4 18,000 1.9 22.5
Red Dog 7,700 18.9 30,200 15.5 100
San Nicolas 1,880 3.6 78,100 1.8 7,020 1.4 79
Pend Oreille 1,700 6.7 100
Lennard Shelf 188 9.6 50
Kudz Ze Kayah(8) 12,800 5.9 100
LEAD Red Dog 7,700 5.4 30,200 4.5 100
Pend Oreille 1,700 1.5 100
Lennard Shelf 188 1.9 50
Kudz Ze Kayah(8) 12,800 1.7 100
MOLYBDENUM Antamina 27,000 0.040 98,000 0.031 105,000 0.028 22.5
Highland Valley 247,000 0.006 97.5
TITANIUM White Earth(5,8) 428,000 11 1,031,000 10 100
- --------------------------------------------------------------------------------------------------------------------------------
COAL(6) Fording River 466,000 194,000 2,721,000 40 (4)
Elkview 1,317,000 308,000 181,000 38 (4)
Greenhills 5,000 299,000 649,000 32 (4)
Coal Mountain 79,000 32,000 30,000 40 (4)
Line Creek 62,000 177,000 119,000 40 (4)
Cardinal River 2,000 9,000 4,000 40 (4)
Other(7) 213,000 274,000 473,000 40 (4)
- --------------------------------------------------------------------------------------------------------------------------------
tonnes grade tonnes grade tonnes grade Teck Cominco
(000's) (p/t(2) (000's) (p/t) (000's) (p/t) Interest
- --------------------------------------------------------------------------------------------------------------------------------
GOLD Williams 50
Underground 1,103 4.81 1,001 6.70 4,786 5.14
Open pit 1,203 1.03 930 1.05 393 1.46
David Bell 50
Underground 344 9.51
Open-pit 680 3.77
Pogo 460 9.53 430 31.83 40
Lobo-Marte (8) 60
Lobo 64,210 1.79 5,660 1.70
Marte 33,470 1.58 3,590 1.35
Morelos 30,650 3.27 78.8
Kudz Ze Kayah (8) 12,800 1.38 100
- --------------------------------------------------------------------------------------------------------------------------------
Teck Cominco Limited - 2006 Annual Information Form Page 24
- --------------------------------------------------------------------------------
Notes to Mineral Reserves and Resources Tables
(1) Mineral reserves and resources are mine and property totals and are not
limited to Teck Cominco's interests.
(2) g/t = grams per tonne.
(3) Coal reserves expressed as tonnes of clean coal.
(4) Representing a 40% direct interest in Elk Valley Coal Partnership. Does
not include a 5.25% indirect interest through investment in Fording
Canadian Coal Trust.
(5) Grade reported as %TiO2.
(6) Coal resources expressed as tonnes of raw coal.
(7) Other refers to the aggregated measured, indicated and inferred resources
associated with five undeveloped or non-operating properties. Tonnages
represent Elk Valley Coal Partnership's interest in these properties.
(8) Historical Resource Estimates. These estimates pre-date the adoption of
NI 43-101. These estimates are reported using resource classification
categories that conform to those prescribed by NI 43-101, but are not
supported by quality assurance and quality control procedures that
conform to current practice. In some cases, management has reclassified
material from the measured or indicated resource category to the inferred
category. Nonetheless, management believes these estimates are reliable
and relevant because they are based on engineering and feasibility
studies prepared prior to 2000 in accordance with then - prudent
engineering practice.
- --------------------------------------------------------------------------------
STANDARD
Proven and Probable Mineral Reserves and Measured, Indicated and Inferred
Mineral Resources have been estimated in accordance with the definitions of
these terms adopted by the Canadian Institute of Mining, Metallurgy and
Petroleum ("CIM") in November, 2005 and incorporated in National Instrument
43-101, "Standards of Disclosure for Mineral Projects" ("NI 43-101"), by
Canadian securities regulatory authorities. Estimates of coal reserves and
resources have been prepared and classified using guidance from the Geological
Survey of Canada Paper 88-21. Classification terminology for coal conforms to
CIM definitions incorporated into NI 43-101. Mineral Resources are reported
separately from, and do not include that portion of the Mineral Resources that
is classified as Mineral Reserves. That portion of Mineral Resources which is
not classified as Mineral Reserves does not have demonstrated economic value.
DEFINITIONS
The CIM definitions on Mineral Resources and Mineral Reserves provide as
follows:
A MINERAL RESOURCE is a concentration or occurrence of diamonds, natural solid
inorganic material, or natural solid fossilized organic material including base
and precious metals, coal, and industrial minerals in or on the earth's crust
in such form and quantity and of such a grade or quality that it has reasonable
prospects for economic extraction. The location, quantity, grade, geological
characteristics and continuity of a Mineral Resource are known, estimated or
interpreted from specific geological evidence and knowledge.
An INFERRED MINERAL RESOURCE is that part of a Mineral Resource for which
quantity and grade or quality can be estimated on the basis of geological
evidence and limited sampling and reasonably assumed, but not verified,
geological and grade continuity. The estimate is based on limited information
and sampling gathered through appropriate techniques from locations such as
outcrops, trenches, pits, workings and drill holes.
Teck Cominco Limited - 2006 Annual Information Form Page 25
An INDICATED MINERAL RESOURCE is that part of a Mineral Resource for which
quantity, grade or quality, densities, shape and physical characteristics can
be estimated with a level of confidence sufficient to allow the appropriate
application of technical and economic parameters, to support mine planning and
evaluation of the economic viability of the deposit. The estimate is based on
detailed and reliable exploration and testing information gathered through
appropriate techniques from locations such as outcrops, trenches, pits,
workings and drill holes that are spaced closely enough for geological and
grade continuity to be reasonably assumed.
A MEASURED MINERAL RESOURCE is that part of a Mineral Resource for which
quantity, grade or quality, densities, shape, and physical characteristics are
so well established that they can be estimated with confidence sufficient to
allow the appropriate application of technical and economic parameters, to
support production planning and evaluation of the economic viability of the
deposit. The estimate is based on detailed and reliable exploration, sampling
and testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes that are spaced
closely enough to confirm both geological and grade continuity.
A MINERAL RESERVE is the economically mineable part of a Measured or Indicated
Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This
Study must include adequate information on mining, processing, metallurgical,
economic and other relevant factors that demonstrate, at the time of reporting,
that economic extraction can be justified. A Mineral Reserve includes diluting
materials and allowances for losses that may occur when the material is mined.
A PROBABLE MINERAL RESERVE is the economically mineable part of an Indicated
and, in some circumstances, a Measured Mineral Resource demonstrated by at
least a Preliminary Feasibility Study. This Study must include adequate
information on mining, processing, metallurgical, economic, and other relevant
factors that demonstrate, at the time of reporting, that economic extraction
can be justified.
A PROVEN MINERAL RESERVE is the economically mineable part of a Measured
Mineral Resource demonstrated by at least a Preliminary Feasibility Study. This
Study must include adequate information on mining, processing, metallurgical,
economic, and other relevant factors that demonstrate, at the time of
reporting, that economic extraction is justified.
METHODOLOGIES AND ASSUMPTIONS
Mineral reserve and resource estimates are based on various assumptions
relating to operating matters, including with respect to production costs,
mining and processing recoveries, mining dilution, cut-off values or grades, as
well as assumptions relating to long term commodity prices and in some cases,
exchange rates. Cost estimates are based on feasibility study estimates or
operating history.
Methodologies used in reserve and resource estimates vary from property to
property depending on the style of mineralization, geology and other factors.
Geostatistical methods appropriate to the style of mineralization have been
used in the estimation of reserves at the company's material base metal and
gold properties.
Assumed metal prices vary from property to property for a number of reasons.
The company has interests in a number of joint ventures, for which assumed
metal prices are a joint venture decision. In certain cases, assumed metal
prices are historical assumptions made at the time of the relevant reserve and
resource estimates. For operations with short remaining lives, assumed metal
prices may reflect shorter term commodity price forecasts.
Teck Cominco Limited - 2006 Annual Information Form Page 26
ANTAMINA
Mineral reserves at Antamina were estimated using assumed metal prices of
US$0.95/lb copper, US$0.50/lb zinc and US$7.50/lb molybdenum. Two general ore
types occur at Antamina. These are copper ores, from which copper and
molybdenum concentrates are produced and copper/zinc ores, from which copper
and zinc concentrates are recovered. Reserves and resources are reported by
general ore type. In 2006, mine production reduced reserves by 30 million
tonnes. This reduction was offset by 42 million tonnes of resource that was
drill defined to reserve status. A new production and cut-off schedule
developed in 2006 transferred 19 million tonnes of low grade reserve to
resource stockpile. Changes in pit design and block modelling methodology
contributed to small reserve reductions.
Significant increases in resource resulted from engineering studies completed
on material below the current ultimate pit. The 2006 resource estimate includes
137 million tonnes of additional measured and indicated resource, and 93
million tonnes of additional inferred resource. Evaluations indicate the new
resource has reasonable prospects for economic extraction at US$0.95/lb copper
and US$0.50/lb zinc. Other changes include the 42 million tonne transfer from
resource to reserve, and the transfer of 19 million tonnes from reserve to
resource stockpile, both described above, and a 24 million tonne increase due
to lower cut-off.
HIGHLAND VALLEY COPPER
Mine production in 2006 removed 40 million tonnes at the Valley and Lornex pits
and 6.3 million tonnes from the Highmont pit. Mine production included 5.4
million tonnes of low grade material which was not previously included in
reserve, but was processed to take advantage of short-term metal prices. In
2006, the assumed copper price for reserves increased from US$0.92 to US$1.10
per pound for Valley and Lornex resulting in a 5.2 million tonne reserve
increase. The assumed molybdenum price remained at US$5.00/lb. An additional 5
million tonnes of reserve was added in the Highmont pit, using an assumed metal
price of US$1.40/lb copper and US$20/lb molybdenum, reflecting short-term metal
price forecasts. All reserve and resource estimates assume a C$1.20 per US$1.00
exchange rate.
Reserves have been drill defined at 60 to 115 metre centres and resources at
125 metre centres. In 2006, the indicated resource at Valley West increased by
71 million tonnes. The increase was largely attributed to the use of higher
assumed metal prices. Indicated resources at Valley West and Highmont assume a
US$1.64/lb copper price and US$9.50/lb molybdenum price. Resource tonnage is
very sensitive to copper prices above US$1.10/lb.
RED DOG
Mine production removed 3.2 million tonnes of reserves from the Main pit in
2006. Although reserves at Main were updated with current geologic and sample
information, there was no material change associated with model revisions or
pit design. Probable reserves at the Aqqaluk deposit did not change in 2006,
although 79 definition drill holes were completed. The Aqqaluk models will be
updated in early 2007 when remaining assay results from these holes are
available. Proven reserves have been drill defined at 30 metre centres,
probable reserves at 60 metre centres and indicated resources at greater than
60 metre centres. All mineral reserves and indicated resources are mineable by
open pit and assume a US$0.55/lb zinc price and US$0.25/lb lead price.
