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Teck Reports Unaudited Third Quarter Results for 2018

All dollar amounts expressed in this news release are in Canadian dollars unless otherwise noted.

VANCOUVER, British Columbia, Oct. 25, 2018 (GLOBE NEWSWIRE) -- Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK) (“Teck”) reported profit attributable to shareholders of $1.3 billion ($2.23 per share) and adjusted profit attributable to shareholders of $466 million ($0.81 per share) in the third quarter compared with profit of $584 million ($1.01 per share) and adjusted profit of $605 million ($1.05 per share) a year ago.

“We continued to advance our key growth initiative and strengthen our financial position by receiving regulatory approval for our Quebrada Blanca Phase 2 project, closing the $1.2 billion Waneta Dam sale and reducing our outstanding notes by US$1 billion,” said Don Lindsay, President and CEO. “Our operations continued to perform well, although commodity prices for all our key products declined during the third quarter, resulting in lower adjusted earnings and EBITDA compared with the second quarter of this year.”

Highlights and Significant Items

  • Profit attributable to shareholders was $1.3 billion ($2.23 per share) in the third quarter compared with $584 million ($1.01 per share) a year ago. Adjusted profit was $466 million ($0.81 per share) in the third quarter compared with $605 million ($1.05 per share) in the third quarter of last year.
  • EBITDA was $2.1 billion in the third quarter compared with $1.4 billion in the third quarter of 2017. Adjusted EBITDA was $1.2 billion in the third quarter compared with $1.4 billion in the same period a year ago.
     
  • Gross profit was $1.0 billion in the third quarter compared with $1.1 billion a year ago. Gross profit before depreciation and amortization was $1.4 billion in the third quarter compared with $1.5 billion in the third quarter of 2017.
     
  • Plant performance at Fort Hills has exceeded expectations and we expect full year production to be near the high end of our guidance for 2018.
     
  • We received regulatory approval for our Quebrada Blanca Phase 2 (QB2) project in late August with a unanimous vote from Chilean authorities, a major step forward in advancing the project. Our search for an additional partner for QB2 continues to advance and our objective is ultimately to hold a 60–70% interest in the project. We are encouraged by our progress and continue to consider that a transaction may be announced in the fourth quarter of 2018.
     
  • In July, we completed the sale of our two-thirds interest in the Waneta Dam to BC Hydro for $1.2 billion cash. We recorded a pre-tax gain of $888 million, with no cash taxes payable on the transaction.
     
  • In August, we purchased US$1.0 billion principal amount of our near-term debt maturities, reducing the outstanding balance to US$3.8 billion. We recorded a CAD$26 million pre-tax charge on the transaction.
     
  • Customer sales in steelmaking coal in the third quarter were strong and would have significantly exceeded our guidance of 6.8 million tonnes. However, reduced volumes due to operating problems at Westshore Terminals once again negatively affected deliveries by approximately 250,000 tonnes and our revenues by approximately $55 million.
     
  • The Red Dog concentrate shipping season is expected to be complete in late October. We expect to ship approximately 1.05 million tonnes of zinc concentrate and 175,000 tonnes of lead concentrate, representing all of the concentrate available to be shipped from the operation.
     
  • In early October, we received regulatory approval to renew our normal course issuer bid allowing us to purchase up to 40 million of our Class B subordinate voting shares during the period starting October 10, 2018 and ending October 9, 2019.
     
  • For the ninth straight year, we have been named to the Dow Jones Sustainability World Index, indicating that our sustainability practices are in the top 10% of the 2,500 largest companies in the S&P Global Broad Market Index.
     
  • Our liquidity remains strong at over $5.7 billion inclusive of $1.8 billion in cash at October 24, 2018 and US$3.0 billion of undrawn, committed credit facilities.

  • We have updated our guidance for certain production items, unit costs and capital expenditures. Further details are located in the Guidance section.

 
This management’s discussion and analysis is dated as at October 24, 2018 and should be read in conjunction with the unaudited condensed interim consolidated financial statements of Teck Resources Limited (“Teck”) and the notes thereto for the three and nine months ended September 30, 2018 and with the audited consolidated financial statements of Teck and the notes thereto for the year ended December 31, 2017. In this news release, unless the context otherwise dictates, a reference to “the company” or “us,” “we” or “our” refers to Teck and its subsidiaries. Additional information, including our Annual Information Form and Management’s Discussion and Analysis for the year ended December 31, 2017, is available on SEDAR at www.sedar.com.

