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Economic Performance and Contributions

Economic performance, direct and indirect economic impacts, generating economic value, payments to government, local hiring and procurement practices, community investment.

GRI Indicators
201-103, 201-1, 202-103, 202-2, 203-103, 203-1, 203-2, 204-103, 204-1

Why was Economic Performance and Contributions a Material Topic in 2016?

In 2016, citizens around the world continued to express a desire for greater transparency on corporate revenues, taxes and investments. While companies and governments began to align themselves with the UN Sustainable Development Goal 8 — sustained, inclusive and sustainable economic growth as well as full and productive employment and decent work for all — by 2030, societal pressure related to job creations and wages increased, especially as commodity markets improved in the latter half of the year. 

After a sustained downturn in global commodity markets since 2011, prices for many products, including steelmaking coal and zinc, increased in the second half of 2016. The rise in steelmaking coal prices was due to a number of supply-side factors, including production curtailments at seaborne supplier mines since the start of 2014, due to the low price environment, supply-side reform in the Chinese domestic coal sector, and supply disruptions in Australia and China. 

While some steelmaking coal mines reopened this year due to improved market conditions, many mining companies remained focused on measures to maintain economic viability, including asset sales, project cancellations and deferrals, closures and employee reductions throughout 2016. Mining-dependent communities and countries continued to feel the effects of low commodity prices through reduced employment, lower tax revenues and reduced community investment. 

As the market improved, communities continue to be concerned about the potential impacts of volatile market cycles. As a result, many mining companies are increasingly focused on demonstrating long-term mutual benefits and increasing transparency about their economic contributions. All Canadian companies in the extractives industry will begin to publicly report on payments to governments under the Extractive Sector Transparency Measures Act (ESTMA) in May 2017. 

While impacts may vary due to changes in commodity markets, direct economic impacts from mining activities may include wages and benefits paid to employees and payments to suppliers, payments to providers of capital, income and resource taxes paid, and community investments. Indirect economic impacts may include the development of infrastructure, changes to local government, impacts on other businesses in the region and changes to local demographics. 

In the first half of 2016, we remained focused on measures to ensure the long-term viability of our business. This included reducing our debt and the continued implementation of cost reduction measures. As prices for most of our principal products improved in the second half of 2016, we increased spending in selected areas to increase coal production to capitalize on the upturn. Throughout 2016, we continued to concentrate on local employment, investment and procurement as we engaged with local communities to maintain trust, mitigate impacts where possible and create mutual benefits for the long term. 

Performance Highlights

$9.3 billion

Revenue and gross profit before
depreciation and amortization of $3.8 billion
 

$11.8 million

in community investments 
 

Our Targets and Commitments

We are committed to providing long-term economic opportunities through local hiring and procurement, coupled with strategic community investments, to encourage lasting positive benefits for the communities in which we operate. It is our long-term sustainability goal to create lasting mutual benefits through collaboration on social, economic and environmental initiatives by 2030.

Our annual community investment budget is at least 1% of average annual earnings before taxes for the preceding five-year period. With a budget tied to earnings, our success as a company directly impacts our ability to invest in the communities where we operate.

 

How Does Teck Manage Economic Performance and Contributions?

Teck works to generate value from the extraction, processing and sale of mineral, coal and metal resources. This requires our operations to be economically viable across a range of commodity prices. We achieve this by focusing on maximizing the cost-efficiency of our operations and ensuring we receive full value for our products. This in turn helps to ensure the longer-term sustainability of our operations and their economic contributions to communities, including employment, procurement, capital investment, revenues to governments and Indigenous Peoples, and dividends to shareholders. 

We also recognize that our ability to operate depends on the support of local communities and that economic development needs to be managed responsibly so that it does not lead to dependence. As such, we focus on facilitating long-term economic opportunities through local hiring and procurement, coupled with strategic community investments, to encourage lasting positive benefits for the communities in which we operate.

Our approach to taxation is aligned with our Code of Ethics and our approach to business and sustainability. We are, in all tax matters, compliant, transparent, cooperative and ethical. We disclose our taxes accrued and paid in our published financial results in accordance with applicable accounting standards and supplement this with additional voluntary disclosure, working to ensure that our disclosure is accessible, practical and reported in a way that is easily understood. We believe that transparency can help communities to understand the revenue generated by mining activity, and how this is distributed to governments for local, regional and national economic and social development.