Operating costs and cut-off grades are based on a 2004 engineering study.
Ultimate pit limits will be reviewed in 2007 in light of current costs and
metal prices.
Inferred resources are reported for two underground deposits on the basis of an
assumed zinc price of US$0.70/lb.
Teck Cominco Limited - 2006 Annual Information Form Page 27
PEND OREILLE
Experience gained in mining over the past two years, particularly along the
margins of the Pend Oreille orebody, has resulted in reserve reductions beyond
normal mining depletion. Reductions are attributed to new mine design, higher
operating costs, definition drilling and new grade models. Reserve reductions
were partially offset by higher assumed metal prices. Mineral reserves and
resources adopt a 4% zinc cut-off which corresponds to an assumed zinc price of
US$0.83/lb and lead price of US$0.37/lb. Proven reserves occur between or below
mined areas and have been defined by underground development and sampling.
Probable reserves were drill defined at 20 metre centres and inferred resources
at 80 to 100 metre centres. Inferred resources at Washington Rock assume
US$0.60/lb zinc and US$ 0.25/lb lead.
LENNARD SHELF
The Lennard Shelf operation resumed operations in early 2007. Mineral resource
estimates reported at year end 2005 have been upgraded to reserve status.
Reserve and resource estimates were prepared using an assumed zinc price of
US$0.70/lb and lead price of US$0.35/lb, at an assumed exchange rate of A$1 =
US$0.75.
OTHER RESOURCES
Mineral resource estimates at San Nicolas were based on assumed prices of
US$0.90/lb copper and US$0.50/lb zinc (2001 study). Historic estimates at Kudz
Ze Kayah were prepared in 1995 prior to the adoption of NI 43-101 reporting
standards. These estimates are reported using resource classification
categories that conform to those prescribed by NI 43-101, but are not supported
by quality assurance and quality control procedures that conform to current
practice. Management has reclassified material from the measured or indicated
resource category to the inferred category. Nonetheless, management believes
these estimates are reliable and relevant because they are based on engineering
studies prepared prior to 2000 in accordance with then - prudent engineering
practice.
ELK VALLEY COAL
Coal reserves are reported in metric tonnes of clean coal after mining and
processing losses. Reserve estimates assume a US$65/tonne coking coal price
(free on board) at Roberts Bank terminal and include 2.5 million tonnes of
thermal coal used for plant operations. Mine production in 2006, at the six
operating coal mines, reduced reserves by 22.7 million tonnes. Reserves at Line
Creek increased by 4.7 million tonnes due to a revised pit design at Horseshoe
Ridge and MSA West Extension. Resources are reported as raw coal, have not been
subject to recent economic review and do not include losses for mining and
processing. All reserve and resource estimates assume a C$1.18 per US$1.00
exchange rate.
POGO
During 2006, mine operations removed and milled 312,000 tonnes of ore from
reserve. Definition diamond drilling added 346,000 tonnes. Changes in the mine
plan added 703,000 tonnes at an average grade of 0.93 g/t gold.
Mineral reserve and resource estimates assume a US$400/oz gold price for
reserves and US$450/oz price for resources. Higher assumed operating costs,
offset to some extent by the higher gold price, resulted in an increase in
cut-off grade, reducing reserves by 1.4 million tonnes.
Teck Cominco Limited - 2006 Annual Information Form Page 28
DAVID BELL
Mine production in 2006 removed 335,000 tonnes from reserves and 6,000 tonnes
from resource. Definition drilling transferred 10,000 tonnes from resource to
reserve and added 7,000 tonnes of new reserve in previously undefined areas.
Refinement of the mine plan transferred 42,000 tonnes from reserve to resource
and removed 11,000 tonnes due to stope losses.
Mineral reserve and resource estimates assume a gold price of US$475/oz for
reserves and US$525/oz for resources. Higher operating costs, offset to some
extent by the higher gold price, reduced reserves by 54,000 tonnes. All reserve
and resource estimates assume a C$1.21 per US$1.00 exchange rate.
WILLIAMS
Mineral reserve and resource estimates on the Williams property assume a
US$475/oz gold price for reserves, US$525/oz price for resources and a C$1.21
per US$1.00 exchange rate. Mine production in 2006 removed 3.4 million tonnes
from reserve. The use of higher assumed gold prices added 1.0 million tonnes to
the C Zone open pit reserve. During 2006, an increasing proportion of
production was mined from the C Zone where mineralization has proven to be
diffuse and irregular.
In 2006, open pit and underground production from the C Zone produced
significantly fewer ounces than predicted. Additional geologic modelling,
changes in economic assumptions and the long term cost structure of the mine
may affect future mineral reserve and resource estimates. An engineering review
for the C Zone is expected to be completed by mid-2007.
OTHER GOLD PROPERTIES
Mineral resources at Morelos were estimated using an assumed gold price of
US$400/oz. A prefeasibility study and additional drill definition of the
deposit is under way. Historic estimates on the Lobo-Marte deposits were
prepared in a 1998 feasibility study prior to the adoption of NI 43-101
reporting standards. These estimates are reported using resource classification
categories that conform to those prescribed by NI 43-101, but are not supported
by quality assurance and quality control procedures that conform to current
practice. Management has reclassified material from the measured or indicated
resource category to the inferred category. Nonetheless, management believes
these estimates are reliable and relevant because they are based on a
feasibility study prepared prior to 2000 in accordance with then - prudent
engineering practice.
RISKS AND UNCERTAINTIES
Mineral Reserves and Mineral Resources are estimates of the size and grade of
the deposits based on the assumptions and parameters currently available. These
assumptions and parameters are subject to a number of risks and uncertainties,
including, but not limited to, future changes in metals prices and/or
production costs, differences in size and grade and recovery rates from those
expected, and changes in project parameters due to changes in production plans.
There are no known environmental, permitting, legal, title, taxation,
socio-political, marketing or other issues that are currently expected to
materially affect the mineral reserves or resources.
Teck Cominco Limited - 2006 Annual Information Form Page 29
QUALIFIED PERSONS
Estimates of the mineral reserves and resources for the company's material
properties have been prepared under the general supervision of Paul C. Bankes,
P. Geo., who is an employee of Teck Cominco. Mineral reserve and resource
estimates for Antamina have been prepared under the supervision of Dan Gurtler,
AIMM, who is an employee of Compania Minera Antamina. Messrs. Bankes and
Gurtler are Qualified Persons for the purposes of National Instrument 43-101.
Estimates of reserves and resources at Elkview, Fording River, Greenhills, Coal
Mountain, Line Creek and Cardinal River were prepared under the general
supervision of Colin McKenny, P. Geol., an employee of Elk Valley Coal
Partnership, who is the Qualified Person for the purposes of National
Instrument 43-101.
SAFETY AND ENVIRONMENTAL PROTECTION
Our current and future operations, including development activities and
commencement of production on our properties or areas in which we have an
interest, are subject to laws and regulations in Canada and elsewhere governing
occupational health, waste disposal, protection and remediation of the
environment, reclamation, mine safety, management of toxic substances and
similar matters. Compliance with these laws and regulations affects the costs
of and can affect the schedule for planning, designing, drilling, developing,
constructing, operating and closing the Company's mines, refineries and other
facilities.
Whether in Canada or abroad, we attempt to apply technically proven and
economically feasible measures to protect the environment throughout
exploration, mining, processing and closure. Although we believe that our
operations and facilities are currently in substantial compliance in all
material respects with all existing laws, regulations and permits, there can be
no assurance that additional significant costs will not be incurred to comply
with current and future regulations or that liabilities associated with
non-compliance will not occur.
Safety performance is a key priority for us. Safety statistics are collected
from each operation monthly. Targets for safety performance are set each year
and are used in determining management compensation. Safety incidents are
investigated and finding reports are shared across our business to assist in
the prevention of recurrence of the incident.
For accounting purposes, current costs associated with permit compliance are
treated as normal operating costs necessary to maintain operations on an
ongoing basis. In addition, amounts are accrued in our accounts to provide for
certain future reclamation, site restoration and other closure costs. Financial
guarantees of various forms are posted, if required, with various governmental
authorities as security to cover estimated reclamation obligations. Our
provisions for future reclamation and site restoration are estimated based on
known requirements. It is not currently possible to estimate the impact on
operating results of future legislative or regulatory developments.
We conduct regular environmental and safety and health audits. The overall
objective of our audits is to identify environment, health and safety risks,
assess regulatory compliance and conformance with applicable laws and assess
conformance with appropriate environment, health and safety management systems
and good management practices.
All of our mining operations have closure and reclamation plans in place and
these undergo regular updates. The reclamation programs are guided by land
capability assessments, which integrate several factors in the reclamation
approach including biological diversity, establishment of sustainable
vegetation, diversity of physical landforms and requirements for wildlife
habitat. In addition to
Teck Cominco Limited - 2006 Annual Information Form Page 30
reclamation of operating mines, certain idle and closed mines are under
continuous care and maintenance as well as progressive closure. Our Charter of
Corporate Responsibility and Code of Business, Environmental and Health &
Safety Practices require that sites be reclaimed in an appropriate manner. We
manage a number of decommissioned mine sites in Canada and conduct regular
inspections to verify the success of reclamation activities.
SOCIAL AND ENVIRONMENTAL POLICIES
We have adopted and implemented social and environmental policies that are
fundamental to our operations. Our operating practices are governed by the
principles set out in our Charter of Corporate Responsibility (the "Charter")
and Code of Business, Environmental and Health & Safety Practices (the "Code").
The Charter sets out corporate commitments related to ethical business conduct,
providing a workplace free of discrimination, open and fair dealings with all
stakeholders, and support for sustainable development.
The Code sets out specific requirements in areas related to (i) legal
compliance and ethical business conduct, (ii) prohibition of discriminatory
conduct and commitment to job selection on the basis of merit and ability,
(iii) identification, control and promotion of safety and health performance,
(iv) sound environmental conduct and continuous improvement in performance, (v)
regular auditing of environmental, health, safety and emergency preparedness,
(vi) continual improvement of environmental, health and safety management
systems, (vii) closure and reclamation planning as a component of all
development projects, (viii) the safe use, reuse and recycling of products,
(ix) support for research on environmental, health and safety performance, (x)
fostering dialogue with stakeholders and respect for the rights, interests, and
aspirations of indigenous people, and (xi) support for local communities and
their development.
In addition to the Charter and Code, we have adopted a Health and Safety
Policy, a Health and Safety Guide for Exploration, and a Code of Ethics. We
have taken steps to implement the Charter, Code and policies through adoption
of Environmental, Health and Safety Management Standards, which provide
direction to all operations and auditable criteria against which performance is
measured.