This document contains forward-looking statements. Please refer to the cautionary language under the heading “CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION.”

Overview

Prices for our principal products were mixed in the third quarter compared with the same period a year ago. Steelmaking coal prices increased by 10% compared with a year ago and averaged US$172 per tonne in the third quarter, reflecting continued strong demand and supply constraints for seaborne steelmaking coal. However, copper and zinc prices declined by 4% and 14%, respectively, compared with the third quarter of 2017. Commodity markets have generally weakened since the end of the second quarter and prices for our products declined in the third quarter compared with the second quarter of this year. Copper and zinc average quarterly prices declined by 11% and 18%, respectively, while steelmaking coal prices declined to a lesser extent, decreasing by 6%.

In the oil market, Western Canadian Select (WCS) averaged US$47 per barrel in the third quarter compared with US$49 per barrel in the second quarter of this year and US$38 per barrel in third quarter of 2017. WCS differentials (the discount to the WTI) averaged US$22.25 per barrel in the third quarter compared with US$9.94 per barrel in the same period a year ago and have currently widened to approximately US$46 per barrel for November settlements due to limited pipeline capacity to accommodate new heavy oil production from western Canada and the temporary closure of some U.S. refining capacity for maintenance work.

In our steelmaking coal business, unit cost increases were partly driven by our decision to increase mining activity to capture margin in this favourable steelmaking coal price environment. In addition, increased diesel and operating supplies costs also resulted in increased unit costs. Costs were higher at our Trail Operations due to both maintenance issues and the effect of wild fires in southeast British Columbia. At Fort Hills, mining operations were constrained due to soft ground conditions in July, but subsequently improved in August and September. In addition, Fort Hills completed its first planned maintenance at the end of September, which restricted production to half the plant capacity for the last two weeks of the quarter.

In August, we received regulatory approval for our Quebrada Blanca Phase 2 (QB2) project in Chile. QB2 will be a high-quality, low-cost, long-life operation with significant expansion potential, and will significantly increase our copper production. QB2 has an initially permitted mine life of 25 years utilizing only a quarter of the currently estimated mineral reserves and resources, with expected annual production of 300,000 tonnes of copper equivalent in the first five years. Regulatory approval is a key step forward towards a potential construction sanction decision, which could be considered as early as December. In advance of a potential sanction decision, work is progressing to further optimize the initial mine life of QB2 as well as mining and production rates in the early years of operation. Engineering studies are also underway to assess the potential to double the throughput of QB2 in a subsequent expansion, which we refer to as the Quebrada Blanca Phase 3 project (QB3).

In July, we completed the sale of our two-thirds interest in the Waneta Dam to BC Hydro for $1.2 billion in cash. We recorded a pre-tax gain of $888 million, with no cash taxes payable on the transaction. In August, we strengthened our balance sheet by purchasing US$1.0 billion principal amount of our near-term debt maturities. We may purchase further debt from time to time as opportunities arise. At the end of the third quarter, our net debt to net debt-plus-equity ratio was 14% compared with 21% at December 31, 2017 and 28% at December 31, 2016.

Profit and Adjusted Profit1

Profit attributable to shareholders in the third quarter was $1.3 billion, or $2.23 per share, compared with $584 million, or $1.01 per share, in the same period a year ago.

Adjusted profit attributable to shareholders, taking into account the items identified in the table below, was $466 million, or $0.81 per share, compared with $605 million, or $1.05 per share, in the third quarter last year. The most significant adjusting item was an $812 million after-tax gain in the third quarter of 2018 on the sale of our two-thirds interest in the Waneta Dam.

The decline in our adjusted profit in the third quarter compared with a year ago was partly due to lower base metals prices, negative pricing adjustments, lower steelmaking coal sales volumes and reduced volumes from our Trail Operations. In addition, we experienced higher unit costs in our steelmaking coal business unit, which were attributable to a number of factors, including our efforts to capture margin in the favourable steelmaking coal price environment. These items were partly offset by higher steelmaking coal prices and a weaker Canadian dollar, which positively affected our profit in the period, as most of our revenues are realized in U.S. dollars.