Many companies, including Teck, have joined the Extractive Industries Transparency Initiative (EITI), which is a voluntary global initiative that promotes transparency in payments to government and revenues for extractive industries. We voluntarily provide information on our tax payments in our principal operating countries on a country-by-country basis in our sustainability report and have done so since 2011. Our payments to governments will be reported to the Canadian government by country and on a project-by-project basis, as required under the Extractive Sector Transparency Measures Act.  

Our approach to tax is guided by the following principles:

  1. We act in accordance with all applicable laws and are guided by relevant international standards such as the OECD guidelines. We aim to comply with the spirit as well as the letter of the law.
  2. We are transparent about our approach to taxation and we regularly report on our tax payments and taxes accrued.
  3. We believe in paying taxes on profits according to where value is created over the course of the mining lifecycle. We conduct transactions on an arm’s length basis and comply with regulations under transfer pricing rules in the jurisdictions where we operate.
  4. We do not take an aggressive approach to tax planning or avoidance.  We do not implement transactions or tax structures that are unrelated to the ordinary course of our business.  Our goal is to support the growth and development of our business in a way that reflects our legal obligations as well as our values and our commitments to our communities of interest.
  5. We do not use “secrecy” jurisdictions.  We respond openly and fully on a timely basis to all government requests for information pertaining to our legal structure in the course of their audits.
  6. We seek to build open and transparent relationships with tax authorities and governments in all jurisdictions in which we operate. We support the development of tax policy in ways that reflect international best practices.
  7. We have mechanisms in place, including a written internal tax policy, to achieve the above principles and our Tax Group reports to Teck’s board of directors on an annual basis.

Recently, the OECD has expressed increased concern regarding the use of “tax havens” by multinational companies. We have a limited presence in offshore financial centres, including a financing affiliate that finances operations outside of Canada and an insurance affiliate that insures our worldwide mining operations. Our activities in these jurisdictions are fully disclosed to all relevant tax authorities in accordance with applicable law and are conducted on arm’s length terms in accordance with applicable transfer pricing regulations. We do not conduct sales activities through these jurisdictions.

 

 

We contribute to the long-term employability of the people near our operations by providing a range of career opportunities. This builds the economic resilience of communities and ensures that we leave a positive legacy. Sourcing local goods and services and hiring people locally helps gain community support for our activities, enhances our local knowledge, builds capacity, and mitigates business and social risks. 

Local hiring is a priority at Teck operations. For local procurement, we consider each operation’s definition of local, and we work to weight this positive criterion with other criteria such as the ability to meet our needs, health and safety performance, and competitiveness. Whenever possible, sites look for opportunities to utilize local suppliers, providing that they meet our standards and provide cost-competitive goods and services. At some of our sites, local suppliers also include those who self-identify as Indigenous Peoples. Commitments regarding procurement and hiring practices may be included in agreements between Teck and Indigenous communities.

As part of defining local, we determined the need to identify geographic and time-scale criteria. In order to determine what constitutes the local geographic area of each operation, we completed Area of Influence exercises at all of our operations to identify those communities and areas that are directly influenced by our activities. This improved the clarity of the geographic criteria of what constitutes the local area. We further considered how long a person should reside in an area before they can reasonably be considered local. This is a highly subjective question and there is no established industry norm. Through our work, we established that if a person asserts that their primary residence is within the direct area of influence at the time they apply to work at our operations, then the applicant will be considered local. Human Resources personnel at our operations have started using this information in their assessment of applications so that those who fall under our direct area of influence are identified as local in the hiring process. To ensure that local hires have the skills necessary for advancement, we focus on access to training opportunities at or near Teck locations.

 

Community investment is a key pillar of our company’s overall commitment to communities where we live and work. We contribute to community organizations to help build strong relationships and create lasting mutual benefits. Through community investment, we support local development priorities. 

Our community investment program is guided by best practices from the International Finance Corporation, the London Benchmarking Group and Imagine Canada. We aim to contribute at least 1% of our pre-tax earnings on a five-year rolling average basis to community investment. With our target tied to earnings, our success as a company directly impacts our ability to invest in the communities where we operate.  

In particular, our community investments are focused on:

  1. Health – programs and initiatives that improve the status of health in a community, including child and maternal health, access to health services and reductions in the prevalence of disease. 
  2. Education – programs and initiatives designed to enhance access to educational resources and training opportunities, including early childhood education, primary and secondary schooling, lifelong learning and institutions of technical training and higher education, with particular emphasis on programs of relevance to the mining, metals and energy industries.
  3. Environment – programs and initiatives designed to support and enhance environments, with particular focus on water, biodiversity (including wetlands protection and enhancement of fish and wildlife habitats, flora and fauna) and climate.
  4. Community – programs and initiatives designed to enhance social and economic sustainability and the capacity to earn a living or improve livelihoods, including support for business development, agriculture, subsistence activities, employment initiatives, food security and vulnerable groups. This category also includes support of relevant community and Indigenous organizations focused on social and community programs, and sponsorship of athletic and recreational activities and events and teams where the main goal of the investment is to promote community spirit and wellness.
  5. Other – from time to time, we support initiatives not covered in our four primary categories.