We set objectives in these areas for improvement on an annual basis and these
are used to determine specific objectives for corporate and operational groups
within our organization. Overall responsibility for achievement of objectives
rests with senior personnel. Our Environmental, Health and Safety Committee of
the Board which reports to the Board of Directors, and our Corporate
Environment and Risk Management Committee and our Product Stewardship
Committee, which are comprised of members of senior management, provide
oversight in these areas.
We measure our performance on an ongoing and comprehensive basis. Internal
monthly and quarterly environmental reporting tracks performance indicators
including compliance with permits, environmental monitoring, health and safety
performance, materials inputs and outputs, community concerns expressed and
actions taken in response, and amount of reclaimed land. We report publicly on
our performance through our Sustainability Report and website.
Teck Cominco Limited - 2006 Annual Information Form Page 31
HUMAN RESOURCES
As at December 31, 2006 there were approximately 7,300 employees working at the
various operations we managed. Collective bargaining agreements covering
unionized employees at our material operations are as follows:
Expiry Date of Collective Agreement
----------------------------------------------------------------
Trail May 31, 2008
David Bell October 31, 2007
Antamina July 24, 2009
Highland Valley Copper September 30, 2011
Elkview October 31, 2010
Coal Mountain December 31, 2009
Line Creek May 31, 2009
Fording River April 30, 2011
Cardinal River June 30, 2007
Red Dog See Note((1))
===============================================================
(1) A union was recently certified at Red Dog. Bargaining is
underway.
TECHNOLOGY
The company undertakes and participates in a number of research and development
projects designed to improve exploration, extraction, product and operational
technologies, and reduce costs by improving efficiencies.
We have research and technology facilities located in our CESL research
facility in Richmond, B.C., our Product Technology Center in Mississauga,
Ontario and our Applied Research and Technology group located in Trail, B.C.
The primary focus of these facilities is the development of new mineral
processing technologies and the development of new applications for, and the
refinement of existing technologies using, our principal refined products.
Other business units receive support on an as-needed basis.
Our research and development expense for 2006 and 2005 was $17 million and $13
million, respectively.
FOREIGN OPERATIONS
The Red Dog mine and the Pogo mine located in Alaska, U.S.A., the Pend Oreille
mine in Washington State, the Pillara mine in Australia and the Antamina mine
located in Peru, are our significant assets located outside of Canada. We hold
our 22.5% interest in Antamina through our equity interest in the operating
company for the mine, CMA. We hold a 100% interest in the Red Dog mine, subject
to the royalty in favour of NANA described under the heading "Individual
Operations - Zinc - Red Dog" above. We hold a 50% interest in the Pillara mine
at Lennard Shelf. The Red Dog, Pend Oreille and Antamina mines accounted for
37% of our 2006 consolidated revenue and, together with Lennard Shelf and Pogo,
represented approximately 33% of our total assets as at December 31, 2006.
We also have interests in various exploration and development projects in
various foreign countries, with significant activities in the United States,
Mexico, Peru, Chile, Brazil, Australia, Turkey and Namibia. We currently have
foreign exploration offices in all of the foregoing countries.
Teck Cominco Limited - 2006 Annual Information Form Page 32
See "Risk Factors- Foreign Activities" for further information on the risks
associated with these foreign properties.
COMPETITIVE CONDITIONS
Our business is to sell base metals, metal concentrates, by-product metals and
concentrate, metallurgical coal and gold at prices determined by world markets
over which we have no influence or control. These markets are cyclical. Our
competitive position is determined by our costs compared to those of other
producers throughout the world, and by our ability to maintain our financial
integrity through metal and coal price cycles and currency fluctuations. Costs
are governed principally by the location, grade and nature of ore bodies and
mineral deposits, the location of our metal refining facility and its cost of
power and, as well, by operating and management skill.
Over the long term, our competitive position will be determined by our ability
to locate, acquire and develop economic ore bodies and replace current
production, as well as by our ability to hire and retain skilled employees. In
this regard, we also compete with other mining companies for employees, mineral
properties, for joint venture agreements and for the acquisition of investments
in other mining companies.
RISK FACTORS
Before making an investment decision, you should carefully consider the risks
and uncertainties described below as well as the other information contained
and incorporated by reference in this Annual Information Form. These risks and
uncertainties are not the only ones facing us. Additional risks and
uncertainties not presently known to us or that we currently consider
immaterial may also impair our business operations. If any such events actually
occur, our business, prospects, financial condition, cash flows and operating
results could be materially harmed.
RISKS INHERENT IN THE MINING AND METALS BUSINESS
The business of exploring for minerals is inherently risky. Few properties that
are explored are ultimately developed into producing mines.
Mineral properties are often non-productive for reasons that cannot be
anticipated in advance. Even after the commencement of mining operations, such
operations may be subject to risks and hazards, including environmental
hazards, industrial accidents, unusual or unexpected geological formations,
unanticipated metallurgical difficulties, ground control problems and flooding.
The Trail metallurgical operations, and the company's concentrate mills and
coal preparation plants are also subject to risks of process upsets and
equipment malfunctions. Equipment and supplies may from time to time be
unavailable on a timely basis. The occurrence of any of the foregoing could
result in damage to or destruction of mineral properties or production
facilities, personal injuries or death, environmental damage, delays or
interruption of production, increases in production costs, monetary losses,
legal liability and adverse governmental action.
Teck Cominco Limited - 2006 Annual Information Form Page 33
INSURANCE RISKS
Our property, business interruption and liability insurance may not provide
sufficient coverage for losses related to these or other hazards. Insurance
against certain risks, including certain liabilities for environmental
pollution, may not be available to us or to other companies within the
industry. In addition, our insurance coverage may not continue to be available
at economically feasible premiums, or at all. Any such event could have a
material adverse affect on our business.
EMPLOYEE RELATIONS AND DEFINED BENEFIT PENSION PLANS ("DBPP")
Over 5,400 of our approximately 7,300 employees are employed under collective
bargaining agreements. We are negotiating a collective agreement at the Red Dog
mine. We could be subject to labour unrest or other labour disturbances as a
result of the failure of these negotiations, or at our other operations, which
could, while ongoing, have a material adverse effect on our business.
We also compete with other mining companies to attract and retain key
executives and skilled and experienced employees.
Our company has assets in defined benefit pension plans which arise through
employer contributions and returns on investments made by the plans. The
returns on investments are subject to fluctuations depending upon market
conditions and we are responsible for funding any shortfall of pension assets
compared to our pension obligations under these plans.
We have certain obligations to former employees with respect to post-retirement
benefits. The cost of providing these benefits can fluctuate and the
fluctuations can be material.
Our liabilities under defined benefit pension plans and in respect of other
post-retirement benefits are estimated based on actuarial and other
assumptions. These assumptions may prove to be incorrect and may change over
time and the effect of these changes can be material.
COMMODITY PRICE FLUCTUATIONS AND HEDGING
The results of our operations are significantly affected by the market price of
base metals, specialty metals, metallurgical coal and gold which are cyclical
and subject to substantial price fluctuations. Our earnings are particularly
sensitive to changes in the market price of zinc, copper and metallurgical
coal. Market prices can be affected by numerous factors beyond our control,
including levels of supply and demand for a broad range of industrial products,
substitution of new or different products in critical applications for our
existing products, expectations with respect to the rate of inflation, the
relative strength of the US dollar and of certain other currencies, interest
rates, global or regional political or economic crises and sales of gold and
base metals by holders in response to such factors. If prices should decline
below our cash costs of production and remain at such levels for any sustained
period, we could determine that it is not economically feasible to continue
commercial production at any or all of our mines. We may also curtail or
suspend some or all of our exploration activities, with the result that our
depleted reserves are not replaced.
Although our general policy is not to hedge our mineral production, from time
to time we may undertake hedging programs in specific circumstances, with an
intention to reduce the risk of a commodity's market price while optimizing
upside participation, to maintain adequate cash flows and profitability to
contribute to the long-term viability of our business. There are, however,
risks associated with hedging
Teck Cominco Limited - 2006 Annual Information Form Page 34
programs including, (among other things), an increase in the world price of the
commodity, an increase in gold lease rates (in the case of gold hedging), an
increase in interest rates, rising operating costs, counter-party risks and
production interruption events.
We do not hedge our exposure to changes in the price of metallurgical coal.
PRICE FLUCTUATIONS OF CONSUMED COMMODITIES
Prices and availability of commodities consumed or used in connection with
exploration and development, mining and refining such as natural gas, diesel,
oil and electricity, as well as reagents such as copper sulfate, also fluctuate
and these fluctuations affect the costs of production at various operations.
Our smelting and refining operations at Trail require concentrates that we
purchase from third parties. The availability of those concentrates and the
treatment charges we can negotiate fluctuate depending on market conditions.
These fluctuations can be unpredictable, can occur over short periods of time
and may have a materially adverse impact on our operating costs or the timing
and costs of various projects.
SHORTAGE OF MINING EQUIPMENT AND SUPPLIES
The growth in global mining activities has created a demand for mining
equipment and related supplies that exceeds supply. For example, there is a
global shortage of haulage truck tires which is expected to continue into 2008.
Consequently, if equipment or other supplies cannot be procured on a timely
basis, expansion activities, production, development or operations could be
negatively affected.
COMPETITION FOR MINING PROPERTIES
Because the life of a mine is limited by its ore reserves, we are continually
seeking to replace and expand our reserves through the exploration of our
existing properties as well as through acquisitions of interests in new
properties or of interests in companies which own such properties. We encounter
strong competition from other mining companies in connection with the
acquisition of properties. This competition may increase the cost of acquiring
suitable properties, should such properties become available to us.
COMPETITION IN PRODUCT MARKETS
The mining industry in general is intensely competitive and even if commercial
quantities of mineral resources are developed, a profitable market may not
exist for the sale of such minerals. We must sell base metals, metal
concentrates, by-product metals and concentrate, metallurgical coal and gold at
prices determined by world markets over which we have no influence or control.
Our competitive position is determined by our costs in comparison to those of
other producers in the world. If our costs increase due to our locations, grade
and nature of ore bodies, or our operating and management skills, our revenues
may be affected. We have to compete with larger companies that have greater
assets and financial and human resources than we do, and which may be able to
sustain larger losses than us to develop or continue business.
Teck Cominco Limited - 2006 Annual Information Form Page 35
FUTURE MARKET ACCESS
Access to our markets may be subject to ongoing interruptions and trade
barriers due to policies and tariffs of individual countries, and the actions
of certain interest groups to restrict the import of certain commodities.
Although there are currently no significant trade barriers existing or
impending of which we are aware that do, or could, materially affect our access
to certain markets, there can be no assurance that our access to these markets
will not be restricted in the future.