Profit and Adjusted Profit


  Three months
ended September 30,
Nine months
ended September 30,
(CAD$ in millions) 2018   2017  2018   2017 
       
Profit attributable to shareholders $1,281  $  584 $2,674  $1,720 
Add (deduct):    
 Debt purchase losses 19     19   159 
 Debt prepayment option loss (gain) (17)  (15) 7   (48)
 Asset sales and provisions (812)  8  (809)  (1)
 Foreign exchange loss (gain) (6)    (5)  (19)
 Collective agreement charges 1   28  1   29 
 Other      (15)   
Adjusted profit$   466  $  605 $1,872  $1,840 
Adjusted basic earnings per share1$ 0.81  $1.05 $  3.26  $  3.19 
Adjusted diluted earnings per share1$ 0.80  $1.03 $  3.21  $  3.14 

In addition to the items identified in the table above, our results include gains and losses due to changes in market prices and interest rates in respect of pricing adjustments, commodity derivatives, inventory write-downs primarily of long-term, low-grade inventory at Red Dog, share-based compensation and changes in the discounted value of decommissioning and restoration costs at closed mines. Taken together, these items resulted in $75 million of after-tax losses ($111 million before tax) in the third quarter, or $0.13 per share. We do not adjust our reported profit for these items, as these are regular occurrences.

Note:
 1)   Non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for further information.

FINANCIAL OVERVIEWThree months
ended September 30,
Nine months
ended September 30,
(CAD$ in millions, except per share data) 2018  2017 2018  2017
     
Revenues and profit    
  Revenues$3,209 $  3,075$  9,317 $  8,754
  Gross profit before depreciation and amortization1$1,389 $  1,468$  4,693 $  4,419
  Gross profit$1,009 $  1,068$  3,610 $  3,304
  EBITDA1$2,064 $  1,370$  5,022 $  4,026
  Profit attributable to shareholders$1,281 $  584$  2,674 $  1,720
     
Cash flow    
  Cash flow from operations$ 882 $  901$  3,109 $  3,602
  Property, plant and equipment expenditures$  397 $  390$  1,202 $  1,075
  Capitalized stripping costs$  162 $  175$  534 $  500
  Investments$  140 $  78$  290 $  149
     
Balance Sheet    
  Cash balances  $  1,483 $  889
  Total assets  $38,373 $35,451
  Debt, including current portion  $  5,235 $  6,122
     
Per share amounts    
  Profit attributable to shareholders$  2.23 $  1.01$  4.66 $  2.98
  Dividends declared$  0.05 $  0.05$  0.15 $  0.15
     
     
PRODUCTION, SALES AND PRICES    
     
Production (000’s tonnes, except steelmaking coal and bitumen)    
  Steelmaking coal (million tonnes) 6.4  6.8 18.9  19.7
  Copper2 72  75 221  209
  Zinc in concentrate 180  184 516  488
  Zinc — refined 74  78 228  230
  Bitumen (million barrels)3 2.5   3.2  
     
Sales (000’s tonnes, except steelmaking coal
  and blended bitumen)
    
  Steelmaking coal (million tonnes) 6.7  7.4 19.4  20.2
  Copper2 69  68 220  201
  Zinc in concentrate 184  192 439  438
  Zinc — refined 75  77 229  227
  Blended bitumen (million barrels)3 3.1   4.3  
     
Average prices and exchange rates    
  Steelmaking coal (realized US$/tonne)$  172 $  156$  186 $  176
  Copper (LME cash — US$/pound)$  2.77 $2.88$  3.01 $2.70
  Zinc (LME cash — US$/ pound)$  1.15 $1.34$  1.37 $1.26
  Blended bitumen (realized US$/barrel)3$48.94 $   –$  50.14 $  –
  Average exchange rate (C$ per US$1.00)$  1.31 $1.25$  1.29 $1.31

Notes:
 1)   Non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for further information.
 2)   We include 100% of production and sales from our Quebrada Blanca and Carmen de Andacollo mines in our production and sales volumes, even though we own 90% of these operations, because we fully consolidate their results in our financial statements. We include 22.5% and 21.31% of production and sales from Antamina and Fort Hills, respectively, representing our proportionate ownership interest in these operations.
 3)   Nine months ended September 30, 2018 production volumes, sales volumes and realized prices for bitumen are from June 1, 2018.

BUSINESS UNIT RESULTS

Our revenues, gross profit before depreciation and amortization, and gross profit by business unit are summarized in the table below.

