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Local Zinc Concentrate Supply for Teck Resources Ltd. Trail Metallurgical Complex

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Local Zinc Concentrate Supply for Teck Resources Ltd. Trail Metallurgical Complex LOCAL ZINC CONCENTRATE SUPPLY FOR TECK RESOURCES LTD. TRAIL METALLURGICAL COMPLEX by David Gordon Reynolds Bachelor of Applied Science, Metals and Materials Engineering, University of British Columbia, 1989 PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION In the Teck/SFU EMBA Program of the Faculty of Business Administration © David Reynolds 2011 SIMON FRASER UNIVERSITY Spring 2011 All rights reserved. However, in accordance with the Copyright Act of Canada, this work may be reproduced, without authorization, under the conditions for Fair Dealing. Therefore, limited reproduction of this work for the purposes of private study, research, criticism, review and news reporting is likely to be in accordance with the law, particularly if cited appropriately. Approval Name: David Reynolds Degree: Master of Business Administration Title of Project: Local Zinc Concentrate Supply for Teck Resources Ltd. Trail Metallurgical Complex Supervisory Committee: ___________________________________________ Dr. Ian P. McCarthy Senior Supervisor Professor and Canada Research Chair in Technology and Operations Management Beedie School of Business Simon Fraser University ___________________________________________ Dr. Bruno Silvestre Second Reader Adjunct Professor and Research Associate Beedie School of Business Simon Fraser University Date Approved: ___________________________________________ ii Abstract The inland location of the Teck smelter in Trail results in high inbound logistics costs for raw materials relative to competitors. „Local‟ concentrate supplies (deliverable to Trail directly by rail or truck from the mine site) can mitigate this competitive disadvantage. Teck Resources Ltd. needs to support the development of local concentrate supply to improve Trail‟s profitability and resilience to supply change disruptions. This paper will make recommendations to change Teck Resources Ltd. strategy with respect to zinc to take advantage of favourable market conditions for zinc and realize more potential from the Trail Metallurgical Complex. The final section will justify options for re- opening of the Pend Oreille mine and present ideas that will make current properties more attractive for development. iii Acknowledgements I would like to acknowledge Teck Resources Ltd. for sponsoring this program and providing me the opportunity to participate. My knowledge of the company was greatly enhanced through the participation of other students from other Teck operations. I would also like to thank to my fellow students for their insight and discussion throughout the program. I would also like to acknowledge the SFU EMBA program for providing a relevant curriculum and great facilitators. Special thanks to Dr. Ian McCarthy for his assistance in fine tuning this document. The contributions of Dr. Bruno Silvestre are also appreciated. Finally, I would like to thank the contributions of my family. Hats off to Carolyn, Jill, and Joselyn for their support while I was busily engaged in completing the required work for this degree. iv Table of Contents Approval ......................................................................................................................................... ii Abstract ......................................................................................................................................... iii Acknowledgements ........................................................................................................................ iv Table of Contents ............................................................................................................................ v List of Figures .............................................................................................................................. vii List of Tables ............................................................................................................................... viii 1: Introduction ................................................................................................................................ 1 2: Zinc Market ................................................................................................................................ 3 2.1 Zinc Demand ........................................................................................................................... 3 2.2 Zinc Supply ............................................................................................................................. 5 2.3 Refinery Demand .................................................................................................................... 6 2.4 Teck Strategy........................................................................................................................... 9 3: Trail Metallurgical Complex ................................................................................................... 10 3.1 History and Current Status .................................................................................................... 10 3.2 Competitive Advantage ......................................................................................................... 11 3.3 Trail‟s Contribution to Teck Resources Ltd. ......................................................................... 15 3.4 Summary on Trail .................................................................................................................. 17 4: Local Zinc Mines ...................................................................................................................... 18 4.1 Cost Structure ........................................................................................................................ 18 4.2 Smelter Charges .................................................................................................................... 20 4.2.1 Payable Metal ........................................................................................................... 20 4.2.2 Treatment Charges ................................................................................................... 21 4.2.3 Penalties ................................................................................................................... 21 4.3 Business Case for local mines ............................................................................................... 22 5: Teck Strategy ............................................................................................................................ 23 5.1 Current Strategy with Respect to Zinc .................................................................................. 23 5.2 Proposed Strategic Initiative for Teck Resources ................................................................. 25 5.3 Alternative Strategy ............................................................................................................... 27 5.4 Junior Mining Companies ..................................................................................................... 27 5.5 Teck Strategy for Applied Research and Technology/Business Development Groups ................................................................................................................................... 28 5.6 Mine Location ....................................................................................................................... 29 v 5.7 Mine Ownership .................................................................................................................... 30 5.8 Conclusions ........................................................................................................................... 32 6: Potential Local Mines .............................................................................................................. 33 6.1 Probable Mines in the Trail Catchment Area ........................................................................ 33 6.2 Teck Options ......................................................................................................................... 36 6.3 Options for Mine Development ............................................................................................. 37 6.3.1 Integrated Economic Model For Zinc ...................................................................... 37 6.3.2 Pend Oreille Mine .................................................................................................... 38 6.3.3 Bundling of Projects ................................................................................................. 40 6.3.4 Take a Chance .......................................................................................................... 41 6.4 Enough Concentrate for Trail? .............................................................................................. 43 7: Conclusion and Recommendations ......................................................................................... 44 Appendix ........................................................................................................................................ 46 Bibliography.................................................................................................................................. 47 Works Cited .................................................................................................................................... 47 Works Consulted ...........................................................................................................................
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