RESERVE AND RESOURCE ESTIMATES
Disclosed reserve estimates should not be interpreted as assurances of mine
life or of the profitability of current or future operations. We estimate our
mineral reserves in accordance with the requirements of the applicable Canadian
securities regulatory authorities and established mining standards.
Estimates of reserves and resources for oil and gas reporting purposes are not
comparable to mineral reserve and resource estimates.
The U.S. Securities and Exchange Commission ("SEC") does not permit mining
companies in their filings with the SEC to disclose estimates other than
mineral reserves. However, because we prepare this Annual Information Form in
accordance with Canadian disclosure requirements, we incorporate estimates of
mineral resources. Mineral resources are concentrations or occurrences of
minerals that are judged to have reasonable prospects for economic extraction,
but for which the economics of extraction cannot be assessed, whether because
of insufficiency of geological information or lack of feasibility analysis, or
for which economic extraction cannot be justified at the time of reporting.
Consequently, mineral resources are of a higher risk and are less likely to be
accurately estimated or recovered than mineral reserves.
Our mineral reserves and resources are estimated by persons who are employees
of the respective operating company for each of our operations under the
supervision of our employees. These individuals are not "independent" for
purposes of applicable securities legislation. As a rule, we do not use outside
sources to verify mineral reserves or resources except at the initial
feasibility stage.
The mineral and oil and gas reserve and resource figures incorporated in this
Annual Information Form are estimates based on the interpretation of limited
sampling and subjective judgments regarding the grade, continuity and existence
of mineralization, as well as the application of economic assumptions,
including assumptions as to operating costs, foreign exchange rates and future
commodity prices. The sampling, interpretations or assumptions underlying any
reserve or resource estimate may be incorrect, and the impact on mineral
reserves or resources may be material. In addition, short term operating
factors relating to the mineral reserves, such as the need for orderly
development of ore bodies or the processing of new or different ores, may cause
reserve estimates to be modified or operations to be unprofitable in any
particular fiscal period.
There can be no assurance that our projects or operations will be, or will
continue to be, economically viable, that the indicated amount of minerals will
be recovered or that they will be recovered at the prices assumed for purposes
of estimating reserves.
EXPLORATION AND DEVELOPMENT
We must continually replace mining reserves depleted by production to maintain
production levels over the long term. This is done by expanding known mineral
reserves or by locating new mineral deposits. There is, however, a risk that
depletion of reserves will not be offset by future discoveries of mineral
reserves. Exploration for minerals and oil and gas is highly speculative in
nature and the projects involve
Teck Cominco Limited - 2006 Annual Information Form Page 36
many risks. Many projects are unsuccessful and there are no assurances that
current or future exploration programs will be successful. Further, significant
costs are incurred to establish mineral or oil and gas reserves and to
construct mining and processing facilities. Development projects have no
operating history upon which to base estimates of future cash flow and are
subject to the successful completion of feasibility studies, obtaining
necessary government permits, obtaining title to or other land rights and
availability of financing.
CURRENCY FLUCTUATIONS
Our operating results and cash flow are affected by changes in the Canadian
dollar exchange rate relative to the currencies of other countries. Exchange
rate movements can have a significant impact on results as a significant
portion of our operating costs are incurred in Canadian and other currencies
and most revenues are earned in US dollars. To reduce the exposure to currency
fluctuations, we enter into limited foreign exchange contracts from time to
time, but such hedges do not eliminate the potential that such fluctuations may
have an adverse effect on us. In addition, foreign exchange contracts expose us
to the risk of default by the counterparties to such contracts, which could
have a material adverse effect on our business.
INTEREST RATE RISK
Our exposure to changes in interest rates results from investing and borrowing
activities undertaken to manage our liquidity and capital requirements. We have
incurred indebtedness that bears interest at fixed and floating rates, and we
have entered into interest rate swap agreements to effectively convert some
fixed rate exposure to floating rate exposure. There can be no assurance that
we will not be materially adversely affected by interest rate changes in the
future. In addition, our use of interest rate swaps exposes us to the risk of
default by the counterparties to such arrangements. Any such default could have
a material adverse effect on our business.
Environment, Health and Safety Regulations
Environmental, health and safety legislation affects nearly all aspects of our
operations including mine development, worker safety, waste disposal, emissions
controls and protection of endangered and protected species. Compliance with
environmental, health and safety legislation can require significant
expenditures and failure to comply with environmental, health or safety
legislation may result in the imposition of fines and penalties, the temporary
or permanent suspension of operations, clean-up costs arising out of
contaminated properties, damages, and the loss of important permits. Exposure
to these liabilities arises not only from our existing operations, but from
operations that have been closed or sold to third parties. We are required to
reclaim properties after mining is completed and specific requirements vary
among jurisdictions. In some cases, we may be required to provide financial
assurances as security for reclamation costs, which may exceed our estimates
for such costs. Our historical operations have generated significant
environmental contamination. We could also be held liable for worker exposure
to hazardous substances. There can be no assurances that we will at all times
be in compliance with all environmental, health and safety regulations or that
steps to achieve compliance would not materially adversely affect our business.
Environmental, health and safety laws and regulations are evolving in all
jurisdictions where we have activities. We are not able to determine the
specific impact that future changes in environmental laws and regulations may
have on our operations and activities, and our resulting financial position;
however, we anticipate that capital expenditures and operating expenses will
increase in the future as a result of the implementation of new and
increasingly stringent environment, health and safety regulations. For
Teck Cominco Limited - 2006 Annual Information Form Page 37
example, emissions standards for carbon dioxide and sulphur dioxide are
becoming increasingly stringent as are laws relating to the use and production
of regulated chemical substances. Further changes in environmental, health and
safety laws, new information on existing environmental, health and safety
conditions or other events, including legal proceedings based upon such
conditions, or an inability to obtain necessary permits, could require
increased financial reserves or compliance expenditures or otherwise have a
material adverse effect on us. Changes in environmental, health and safety
legislation could also have a material adverse effect on product demand,
product quality and methods of production and distribution. In the event that
any of our products were demonstrated to have negative health effects, we could
be exposed to workers compensation and product liability claims which could
have a material adverse effect on our business.
TRANSPORTATION RISKS
Due to the geographical location of many of our mining properties and
operations, we are highly dependent on third parties for the provision of rail
and port services. We negotiate prices for the provision of these services in
circumstances where we may not have viable alternatives to using specific
providers, or have access to regulated rate setting mechanisms. Contractual
disputes, demurrage charges, rail and port capacity issues, availability of
vessels and rail cars, weather problems or other factors can have a material
adverse effect on our ability to transport materials according to schedules and
contractual commitments.
Our Red Dog mine operates year-round on a 24 hour per day basis. The annual
production of the mine must be stored at the port site and shipped within an
approximately 100-day window when sea ice and weather conditions permit. Two
purpose-designed shallow draft barges transport the concentrates to deep water
moorings. The barges cannot operate in severe swell conditions.
Unusual ice or weather conditions, or damage to the barges or ship loading
equipment could restrict our ability to ship all of the stored concentrate.
Failure to ship the concentrate during the shipping season could have a
material adverse effect on sales and could materially restrict mine production
subsequent to the shipping season.
ABORIGINAL TITLE CLAIMS
Recent Canadian jurisprudence requires governments to consult with aboriginal
peoples with respect to grants of mineral rights and the issuance or amendment
of project authorizations. This may affect our ability to acquire within a
reasonable time frame effective mineral titles in some parts of Canada,
particularly British Columbia, in which aboriginal title is claimed. The risk
of unforeseen aboriginal title claims also exists in foreign jurisdictions and
also could affect existing operations as well as development projects and
future acquisitions. These legal requirements may affect our ability to expand
or transfer existing operations or to develop new projects.
FOREIGN ACTIVITIES
Our business operates in a number of foreign countries where there are added
risks and uncertainties due to the different economic, cultural and political
environments. Some of these risks include nationalization and expropriation,
social unrest and political instability, uncertainties in perfecting mineral
titles, trade barriers and exchange controls and material changes in taxation.
Further, developing country status or an unfavorable political climate may make
it difficult for us to obtain financing for projects in some countries.
Teck Cominco Limited - 2006 Annual Information Form Page 38
RISKS ASSOCIATED WITH FORT HILLS
The Fort Hills project is at an early stage of development. Petro-Canada, as
project operator, in consultation with UTS and us, will be responsible for
further definition of the scope and parameters of the project and its design
and development. There can be no assurance that the development or construction
activities will commence in accordance with current expectations or at all.
Construction and development of the project is subject to numerous risks,
including, without limitation:
o risks resulting from the fact that the Fort Hills oil sands project is
at an early stage of development and therefore is subject to
development and construction risks, including the risk of cost overruns
and delays in construction, and technical and other problems;
o risks associated with delays in obtaining, or conditions imposed by,
regulatory approvals;
o risks associated with obtaining amendments to existing regulatory
approvals and additional regulatory approvals which will be required;
o risks of significant fluctuation in prevailing prices for oil, other
petroleum products and natural gas, which may affect the profitability
of the project;
o risks resulting from the fact that we are a minority partner in the
Fort Hills Partnership and major decisions with respect to project
design and construction may be made without our consent;
o risks associated with litigation; and
o risks resulting from dependence on third parties for services and
utilities for the project.
GREENHOUSE GAS EMISSIONS
Our businesses include several operations that emit large quantities of carbon
dioxide, or that produce or will produce products that emit large quantities of
carbon dioxide when consumed by end users. This is particularly the case with
our metallurgical coal operations and our oil sands projects. Carbon dioxide
and other greenhouse gases are the subject of increasing public concern and
regulatory scrutiny.
The Kyoto Protocol is an international agreement that sets limits on greenhouse
gas emissions from certain signatory countries. While the United States
government has announced that it will not ratify the protocol, the Canadian
Parliament voted to ratify its participation in this agreement and the Kyoto
Protocol came into force in Canada on February 16, 2005. The Kyoto agreement
commits Canada to limit its net greenhouse gas emissions to 6% below the levels
emitted in 1990. Canada's current level of greenhouse gas emissions
significantly exceeds the agreed-upon limit.
In October 2006 the government of Canada announced its intention to develop and
implement regulatory measures primarily, but not exclusively under the Canadian
Environmental Protection Act, 1999, and as enabled by amendments set out in the
proposed Canada's Clean Air Act, addressing the main human-made sources
(including industry, transportation and certain products) of air pollutants and
greenhouse gases.
Teck Cominco Limited - 2006 Annual Information Form Page 39
A consultation process between members of key industry sectors and the
government of Canada commenced in late 2006. The government of Canada has
committed to consult on the overall regulatory framework that will guide the
development of industrial sector regulations. The intent is to reach a
decision, by spring 2007, on the overall regulatory approach, including
proposed short-term targets for air pollutants and greenhouse gases to be
reflected in the proposed regulations to come into effect in the 2010-2015
period.