  Three months
ended September 30,
Nine months
ended September 30,
 (CAD$ in millions)  2018  2017  2018            2017 
                 
Revenues               
 Steelmaking coal$1,505 $1,449 $4,675           4,678 
 Copper 611  565  2,081            1,640 
 Zinc 884  1,061  2,274            2,436 
 Energy1 209    287            – 
                 
Total$3,209 $3,075 $9,317           8,754 
                
Gross profit, before depreciation and amortization2               
 Steelmaking coal$  810 $  826 $2,770           2,928 
 Copper 291  281  1,096            729 
 Zinc 281  361  807            762 
 Energy1 7    20            – 
                 
Total$1,389 $1,468 $4,693           4,419 
                 
Gross profit               
 Steelmaking coal$  634 $  625 $2,221           2,389 
 Copper 171  143  739            298 
 Zinc 218  300  663            617 
 Energy1 (14)   (13)           – 
Total$1,009 $1,068 $3,610           3,304 
                 
                
                
Gross profit margins before depreciation2               
  Steelmaking coal 54% 57% 59%           63%
  Copper 48% 50% 53%           44%
  Zinc 32% 34% 35%           31%
  Energy1 3%   7%           – 
                

Note:
 1)   Energy results, for nine months ended September 30, 2018, are effective from June 1, 2018.
 2)   Non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for further information.
               

STEELMAKING COAL BUSINESS UNIT

 Three months
ended September 30,
Nine months
ended September 30,
(CAD$ in millions)  2018  2017  2018  2017
     
Steelmaking coal price (realized US$/tonne)$172 $  156 $  186 $   176
Steelmaking coal price (realized CAD$/tonne)$224 $  195 $  240 $ 230
Production (million tonnes) 6.4  6.8  18.9  19.7
Sales (million tonnes) 6.7  7.4  19.4  20.2
Gross profit, before depreciation and amortization1$810 $  826 $2,770 $2,928
Gross profit$634 $  625 $2,221 $2,389
Property, plant and equipment expenditures$  96 $  34 $  242 $  95
     

Note:
 1)   Non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for further information.

Performance

Gross profit in the third quarter from our steelmaking coal business unit was $634 million compared with $625 million a year ago. Despite higher realized steelmaking coal prices, gross profit before depreciation and amortization in the third quarter decreased by $16 million from a year ago (see table below) due to lower sales volumes and higher unit operating costs.

Third quarter sales of 6.7 million tonnes were 10% lower than a year ago and 100,000 tonnes below guidance. We continued to experience logistical issues at Westshore Terminals, which negatively affects our ability to deliver coal to customers. Demand remained strong and, accordingly, our third quarter sales would have comfortably exceeded our guidance of 6.8 million tonnes. These logistical issues delayed the delivery of approximately 250,000 tonnes into the fourth quarter.

The table below summarizes the gross profit changes, before depreciation and amortization, in our steelmaking coal business unit for the quarter:

(CAD$ in millions)Three months
ended September 30,
  
As reported in third quarter of 2017$ 826 
Increase (decrease): 
  Steelmaking coal price realized 131 
  Sales volumes (79)
  Unit operating and transportation costs (130)
  Foreign exchange 62 
  
Net decrease (16)
  
As reported in current quarter$ 810 
  

Property, plant and equipment expenditures totaled $96 million in the third quarter, of which $52 million was for sustaining capital. Capitalized stripping costs were $117 million in the third quarter compared with $136 million a year ago.

Markets

The third quarter price index for steelmaking coal sold under quarterly contracts was US$188 per tonne. Global steel production and demand for seaborne steelmaking coal continues to be strong. The World Steel Association is reporting strong steel pricing and production across all regions due to resilient steel demand supported by the recovery in investment activities in developed economies and the improved performance of emerging economies. Depletion and reduced production of some Eastern European coal mines continued to increase demand for seaborne steelmaking coal from European steel mills. The recent supply concerns from Australia and U.S. and the demand impact of continued capacity growth in India and relocation of steel production to coastal areas in China support the robust coal market.

While demand for steelmaking coal remains strong, we continue to monitor the effects that government policy and trade uncertainty might have on potential price volatility.

Operations

Third quarter production of 6.4 million tonnes was 6% lower compared to the same period a year ago. This was largely the result of declining production at Coal Mountain Operations as the operation reached the end of its life and has concluded mining activity. Coal Mountain Operations will process its last mined coal in the fourth quarter. For the balance of the year, we will continue to haul a portion of raw coal from the Elkview Operations to Coal Mountain Operations for processing to recover production shortfalls from earlier in the year.