Our approach to community investment is based on the knowledge we gain through the following activities:

  • Collecting social baseline information and understanding our area of influence
  • Mapping, prioritizing and directly engaging with COIs 
  • Understanding social impacts and the needs of particular communities
  • Identifying potential risks and opportunities
  • Developing a strategic engagement plan linked to social risks in order to effectively engage with COIs
  • Assessing and incorporating engagement and social baseline information into our community investment plan


Our internal community investment policy guides how we align business drivers with community priorities, and guides our approach to providing long-term community benefits. Our community investment program is administered by the Corporate Community Investment Committee, which consists of the Chief Financial Officer, the Chief Operating Officer, the Senior Vice President, Sustainability and External Affairs and the Vice President, Community and Government Relations. Sites and Project Teams develop and submit proposed community investment budgets to the Committee for assessment. The Committee considers several factors, such as the social needs of the community in question, the outcome of social/risk assessments and the availability of other funding partners when evaluating and ultimately approving budgets. 

The geographic distribution of our contributions can be categorized at a local, regional, provincial/state, country or global level. We understand that building and maintaining our community relationships is essential, not only to our success, but also to the sustainable future of communities. That is why much of the focus of our community investment program is designed to support the many communities where we live and work.

What was Our Performance in Economic Contributions in 2016?

In this section, we report on economic value generated and distributed, taxes and other payments to government, local hiring and procurement, and community investment. 

 

Economic Value Generated and Distributed in 2016

We contribute to the wealth and prosperity of the countries, regions and communities where we operate by generating economic value that includes tax and royalty payments, local hiring and procurement, and community investments. We work to improve efficiency of our activities and reduce our operating costs to maximize economic value generated.

 

Table 13: 2016 Breakdown of Economic Value Generated and Distributed (millions)(1)

 

ECONOMIC VALUE GENERATED

ECONOMIC VALUE DISTRIBUTED

ECONOMIC VALUE RETAINED

 

Revenues(2)

Payment to suppliers(3)

Employee Wages and Benefits(4)

Payments to providers of capital(5)

Income and Resource Taxes(6)

Community Investments(7)

Total

 

 

 

Operating Costs

Capital Expenditures

Operating Costs

Capital Expenditures

 

 

 

 

 

USA

$1,527

$732

$56

$158

$5

-

$120

$1

$1,072

$455

Canada

$6,982

$3,967

$1,178

$1,056

$9

$629

$124

$5

$6,968

$14

Chile

$630

$430

$94

$81

$11

-

($60)

$4

$560

$70

Peru

$591

$228

$63

$85

-

-

$88

-

$464

$127

Other

-

$4

-

$2

-

-

-

$2

$8

($8)

Inter-segment elimination(1)

($430)

($430)

-

-

-

-

-

-

($430)

-

Total

$9,300

$4,931

$1,391

$1,382

$25

$629

$272

$12

$8,642

$658

(1) Payments to suppliers made for materials, product components, facilities and services purchases comprises operating expenses and capital expenditures. Historical data that did not include capital expenditures has not been restated.
(2) Revenues are presented based on an accrual basis. Internal cross-border sales are eliminated as shown. 
(3) Payments to suppliers and contractors for materials and services include operating costs and capital expenditures. Operating costs include operating expenses at our mining and processing operations and our general and administration, exploration and research and development expenses and costs relating to production stripping. Operating costs excludes depreciation, and employee wages and benefits, which are specified separately. Capital expenditures are payments for purchases of property, plant and equipment, excluding the component relating to capitalized wages and benefits, which is specified separately. 
(4) Wages and Benefits reflects total amounts paid to employees relating to wages and benefits, including payroll taxes. In addition to the employee wages and benefits recognized in expenses on the financial statements, wages and benefits that have been capitalized to property, plant and equipment is also presented.
(5) Payments to providers of capital includes dividends paid to shareholders and interest paid to debt holders.      
(6) Income and resource taxes include amounts paid in the year.      
(7) Community investments include voluntary donations paid during the year.       

In 2016, we achieved a profit attributable to shareholders of $1.0 billion or $1.80 per share. This compares with a loss attributable to shareholders of $2.5 billion or $4.29 per share in 2015, a profit of $362 million or $0.63 per share in 2014, and a profit of $961 million or $1.66 per share in 2013. See our Annual Report for more detailed information on our financial performance. 