In the second consultation phase, beginning in summer 2007 and likely
continuing until the end of 2008, the government of Canada intends to engage in
detailed consultations on the proposed regulations that will apply to
individual sectors, including defining sectoral obligations and timelines. The
government of Canada intends to publish the first sectoral regulations for
public comment beginning in spring 2008. Proposed regulations for the first
sectors are expected to be finalized no later than 2008. All other regulations
are at this time planned to come into force by the end of 2010.
The primary source of greenhouse gas emissions in Canada is the use of
hydrocarbon energy. Our operations depend significantly on hydrocarbon energy
sources to conduct daily operations, and there are currently no economic
substitutes for these forms of energy. The federal and provincial governments
have not finalized any formal regulatory programs to control greenhouse gases
and it is not yet possible to reasonably estimate the nature, extent, timing
and cost of any programs proposed or contemplated, or their potential effects
on operations. Most of Elk Valley Coal's products are sold outside of Canada,
and sales are not expected to be significantly affected by Canada's Kyoto
ratification decision. However, the broad adoption by Kyoto signatory countries
and others of emission limitations or other regulatory efforts to control
greenhouse gas emissions could materially negatively affect the demand for
coal, oil and natural gas, as well as restrict development of new coal or oil
sands projects and increase production and transportation costs.
ACCOUNTING POLICIES AND INTERNAL CONTROLS
We prepare our financial reports in accordance with accounting policies and
methods prescribed by Canadian generally accepted accounting principles
("GAAP"). In the preparation of financial reports, management may need to rely
upon assumptions, make estimates or use their best judgment in determining the
financial condition of the company. Significant accounting policies are
described in more detail in our Consolidated Financial Statements. In order to
have a reasonable level of assurance that financial transactions are properly
authorized, assets are safeguarded against unauthorized or improper use and
transactions are properly recorded and reported, we have implemented and
continue to analyze our internal control systems for financial reporting.
Although we believe our financial reporting and financial statements are
prepared with reasonable safeguards to ensure reliability, we cannot provide
absolute assurance.
LEGAL PROCEEDINGS
The nature of our business subjects us to numerous regulatory investigations,
claims, lawsuits and other proceedings in the ordinary course of our business.
The results of these legal proceedings cannot be predicted with certainty.
There can be no assurances that these matters will not have a material adverse
effect on our business.
Teck Cominco Limited - 2006 Annual Information Form Page 40
DIVIDENDS
Our Class A common shares and Class B subordinate voting shares rank equally as
to the payment of dividends. We may not pay dividends on the Class A common
shares and Class B subordinate voting shares unless all dividends on any
preferred shares outstanding have been paid to date. In November 2004, we
announced that we were increasing the semi-annual dividend payable to
shareholders of record on December 31, 2004 bringing the total annual dividend
for 2004 to $0.30 per share. In April 2005, the semi-annual dividend rate was
further increased to $0.40 per share. In December 2005, we deferred payment of
the semi-annual dividend payable to shareholders of record on December 15, 2005
until January 3, 2006, in light of proposed changes to the Canadian federal tax
treatment of dividends. In April, 2006 we announced the semi-annual dividend
payable to shareholders of record on June 19, 2006 would be increased from
$0.40 to $1.00 per share, commencing with the dividend payable on July 4, 2006.
In November, 2006 we announced a dividend payment of $1.00 per share on
outstanding Class A common shares and Class B subordinate voting shares to be
paid on January 3, 2007 to shareholders of record on December 18, 2006. All
dividends paid on these two classes of shares after 2005 are eligible dividends
for purposes of the enhanced dividend tax credit that may be claimed by
resident individuals. If our shareholders approve a proposed two-for-one
subdivision of our Class A common shares and Class B subordinate voting shares
at our annual meeting on April 25, 2007, we expect to maintain the same
effective annual dividend rate by reducing the semi-annual dividend to $0.50
per share.
DESCRIPTION OF CAPITAL STRUCTURE
GENERAL DESCRIPTION OF CAPITAL STRUCTURE
The Company is authorized to issue an unlimited number of Class A common shares
and Class B subordinate voting shares and an unlimited number of preference
shares, issuable in series.
Class A common shares carry the right to 100 votes per share. Class B
subordinate voting shares carry the right to one vote per share. Each Class A
common share is convertible, at the option of the holder, into one Class B
subordinate voting share. In all other respects, the Class A common shares and
Class B subordinate voting shares rank equally.
The attributes of the Class B subordinate voting shares contain so called
"coattail provisions" which provide that, in the event that an offer (an
"Exclusionary Offer") to purchase Class A common shares which is required to be
made to all or substantially all holders thereof, is not made concurrently with
an offer to purchase Class B subordinate voting shares on identical terms, then
each Class B subordinate voting share will be convertible into one Class A
common share. The Class B subordinate voting shares will not be convertible in
the event that an Exclusionary Offer is not accepted by holders of a majority
of the Class A common shares (excluding those shares held by the person making
the Exclusionary Offer). If an offer to purchase Class A common shares does
not, under applicable securities legislation or the requirements of any stock
exchange having jurisdiction, constitute a "take-over bid" or is otherwise
exempt from any requirement that such offer be made to all or substantially all
holders of Class A common shares, the coattail provisions will not apply.
The voting rights attached to Class B subordinate voting shares represent
29.85% of the aggregate voting rights attached to the Class A common shares and
Class B subordinate voting shares.
Teck Cominco Limited - 2006 Annual Information Form Page 41
In November 2003, we issued 790,000 Series 1 and 550,000 Series 2 preference
shares to replace certain preference shares issued by Teck Cominco Metals.
These shares entitled the holders to receive dividends and redemptions based
upon a rate of return index governed by world prices for lead and silver. The
rate of return index to date has been insufficient to trigger any dividend or
redemption. These shares expired in April 2006 without any dividends or
redemptions.
RATINGS
The following table sets forth the current ratings that we have received from
rating agencies in respect of our outstanding securities.
DOMINION BOND RATING
MOODY'S STANDARD & POOR'S SERVICE
Senior Unsecured/Long-term Rating Baa2 BBB BBB (high)
Trend/Outlook Positive Stable Stable
Credit ratings are intended to provide investors with an independent measure of
the credit quality of an issue of securities and are indicators of the
likelihood of payment and of the capacity and willingness of a company to meet
its financial commitment on an obligation in accordance with the terms of the
obligation. A description of the rating categories of each of the rating
agencies in the table above is set out below.
Credit ratings are not recommendations to purchase, hold or sell securities and
do not address the market price or suitability of a specific security for a
particular investor. Credit ratings may not reflect the potential impact of all
risks on the value of securities. In addition, real or anticipated changes in
the rating assigned to a security will generally affect the market value of
that security. We cannot assure you that a rating will remain in effect for any
given period of time or that a rating will not be revised or withdrawn entirely
by a rating agency in the future.
MOODY'S INVESTOR SERVICES (MOODY'S)
Moody's long-term credit ratings are on a rating scale that ranges from Aaa to
C, which represents the range from highest to lowest quality of securities
rated. Moody's Baa2 rating assigned to our senior unsecured debt instruments is
the fourth highest rating of nine rating categories. Obligations rated "Baa"
are considered medium-grade and as such may possess certain speculative
characteristics. Moody's appends numerical modifiers from 1 to 3 to its
long-term debt ratings, which indicates where the obligation ranks within its
ranking category, with 1 being the highest. Moody's has also assigned a
positive outlook to the rating, which is its assessment regarding the likely
direction of the rating over the medium-term.
STANDARD & POOR'S (S&P)
S&P's long-term credit ratings are on a rating scale that ranges from AAA to D,
which represents the range from highest to lowest quality of securities rated.
S&P's BBB rating assigned to our senior unsecured debt instruments is the
fourth highest rating of 10 major rating categories. A "BBB" rating indicates
that the obligor's capacity to meet its financial commitment is adequate, but
that the obligation is somewhat more susceptible to adverse effects of changes
in circumstances and economic conditions than obligations in higher rated
categories. S&P uses "+" or "-" designations to indicate the relative
Teck Cominco Limited - 2006 Annual Information Form Page 42
standing of securities within a particular rating category. S&P has also
assigned a stable outlook to the rating, which is its assessment regarding the
potential direction of the rating over the immediate to long-term.
DOMINION BOND RATING SERVICE (DBRS)
DBRS's long-term credit ratings are on a rating scale that ranges from AAA to
D, which represents the range from highest to lowest quality of securities
rated. DBRS's BBB (high) rating assigned to our senior unsecured debt and BBB
(high)m to the exchangeable debentures is the fourth highest of the 10 rating
categories for long-term debt. Debt securities rated "BBB" are of adequate
credit quality and protection of interest and principal is considered
acceptable, but the obligor is fairly susceptible to adverse changes in
financial and economic changes, or there may be other adverse conditions
present which reduce the strength of the obligor. A reference to "high" or
"low" reflects the relative strength within the rating category. A reference to
"m" reflects that the potential for volatility due to market risk factors
greatly exceeds what would be considered normal. DBRS has also assigned a
stable outlook to the ratings, which helps give investors an understanding of
DBRS's opinion regarding the outlook for the ratings.
MARKET FOR SECURITIES
TRADING PRICE AND VOLUME
Our Class A common shares are listed on the Toronto Stock Exchange under ticker
symbol TCK.A. Our Class B subordinate voting shares are listed on The Toronto
Stock Exchange under ticker symbol TCK.B and since June 29, 2006 are also
listed on the New York Stock Exchange under the symbol TCK. The following
tables set out the monthly price ranges and volumes traded on the Toronto Stock
Exchange during 2006 for the Class A common shares and Class B subordinate
voting shares.