The business unit achieved total material movement in the third quarter of approximately 75 million bank cubic metres of material, a 5% decrease over the same quarter a year ago, due mainly to a reduction in contract mining. Equipment utilization and productivities are achieving historically high performance levels, resulting in higher than expected total material moved in the third quarter. Overall, this has led to an increase in raw coal inventories since the beginning of 2018 and improved our operational flexibility going forward.

The majority of our planned plant shutdowns are behind us and we are well positioned to make up our production shortfall throughout the balance of the year to meet our production guidance.

Cost of Sales

Site cost of sales in the third quarter were $67 per tonne compared with $51 per tonne a year ago. As anticipated, the decision to increase mining activity, equipment rentals and associated labour resulted in higher costs, but generated production to capture margin in this favourable coal pricing environment. In addition, the business unit is experiencing inflationary pressures, predominantly affecting diesel costs, as a result of higher oil prices. All of these factors, combined with lower production, longer haul distances and increased activity on mobile maintenance in the third quarter compared with the year prior, increased the unit cost per tonne but has not undermined our strong profitability.

Third quarter transportation costs of $37 per tonne were $4 per tonne higher compared to the same period a year ago with an increase in rail fuel surcharges. In the first quarter of this year, we experienced additional vessel demurrage costs primarily attributable to the poor performance at Westshore Terminals that will affect our overall annual transportation cost. As a result, we are expecting full year transportation costs to be at the high end of annual guidance of $35 to $37 per tonne. While Westshore Terminals’ performance improved after the first quarter of 2018, year to date average vessel wait time is approximately five days longer than in 2016 and 2017. In the third quarter, vessel wait times at Westshore Terminals were approximately three days longer compared to the same period in 2016 and 2017. We are continuing to engage Westshore Terminals with the objective of improving overall site performance.

The tables below report the components of our unit costs in Canadian and equivalent U.S. dollars.

 Three months
ended September 30,
Nine months
ended September 30,
(amounts reported in CAD$ per tonne) 2018  2017  2018  2017
     
Site cost of sales$   67 $51 $61 $53
Transportation costs 37  33  37  34
     
Unit costs1$104 $84 $98 $87
     


 Three months
ended September 30,
Nine months
ended September 30,
(amounts reported in US$ per tonne) 2018  2017  2018  2017
     
Site cost of sales$51 $40 $47 $40
Transportation costs 28  27  29  26
     
Unit costs1$79 $67 $76 $66
     

Notes:
 1)   Non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for further information. Unit costs do not include deferred stripping or capital expenditures.

Our total cost of sales for the quarter also included $26 per tonne of depreciation and amortization, including a $10 per tonne charge for the amortization of capitalized stripping costs.

Outlook

Our annual 2018 steelmaking coal production guidance of 26 to 27 million tonnes remains unchanged, but we currently expect it to be near the lower end of the range. The business unit continues to evaluate raw coal processing opportunities by capturing the latent production capacity of Elk Valley processing plants. As in prior years, annual production volumes can be adjusted to reflect market demand for our products and are subject to adequate rail and port service.

With inflationary pressures predominantly affecting diesel costs and the additional mining activity to generate production, we expect our annual site cost of sales in 2018 to be in the range of $60 to $63 per tonne, above our original guidance range of $56 to $60 per tonne.

Market fundamentals remain supportive as demonstrated by the continued strength in steel pricing and margins, and coal pricing levels. We are expecting fourth quarter sales to reach approximately 6.7 million tonnes, subject to the performance of our logistics chain.

Continued strong operating performance in the mines and changes in our mine sequence have resulted in an increase in capitalized stripping costs to approximately $500 million, above the previous guidance of $470 million. High productivities and solid performance in the mines has led to blending options and operational flexibility that will enhance the business unit’s ability to meet future production targets.

We plan to invest approximately $12 million to complete and evaluate the MacKenzie Redcap detailed design study. We expect to be in a position to make a decision on the project before year end. MacKenzie Redcap development is expected to supply approximately 1.8 million tonnes of steelmaking coal production per year and has the potential to extend production at Cardinal River Operations to approximately 2027, beyond the planned closure in 2020. Beyond 2020, that additional tonnage would add to the current planned production capacity of 27 million tonnes in the Elk Valley.