TECK COMINCO A TECK COMINCO B
- -------------- --------------
Date High Low Volume Date High Low Volume
- ------------------------------------------------------ --------------------------------------------------------
January $84.90 $62.72 56,074 January $75.30 $61.58 23,767,302
February $85.00 $67.50 77,530 February $76.66 $63.64 27,241,426
March $80.00 $72.00 53,060 March $78.14 $68.84 27,197,115
April $89.49 $77.95 86,906 April $87.75 $76.48 28,354,002
May $83.00 $70.00 144,890 May $80.46 $62.59 71,302,174
June $79.50 $64.80 66,765 June $69.93 $57.55 60,989,297
July $84.50 $72.20 154,060 July $75.18 $63.45 34,138,506
August $90.26 $76.80 49,360 August $82.80 $72.42 47,184,771
September $82.00 $68.00 54,092 September $78.80 $64.35 28,541,408
October $89.00 $69.06 49,540 October $86.24 $65.06 30,959,234
November $91.46 $81.27 53,507 November $87.97 $78.04 26,804,912
December $97.00 $85.71 27,583 December $95.16 $82.31 24,697,832
Source: Bloomberg
Teck Cominco Limited - 2006 Annual Information Form Page 43
DIRECTORS AND OFFICERS
DIRECTORS
- -------------------------------------------------------------------------------------------------------------------------------
NAME, PROVINCE/STATE AND COUNTRY OFFICE HELD WITH COMPANY AND PRINCIPAL OCCUPATIONS WITHIN DIRECTOR
OF RESIDENCE PREVIOUS FIVE YEARS SINCE
- -------------------------------------------------------------------------------------------------------------------------------
J. Brian Aune (1)(3)(4)(5) Chairman of St. James Financial Corp., 1990 to September February 1995
Westmount, Quebec, Canada 2005 and President of Alderprise Inc. (private investment
companies)
- -------------------------------------------------------------------------------------------------------------------------------
Lloyd I. Barber (3)(4)(6) President Emeritus, University of Regina September 2001
Regina, Saskatchewan, Canada
- -------------------------------------------------------------------------------------------------------------------------------
Jalynn H. Bennett (2)(5) President, Jalynn H. Bennett and Associates Ltd. (consulting June 2005
Toronto, Ontario, Canada firm)
- -------------------------------------------------------------------------------------------------------------------------------
Hugh J. Bolton (2)(3) Chairman, Epcor Utilities Inc., (electrical utility), and September 2001
Edmonton, Alberta, Canada Lead Director of Matrikon Inc. (industrial IT company), from
2000 to present
- -------------------------------------------------------------------------------------------------------------------------------
Norman B. Keevil (1) Chairman of the Company; Chief Executive Officer of the July 1963
West Vancouver, British Columbia, Company prior to July 25, 2001
Canada
- -------------------------------------------------------------------------------------------------------------------------------
Norman B. Keevil III (6) Chief Operating Officer and Vice President of Engineering, April 1997
Victoria, British Columbia, Canada Triton Logging Inc. (underwater harvesting company) from
2004 to present; prior thereto President and Chief Executive
Officer, Pyramid Automation Ltd.(manufacturers of special
purpose automation equipment)
- -------------------------------------------------------------------------------------------------------------------------------
Takashi Kuriyama(6) Executive Vice-President of Sumitomo Metal Mining America June 2006
Vancouver, British Columbia, Canada Inc. (mining company) from May 2006 to present; Councilor at
Metals Exploration Group (seconded by SMM) from 2004 to
2006; Director at Joint Venture Exploration Division, Metal
Mining Agency of Japan from 2003 to 2004; Manager at Geology
and Exploration Section, Hishikari Mine, Sumitomo Metal
Mining Co. from 2002 to 2003; Managing Director at Sumitomo
Metal Mining Oceania P/L Australia from 2001 to 2002
- -------------------------------------------------------------------------------------------------------------------------------
Donald R. Lindsay((1)) President of the Company from January 2005 to present; February 2005
Vancouver, British Columbia, Canada appointed CEO of the Company in April, 2005; President of
CIBC World Markets Inc. (investment banking), from 2001 to
2004
- -------------------------------------------------------------------------------------------------------------------------------
Takuro Mochihara(1) Director and Senior Managing Executive Officer, Sumitomo September 2000
Tokyo, Japan Metal Mining Co., Ltd. (mining company)
- -------------------------------------------------------------------------------------------------------------------------------
Derek G. Pannell((6))(7) Managing Partner, Brookfield Asset Management (asset October 2006
Toronto, Ontario, Canada management company) from November 2006 to present; President
and Chief Operating Officer, Noranda/Falconbridge from 2001
to October, 2006
- -------------------------------------------------------------------------------------------------------------------------------
Teck Cominco Limited - 2006 Annual Information Form Page 44
DIRECTORS
- -------------------------------------------------------------------------------------------------------------------------------
NAME, PROVINCE/STATE AND COUNTRY OFFICE HELD WITH COMPANY AND PRINCIPAL OCCUPATIONS WITHIN DIRECTOR
OF RESIDENCE PREVIOUS FIVE YEARS SINCE
- -------------------------------------------------------------------------------------------------------------------------------
Warren S. R. Seyffert (6) Counsel at Lang Michener (law firm) August 1989
Toronto, Ontario, Canada
- -------------------------------------------------------------------------------------------------------------------------------
Keith E. Steeves (2)((4))(7) Corporate Director October 1981
Richmond, British Columbia, Canada
- -------------------------------------------------------------------------------------------------------------------------------
Chris M.T. Thompson((1))(2)(5)(6)(7) Corporate Director; Chief Executive Officer and Chairman of June 2003
Denver, Colorado, the Board of Gold Fields Ltd. (gold mining) from 1998 to
United States November, 2002. Chairman of the Board of Gold Fields Ltd.
(gold mining) to November, 2005
- -------------------------------------------------------------------------------------------------------------------------------
David A. Thompson ((4))(7) Chief Executive Officer of the Company July 25, 2001 to October 1980
West Vancouver, British Columbia, April 27, 2005; prior thereto Deputy Chairman of the Company
Canada June 8, 2000 to April 27, 2005; President and Chief
Executive Officer of Cominco Ltd. until July 2001
- -------------------------------------------------------------------------------------------------------------------------------
Robert J. Wright (1) (2)(3) (5)
Toronto, Ontario, Canada Lead Director of the Company May 1994
===============================================================================================================================
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Pension Committee
(5) Member of the Corporate Governance and Nominating Committee
(6) Member of the Environment, Health & Safety Committee
(7) Member of the Reserves Committee
Each of the directors is elected to hold office until the annual meeting to be
held on April 25, 2007 or until a successor is duly elected or appointed.
Teck Cominco Limited - 2006 Annual Information Form Page 45
OFFICERS
- ----------------------------------------------------------------------------------------------------------------------
NAME, PROVINCE/STATE AND COUNTRY OFFICE HELD WITH COMPANY AND PRINCIPAL OCCUPATIONS WITHIN
OF RESIDENCE PREVIOUS FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------------
Norman B. Keevil Chairman of the Company; Chief Executive Officer of the Company prior to
West Vancouver, British Columbia July 25, 2001
Canada
- ----------------------------------------------------------------------------------------------------------------------
Robert J. Wright Lead Director of the Company
Toronto, Ontario, Canada
- ----------------------------------------------------------------------------------------------------------------------
Donald R. Lindsay President of the Company from January 2005 to present; appointed CEO of the
Vancouver, British Columbia, Canada Company in April, 2005; prior thereto President, CIBC World Markets Inc.
- ----------------------------------------------------------------------------------------------------------------------
Douglas H. Horswill Senior Vice President, Environment and Corporate Affairs
West Vancouver, British Columbia,
Canada
- ----------------------------------------------------------------------------------------------------------------------
Peter G. Kukielski Executive Vice President and Chief Operating Officer of the Company since
Vancouver, British Columbia, Canada July 17, 2006; previously Chief Operating Officer from 2005 to 2006,
Executive Vice President, Project & Aluminum from 2003 to 2005 and Senior
Vice President, Projects from 2001 to 2003 of Falconbridge Limited
- ----------------------------------------------------------------------------------------------------------------------
G. Leonard Manuel Senior Vice President and General Counsel; previously Vice President and
West Vancouver, British Columbia, General Counsel
Canada
- ----------------------------------------------------------------------------------------------------------------------
Ronald A. Millos Senior Vice President, Finance and Chief Financial Officer of the Company
Vancouver, British Columbia, Canada since October 3, 2005; previously Vice President and Chief Financial
Officer of the Fording Canadian Coal Trust, Fording LP (formerly known as
Fording Inc.) and Elk Valley Coal Corporation since June 1, 2003; Vice
President, Corporate Finance of the Company since September 2001 and prior
thereto Vice President, Finance and Chief Financial Officer of Cominco Ltd.
- ----------------------------------------------------------------------------------------------------------------------
Peter C. Rozee Senior Vice President, Commercial Affairs since October 1, 2005; previously
West Vancouver, British Columbia, Vice President, Commercial and Legal Affairs from 2001 to 2005
Canada
- ----------------------------------------------------------------------------------------------------------------------
Ronald A. Vance Senior Vice President, Corporate Development of the Company since
Evergreen, Colorado, USA January 1, 2006; previously Managing Director and Senior Advisor,
Rothschild Inc.
- ----------------------------------------------------------------------------------------------------------------------
Michael E. Agg Vice President, Refining and Metal Sales since December 1, 2005; previously
Vancouver, British Columbia, Canada General Manager, Trail Operations from 2003 to 2005, and General Manager of
Cajamarquilla from 1998 to 2003.
- ----------------------------------------------------------------------------------------------------------------------
Michael J. Allan Vice President, Engineering
West Vancouver, British Columbia,
Canada
- ----------------------------------------------------------------------------------------------------------------------
Teck Cominco Limited - 2006 Annual Information Form Page 46
OFFICERS
- ----------------------------------------------------------------------------------------------------------------------
NAME, PROVINCE/STATE AND COUNTRY OFFICE HELD WITH COMPANY AND PRINCIPAL OCCUPATIONS WITHIN
OF RESIDENCE PREVIOUS FIVE YEARS
- ----------------------------------------------------------------------------------------------------------------------
Dale E. Andres Vice President, International Mining of the Company since November 23,
Vancouver, British Columbia, Canada 2006; previously General Manager, Underground Operations of the Company
from 2004 to 2006; Project Manager from 2002 to 2004 and Operating Manager
(2002) of the Polaris Mine
- ----------------------------------------------------------------------------------------------------------------------
Fred S. Daley Vice President, Exploration
Delta, British Columbia, Canada
- ----------------------------------------------------------------------------------------------------------------------
Michel P. Filion Vice President, Environment, Health and Safety since June 2005; previously
Surrey, British Columbia, Canada Vice President, Environment
- ----------------------------------------------------------------------------------------------------------------------
Gary M. Jones Vice President, Business Development
Delta, British Columbia, Canada
- ----------------------------------------------------------------------------------------------------------------------
Robert G. Scott Vice President, North American Mining since January, 2006; previously
Coldstream, British Columbia, Canada General Manager of Red Dog from 2003 to 2005; prior thereto General
Manager/Mine Manager of Quintette
- ----------------------------------------------------------------------------------------------------------------------
Andrew A. Stonkus Vice President, Concentrate Marketing of the Company since December 1,
North Vancouver, British Columbia, 2005; previously General Manager, Concentrate Marketing
Canada
- ----------------------------------------------------------------------------------------------------------------------
John F.H. Thompson Vice President, Technology since January 1, 2006; previously Chief
Vancouver, British Columbia, Canada Geoscientist of the Company
- ----------------------------------------------------------------------------------------------------------------------
James A. Utley Vice President, Human Resources
West Vancouver, British Columbia,
Canada
- ----------------------------------------------------------------------------------------------------------------------
Gregory A. Waller Vice President, Investor Relations & Strategic Analysis of the Company
North Vancouver, British Columbia, since November 23, 2006; previously Director, Financial Analysis & Investor
Canada Relations from 2004 to 2006 and Director, Financial Analysis & Planning
from 2001 to 2004
- ----------------------------------------------------------------------------------------------------------------------
Lawrence A. Mackwood Treasurer
West Vancouver, British Columbia,
Canada
- ----------------------------------------------------------------------------------------------------------------------
Howard C. Chu Controller
Vancouver, British Columbia, Canada
- ----------------------------------------------------------------------------------------------------------------------
Karen L. Dunfee Corporate Secretary
Richmond, British Columbia, Canada
- ----------------------------------------------------------------------------------------------------------------------
Anthony A. Zoobkoff Senior Counsel and Assistant Secretary
North Vancouver, British Columbia,
Canada
======================================================================================================================
Teck Cominco Limited - 2006 Annual Information Form Page 47
AUDIT COMMITTEE INFORMATION
Mandate of Audit Committee
The full text of our Audit Committee's mandate is included as Schedule A to
this Annual Information Form.