Elk Valley Water Management Update

We continue to implement the water quality management measures required by the Elk Valley Water Quality Plan (the Plan), an area-based management plan that was approved in the fourth quarter of 2014 by the British Columbia (B.C.) Minister of Environment. The Plan establishes short, medium and long-term water quality targets for selenium, nitrate, sulphate and cadmium to protect the environment and human health, as well as a plan to manage calcite formation. In accordance with the Plan, we have constructed the first active water treatment facility (AWTF) at West Line Creek.

We successfully tested an additional treatment step to address an issue regarding selenium compounds in effluent from the Line Creek AWTF. Construction of the modifications to the AWTF have been completed on schedule and we are currently in the process of recommissioning the treatment facility. The construction of our next AWTF at Fording River Operations has commenced using the same treatment process as West Line Creek.

In 2017, we constructed our first saturated rock fill (SRF) project at Elkview Operations. The SRF has been in operation for the past nine months and is demonstrating near-complete removal of nitrate and selenium from the feed water. The initial SRF results are promising and the technology has the potential to replace future AWTFs and to significantly reduce capital and operating costs for water treatment.

During the third quarter of 2018, Teck Coal Limited (TCL) received notice from Canadian federal prosecutors of potential charges under the Fisheries Act in connection with discharges of selenium and calcite from coal mines in the Elk Valley. Since 2014, compliance limits and site performance objectives for selenium and other constituents, as well as requirements to address calcite, in surface water throughout the Elk Valley and in the Koocanusa Reservoir have been established under a regional permit issued by the Provincial government, which references the Plan. If Federal charges are laid, potential penalties may include fines as well as orders with respect to operational matters. It is not possible at this time to fully assess the viability of TCL’s potential defenses to any charges, or to estimate the potential financial impact on TCL of any conviction. Nonetheless, that impact may be material.

We expect that in order to maintain acceptable water quality, some form of water treatment will be required for an indefinite period after mining operations end. The Plan contemplates additional water treatment and ongoing monitoring to ensure that the water quality targets set out in the Plan are in fact protective of the environment and human health and provides for adjustments if warranted by monitoring results. We continue to advance research and development projects with the potential to significantly reduce capital and operating costs for water treatment.

COPPER BUSINESS UNIT

 Three months
ended September 30,
Nine months
ended September 30,
(CAD$ in millions) 2018  2017  2018  2017
     
Copper price (realized — US$/pound)$2.79 $2.87 $   3.03 $2.71
Production (000’s tonnes) 72  75  221  209
Sales (000’s tonnes) 69  68  220  201
Gross profit, before depreciation and amortization1$  291 $281 $1,096 $729
Gross profit$  171 $143 $ 739 $298
Property, plant and equipment expenditures$  156 $  77 $ 387 $179
     

Note:
 1)   Non-GAAP financial measure. See “Use of Non-GAAP Financial Measures” section for further information.

Performance

Gross profit from our copper business unit was $171 million in the third quarter compared with $143 million a year ago. Gross profit before depreciation and amortization increased by $10 million compared with a year ago (see table below) due mainly to higher co-product sales of zinc and molybdenum and foreign exchange movements, which more than offset a modest increase in unit operating costs. Depreciation and amortization charges were $18 million lower than the third quarter a year ago mainly as a result of our asset impairment charge in respect of Quebrada Blanca recorded in the fourth quarter of 2017 and the extension of mine life until the fourth quarter of this year.

Copper production in the third quarter decreased by 4% from a year ago primarily due to lower ore grades and mill throughput at Highland Valley Copper, as expected in the mine plan. Our cash unit costs before by-product credits in the third quarter increased by 5% to US$1.75 per pound compared to US$1.66 per pound during the same period a year ago. Higher site operating costs, attributable to higher fuel costs and tailings storage construction activities, were mostly offset by significantly higher sales of zinc and molybdenum. As a result, cash unit cost after by-product credits increased by only US$0.02 per pound to US$1.29 per pound in the third quarter, compared to US$1.27 per pound in the third quarter last year.

The table below summarizes the changes in gross profit, before depreciation and amortization, in our copper business unit for the quarter:

(CAD$ in millions)Three months
ended September 30,
  
As reported in the third quarter of 2017$ 281 
Increase (decrease): 
  Copper price realized (16)
  Sales volumes 4 
  Co-product and by-product contribution 16