COMPOSITION OF THE AUDIT COMMITTEE
Our Audit Committee consists of five members. All of the members of the
Committee are independent and financially literate. The relevant education and
experience of each Audit Committee member is outlined below:
Jalynn H. Bennett
Ms. Bennett is a graduate of the University of Toronto where she specialized in
economics. She is the President of a consulting firm in strategic planning and
organizational development. She is a past Commissioner of the Ontario
Securities Commission and was a member of the Toronto Stock Exchange Joint
Committee on Corporate Governance (the Saucier Committee).
Hugh J. Bolton, FCA
Mr. Bolton is a chartered accountant and a graduate of the University of
Alberta (BA Economics). Mr. Bolton was managing partner of Coopers & Lybrand
Canada from 1984 to 1990 and its Chairman and CEO from 1991 to 1998. He is
presently a Chairman of Epcor Utilities Inc., Lead Director of Matrikon Inc.
and a director of the Toronto Dominion Bank, Canadian National Railway Company
and Westjet Airlines Ltd.
Keith E. Steeves, FCA
Mr. Steeves received his Chartered Accountant certification in 1963 in Alberta
and in 1964 in British Columbia. Mr. Steeves was Senior Vice President, Finance
and Administration at Bethlehem Copper Corporation until 1981 and an officer of
Teck Corporation from 1981 to 1996.
Chris M.T. Thompson
Mr. Thompson is a graduate of Rhodes University, SA (B.A. Law and Economics)
and Bradford University, UK (MSc). Mr. Thompson was Chairman of the Board and
CEO of Gold Fields from 1998 to 2002 and is currently its Non-Executive
Chairman.
Robert J. Wright, Q.C.
Mr. Wright is a graduate of Trinity College, University of Toronto (B.A.) and
Osgoode Hall Law School (LL.B.). He was a partner with Lang Michener from 1964
to 1989 and Chairman of the Ontario Securities Commission from 1989 to 1993.
Teck Cominco Limited - 2006 Annual Information Form Page 48
Pre-Approval Policies and Procedures
The Audit Committee has adopted policies and procedures with respect to the
pre-approval of audit and permitted non-audit services to be provided by
PricewaterhouseCoopers LLP. All non-audit services are pre-approved by the
Committee prior to commencement. In addition, the Committee has prohibited the
use of the external auditors for the following non-audit services:
o bookkeeping or other services related to the accounting records or
financial statements;
o financial information systems design and implementation;
o appraisal or valuation services, fairness opinions or
contribution-in-kind reports;
o actuarial services;
o internal audit outsourcing services;
o management functions or human resources functions;
o broker or dealer, investment advisor, or investment banking services;
o legal services;
o expert services unrelated to the audit; and
o all other non-audit services unless there is a strong financial or
other reason for external auditors to provide those services.
EXTERNAL AUDITOR SERVICE FEES
For the years ended December 31, 2006 and 2005, the Company paid the external
auditors $4,218,000 and $2,028,000 respectively as detailed below:
Year Ended Year Ended
2006 ($000) 2005 ($000)
Audit Services(1) 3,405 1,369
Audit Related Fees(2) 593 330
Tax Fees(3) 191 146
All Other Fees 29 183
(1) Includes services that are provided by the Company's independent auditor
in connection with the audit of the financial statements and internal
controls over financial reporting.
(2) Includes assurance and related services that are related to the
performance of the audit, principally for quarterly reviews, pension plan
audits and prospectuses.
(3) In 2006 fees are for international tax services and advice provided to
foreign offices.
Teck Cominco Limited - 2006 Annual Information Form Page 49
OWNERSHIP BY DIRECTORS AND OFFICERS
The directors and executive officers as a group beneficially own directly or
indirectly or exercise control or direction over the following shares issued by
the Company:
SHARES BENEFICIALLY OWNED OR OVER WHICH AS A % OF THE TOTAL
CONTROL OR DIRECTION IS EXERCISED OUTSTANDING OF THE CLASS
- --------------------------------------------------------------------------------------------------------------------
Class A common shares 209,440 4.5%
Class B subordinate voting shares 877,449 0.41%
====================================================================================================================
In addition, one of our directors is a trustee of a trust which holds shares
carrying 98% of the votes attached to outstanding shares of Keevil Holding
Corporation and is a director of Keevil Holding Corporation. Keevil Holding
Corporation holds 51% of the voting shares of Temagami Mining Company Limited
("Temagami") which holds 2,150,000 Class A common shares, representing 46% of
the shares of this class. Three of our directors are directors of Temagami.
LEGAL PROCEEDINGS
The disclosure with respect to legal proceedings at pages 24-25 of our
Management's Discussion and Analysis for the year ended December 31, 2006 is
incorporated herein by reference. This document is available on SEDAR at
www.sedar.com.
TRANSFER AGENTS AND REGISTRARS
CIBC Mellon Trust Company is the transfer agent and registrar for the Class A
common and Class B subordinate voting shares and maintains registers in
Vancouver, British Columbia and Toronto, Ontario.
MATERIAL CONTRACTS
The following is the only contract entered into by the Company since January 1,
2002 which is material and not entered into in the ordinary course of business:
o Partnership Agreement dated February 28, 2003, as amended, between the
Company, Fording, Quintette, Elk Valley Coal and Teck-Bullmoose Coal
Inc., providing for the formation and operation of Elk Valley Coal.
INTERESTS OF EXPERTS
PricewaterhouseCoopers LLP, Chartered Accountants, are the Company's auditors
and have prepared an opinion with respect to the Company's consolidated
financial statements as at and for the year ended December 31, 2006.
Teck Cominco Limited - 2006 Annual Information Form Page 50
Paul C. Bankes, P.Geo., and Dan Gurtler, AIMM, and Colin McKenny, P.Geol., have
acted as Qualified Persons in connection with the estimates of mineral reserves
and resources presented in this Annual Information Form. Mr. Bankes is an
employee of the Company. Mr. McKenny is an employee of Elk Valley Coal
Partnership, of which the Company is the managing partner. Mr. Gurtler is an
employee of Compania Minera Antamina S.A., in which the Company holds a 22.5%
share interest. Sproule Associates Ltd. has acted as an independent reserves
evaluator in connection with our interest in the Fort Hills oil sands project.
Messrs. Bankes, Gurtler, McKenny, and principals of Sproule Associates Ltd.
hold beneficially, directly or indirectly, less than 1% of any class of the
Company's securities.
ADDITIONAL INFORMATION
(1) Additional information relating to the Company may be found on SEDAR at
www.sedar.com.
(2) Additional information, including directors' and officers' remuneration
and indebtedness to our business, principal holders of the Company's
securities, options to purchase securities and interests of insiders in
material transactions is contained in the Management Proxy Circular to be
issued for our Annual and Special Meeting of Shareholders to be held on
April 25, 2007. Additional financial information is also provided in our
comparative financial statements and Management's Discussion and Analysis
for the year ended December 31, 2006. Copies of these documents are
available upon request from our Corporate Secretary.
(3) Unless otherwise stated information contained herein is as at February
26, 2007.
Teck Cominco Limited - 2006 Annual Information Form Page 51
SCHEDULE A
AUDIT COMMITTEE MANDATE
PURPOSE OF THE COMMITTEE
The purpose of the Audit Committee (the "Committee") of the Board of Directors
(the "Board") of Teck Cominco Limited is to provide an open avenue of
communication between management, the external auditor, the internal auditors
and the Board and to assist the Board in its oversight of the:
o integrity, adequacy and timeliness of the company's financial reporting
and disclosure practices;
o processes for identifying and managing the principal financial risks of
the company and the company's internal control systems that ensures
fair, complete and accurate financial reporting;
o company's compliance with legal and regulatory requirements related to
financial reporting;
o accounting principles and policies used by management in determining
significant estimates,
o antifraud programs and controls, including management's identification
of fraud risks and implementation of antifraud measures,
o mechanisms for employees to report concerns about accounting policies
and financial reporting,
o engagement, independence and performance of the company's external
auditor; and
o internal audit mandate, internal audit and Sarbanes-Oxley and Bill 198
("SOX") plans, internal audit and SOX audit programs and results of
internal audits and SOX compliance audits performed by the company's
internal audit department.
The Committee shall also perform any other activities consistent with this
Charter, the company's by-laws and governing laws as the Committee or Board
deems necessary or appropriate.
The Committee shall consist of at least three directors. Members of the
Committee and the Chairman shall be appointed by the Board and may be removed
by the Board in its discretion. All members of the Committee shall be
independent directors and shall be sufficiently financially literate to enable
them to discharge their responsibilities in accordance with applicable laws
and/or requirements of the various stock exchanges on which the company's
securities trade and in accordance with Multilateral Investment Instrument
52-110. Financial literacy means the ability to read and understand a balance
sheet, income statement, cash flow statement and associated notes which
represent a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of the issues that can
reasonably be expected to be raised by the financial statements of Teck Cominco
Limited. At least one member of the Committee shall have accounting or related
financial management expertise that allows that member to read and understand
financial statements and the related notes attached thereto in accordance with
generally accepted accounting principles ("GAAP").
Teck Cominco Limited - 2006 Annual Information Form Page A-1
The Committee's role is one of oversight. Management is responsible for
preparing the company's financial statements and other financial information
and for the fair presentation of the information set forth in the financial
statements in accordance with GAAP. Management is also responsible for
establishing, documenting, maintaining and reviewing systems of internal
control and for maintaining the appropriate accounting and financial reporting
principles and policies designed to assure compliance with accounting standards
and all applicable laws and regulations.
The external auditors' responsibility is to audit the company's financial
statements and provide an opinion, based on their audit conducted in accordance
with Canadian generally accepted auditing standards, that the financial
statements present fairly, in all material respects, the financial position,
results of operations and cash flows of the company in accordance with Canadian
generally accepted accounting principles.
In accordance with the Sarbanes-Oxley Act of 2002, Section 404, the external
auditors are now also responsible for providing an opinion on management's
assessment of the effectiveness of internal controls over financial reporting
at the company as well as an opinion on the effectiveness of the company's
internal controls over financial reporting.
The Committee is directly responsible for the appointment, compensation,
evaluation, termination and oversight of the work of the external auditor and
oversees the resolution of any disagreements between management and the
external auditor regarding financial reporting and SOX assessment. The external
auditor shall report directly to the Committee, as they are accountable to the
Board as representatives of the company's shareholders. As such, it is not the
duty or responsibility of the Committee or any of its members to plan or
conduct any type of audit or accounting review or procedure.
AUTHORITY AND RESPONSIBILITIES
In performing its oversight responsibilities, the Committee shall:
1. Review and assess the adequacy of this Charter and recommend any proposed
changes to the Board for approval at least once per year.
2. Review the appointments of the company's Chief Financial Officer and any
other key financial executives involved in the financial reporting
process.
3. Review with management, the external auditor and the Director, Compliance
and Internal Audit the adequacy and effectiveness of the company's
systems of internal control, the status of management's implementation of
internal audit recommendations and the remediation status of any reported
control deficiencies particularly those evaluated as either a significant
internal control deficiency or material weakness, identified during
annual controls compliance testing as required under SOX legislation and
Quarterly Disclosure Controls testing and the adequacy and timeliness of
its financial reporting processes.
4. Prior to their approval by the Board review with management and the
external auditor the annual audited financial statements, the unaudited
quarterly financial statements, the management discussion and analysis
reports, annual and interim earnings press releases.
Teck Cominco Limited - 2006 Annual Information Form Page A-2
5. Review other financial reporting documents, including the CEO and CFO
quarterly certifications, prior to their public disclosure by filing or
distribution of these documents. Such review includes financial matters
required to be reported under applicable legal or regulatory
requirements.
6. Ensure that adequate procedures are in place for the review of the
company's public disclosure of financial information extracted or derived
from the company's financial statements, other than the public disclosure
referred to in the immediately preceding item, and periodically assess
the adequacy of these procedures.
7. Review with management and the external auditor and approve earnings news
releases and other financial information and earnings guidance
disclosures contained in such news releases prior to approval by the
Board and their release.
8. Where appropriate and prior to release, review with management and
approve any other news releases that contain significant financial
information that has not previously been released to the public.
9. Review the company's financial reporting and accounting standards and
principles and significant changes in such standards or principles or in
their application, including key accounting decisions affecting the
financial statements, alternatives thereto and the rationale for
decisions made.
10. Review the quality and appropriateness, not just the acceptability, of
the accounting policies and the clarity of financial information and
disclosure practices adopted by the company, including consideration of
the external auditors' judgments about the quality and appropriateness of
the company's accounting policies. This review shall include discussions
with the external auditor without the presence of management.
11. Review with management, the external auditor and the Director, Compliance
and Internal Audit significant related party transactions and potential
conflicts of interest.
12. Recommend to the Board and shareholders (a) the external auditor to be
nominated to examine the company's accounts and financial statements and
prepare and issue an auditor's report on them or perform other audit,
review or attest services for the company and (b) the compensation of the
external auditor. The Committee has the responsibility to approve all
audit engagement terms and fees. The Committee shall pre-approve all
audit, non-audit and assurance services provided to the company and its
subsidiary entities by the external auditor, but the Chairman or another
member of the Committee appointed by the Chairman may be delegated the
responsibility to approve non-audit services where the fee is not
significant. The pre-approval of such services by any member to whom
authority has been delegated must be reported to the Committee at its
first scheduled meeting following such pre-approval.
13. Review with management and the external auditor and approve the annual
audit plan and results of and any problems or difficulties encountered
during any external audits and management's responses thereto.
14. Receive the reports of the external auditor on completion of the
quarterly reviews and the annual audit.
Teck Cominco Limited - 2006 Annual Information Form Page A-3
15. Monitor the independence of the external auditor by reviewing all
relationships between the independent auditor and the company and all
audit, non-audit and assurance work performed for the company by the
independent auditor on at least a quarterly basis. The Committee will
receive an annual written confirmation of independence from the external
auditor.
16. Review and approve the company's hiring policies regarding partners,
employees and former partners and employees of the present and former
external auditor of the company.
17. Review and approve the functions of the company's internal audit
department, including:
o its mandate, authority and organizational reporting lines;
o its annual and longer term internal audit plans, budgets and
staffing;
o its performance; and
o the appointment, reassignment or replacement of the Director,
Compliance and Internal Audit.
This review will include discussions with the Director, Compliance and
Internal Audit without the presence of management or the external
auditor.
18. Review with senior financial management, the external auditor, the
Director, Compliance and Internal Audit, and such others as the Committee
deems appropriate, the results of internal audits, SOX controls
compliance audits and any problems or difficulties encountered during the
audits.
19. Review the company's procedures and establish procedures for the
Committee for the:
o receipt, retention and resolution of complaints regarding accounting,
internal accounting controls, financial disclosure or auditing
matters; and
o confidential, anonymous submission by employees regarding
questionable accounting, auditing or financial reporting and
disclosure matters or violations of the Company's Code of Ethics or
Standard of Business Practices.
20. Prepare an audit committee report to be included in Teck Cominco
Limited's annual proxy statement.
21. Conduct or authorize investigations into any matter that the Committee
believes is within the scope of it's responsibilities. The Committee has
the authority to (a) retain independent counsel, accountants or other
advisors to assist it in the conduct of its investigation, at the expense
of the company (b) set and pay the compensation of any advisors retained
by it and (c) communicate directly with the internal and external
auditors.
22. The Committee shall report its recommendations and findings to the Board
after each meeting and shall conduct and present to the Board an annual
performance evaluation of the effectiveness of the Committee.
Teck Cominco Limited - 2006 Annual Information Form Page A-4
SCHEDULE B
REPORT ON RESOURCES DATA
BY
INDEPENDENT QUALIFIED RESOURCES AUDITOR
To the Board of Directors of Teck Cominco Limited (the "Company"):
Sproule prepared an audit of the Company's contingent bitumen resources. The
resources data are the responsibility of the Company's management. Our
responsibility is to express an opinion on the bitumen resources data based on
our audit. We carried out our audit in accordance with standards established by
the Canadian Securities Administrators ("CSA") within National Instrument
51-101 ("NI 51-101"), and the guidance of the companion document CSA Staff
Notice 51-321 published on November 17, 2006. These standards require that the
resources data are prepared in accordance with Canadian Oil and Gas Evaluation
Handbook ("COGEH"), as published by the Canadian Section of the Society of
Petroleum Evaluation Engineers.
We have audited the Company's bitumen resources data as of December 31, 2006.
In our opinion, the resources data audited by us have, in all material
respects, been determined and are presented in accordance with the COGEH. In
our opinion, the methodology used by the Company to calculate the range of
contingent bitumen resources associated with their 15 percent interest in the
proposed Fort Hills Oil Sands Project, as defined below, is reasonable.
CONTINGENT BITUMEN RESOURCES OF TECK COMINCO LIMITED
AS OF DECEMBER 31, 2006
----------------------------------------------------------------------------------------
Contingent Bitumen Resources
-------------------------------- -------------------------
CLASSIFICATION OF FORT HILLS PROJECT GROSS COMPANY SHARE
ESTIMATE (BBBLS) (MMBBLS)
----------------------------------------------------------------------------------------
Low 3.08 462
Best 4.72 708
High 5.54 831
----------------------------------------------------------------------------------------
The term "Contingent Resources" is defined in COGEH. The volumes listed in the
table above entitled "Contingent Bitumen Resources" refer to recoverable
bitumen estimates, as per the definition of "Contingent Resources" in COGEH.
The bitumen estimates in the above table were calculated at the outlet of the
proposed extraction plant. The Best Estimate is the current basis of the
audited mine plan. The Low and High estimates are derived in the Company's
document entitled the "Fort Hills Project Conceptual Mine Plan Study" which was
completed in March, 2006. The contingencies that prevent these bitumen
resources from being classified as reserves include, but are not limited to,
revised regulatory approval, completed feasibility study and full company
commitment.
Teck Cominco Limited - 2006 Annual Information Form Page B-1
We have no responsibility to update our report for events and circumstances
occurring after the respective preparation date.
Because the resources data are based on judgments regarding future events,
actual results will vary and the variations may be material.
Sproule Associates Ltd.
Calgary, Alberta
February 23, 2007
/s/ Grant I. Sanden, P. Eng
----------------------------
Grant I. Sanden, P.Eng.
Associate
26/02/2007 dd/mm/yr
/s/ R. Keith MacLeod, P. Eng
-----------------------------
R. Keith MacLeod, P.Eng.
Executive Vice-President
26/02/2007 dd/mm/yr
Teck Cominco Limited - 2006 Annual Information Form Page B-2
SCHEDULE C
REPORT OF MANAGEMENT AND DIRECTORS
ON DECEMBER 2006
OIL AND GAS DISCLOSURE
Management of Teck Cominco Limited (the "Corporation") is responsible for the
preparation and disclosure of information with respect to the Corporation's oil
and gas activities in accordance with securities regulatory requirements.
An independent qualified reserves evaluator has evaluated the resources data
associated with the Fort Hills oil sands project and has concluded that the
best estimate of contingent resources associated with the Corporation's 15%
interest in the project is 708 million barrels of recoverable bitumen. The
report of the independent qualified reserves evaluator has been filed with
securities regulatory authorities.
A committee of the Board of Directors of the Corporation composed of a majority
of independent directors has
(a) reviewed the Corporation's procedures for providing information to
the independent qualified reserves evaluator;
(b) met with the independent qualified reserves evaluator to determine
whether any restrictions affected the ability of the independent
qualified reserves evaluator to report without reservations; and
(c) reviewed the resources data with management and the independent
qualified reserves evaluator.
The same committee of the Board of Directors has reviewed the Corporation's
procedures for assembling and reporting other information associated with oil
and gas activities and has reviewed that information with management. The Board
of Directors has, on the recommendation of the committee, approved
(d) the content and filing with securities regulatory authorities of
the resources data and other oil and gas information;
(e) the filing of the report of the independent qualified reserves
evaluator; and
(f) the content and filing of this report.
Teck Cominco Limited - 2006 Annual Information Form Page C-1
Because the resources data are based on judgments regarding future events,
actual results will vary and the variations may be material.
Dated February 26, 2007.
/s/ Donald R. Lindsay /s/ Chris M.T. Thompson
- ----------------------------- ----------------------------
President and Chief Executive Officer Director
/s/ Ronald A. Millos /s/ David A. Thompson
- ----------------------------- ----------------------------
Senior Vice President, Finance Director
and Chief Financial Officer
Teck Cominco Limited - 2006 Annual Information Form Page C-2