Reporting on Payments to Governments

In May 2017, Teck will publicly report on payments to governments in the countries where we operate, as required under the Canadian Extractive Sector Transparency Measures Act, known as ESTMA. The Act introduces new reporting and transparency obligations for the Canadian extractive sector in support of global efforts to enhance transparency and prevent corruption.

ESTMA requires businesses to publicly report on payments to governments, including Indigenous governments outside of Canada. These payments include taxes, royalties and other payment types, by country and on a project-by-project basis, in relation to the commercial development of oil, gas and minerals. The requirement for extractive companies to report payments to Indigenous governments in Canada was deferred until 2018. The Canadian government continues its engagement with Indigenous Peoples on the implementation of the Act.

Teck works to ensure that our disclosure is transparent, accessible, practical and reported in a way that is easily understood. As such, Teck will also publish a voluntary Economic Contributions Report in early June 2017 to complement and enhance our ESTMA disclosure. This report will demonstrate our overall value generation in the areas where we operate through wages and benefits, payments to contractors and suppliers, community investment and other payments.

Significant Tax Issues — Negotiating Resolutions to the Severance Tax in Alaska

In January 2016, Teck Alaska filed a complaint in the Superior Court for the State of Alaska seeking to enjoin the enforcement of a new severance tax levied against Teck by the Northwest Arctic Borough (NAB).

At the time of this report’s release, Red Dog and NAB reached an agreement on key terms that provide a substantially increased payment in lieu of taxes to the NAB as compared to previous payments, and that includes the establishment of a Village Improvement Fund to support infrastructure and programs in the region. The tentative agreement still requires approvals from the NAB and Teck in order to become effective.

Local Hiring and Procurement in 2016

The tables below reflect our approach to tracking local employees and local procurement until the end of 2016. Increases and decreases in this data are influenced primarily by site-level construction and maintenance activity, as well as by the availability of suppliers in the local area. Historical data related to local hiring can be found on the 2016 Sustainability Performance Data page

Table 14: Local Employment in 2016(1),(2)

Operation

Number and Percentage of Local Employees

Percentage of Senior Management Roles Filled by Locals(4)

#

%

%

Cardinal River

323

94

75

Carmen de Andacollo

383

28

0

Coal Mountain

145

71

86

Elkview

617

66

91

Fording River

687

63

92

Greenhills

417

69

93

Highland Valley Copper

1,021

95

26

Line Creek

313

65

87

Pend Oreille

173

68

6

Quebrada Blanca

290

52

0

Red Dog(3)

64

14

0

Trail Operations

1,418

99

91

(1) Data is not directly comparable between operations, as there are differences in how each operation defines “local” and tracks data.
(2) "Local" is defined as persons or groups of persons living and/or working in any areas that are economically, socially or environmentally impacted (positively or negatively) by an organization’s operations. There may be fluctuations in data due to discrepancies in those who have been considered to be living in an “impacted” community. The community can range from persons living adjacent to operations to isolated settlements at a distance from operations, but are still likely to be affected by these operations.
(3) Red Dog Operations previously considered local as those within the state of Alaska, given the small population (approximately 750,000 people). In 2016, “local” was revised to contain those people within the 11 communities near the mine, to align with other operations’ definitions.
(4) Senior management are defined by their compensation band, which is determined by job responsibilities.

Table 15: Percentage of Spending on Local Suppliers  

Operation

2016

2015

2014

2013

Cardinal River

9

8

8

6

Carmen de Andacollo

18

19

9

14

Steelmaking Coal Operations in the Elk Valley

41

48

19

30

Highland Valley Copper

30

29

27

26

Pend Oreille

20

12

13

25

Quebrada Blanca

33

24

18

13

Red Dog

59

55

59

60

Trail Operations

27

24

33

29

Community Investment in 2016

We continue to meet our target of donating at least 1% of our pre-tax earnings on a five-year rolling average basis. Our community investment expenditures in 2016 were $11.8 million.

Table 16: Community Investment by Site(1),(2),(3),(4)

Operation

2016

2015

2014

2013

Carmen de Andacollo

1,929,000

2,310,000

2,157,000

2,217,000

Steelmaking coal operations(1)

679,000

672,000

1,970,000

1,654,000

Duck Pond

263,000

309,000

297,000

468,000

Highland Valley Copper

410,000

456,000

579,000

663,000

Pend Oreille

25,000

18,000

8,000

36,000

Quebrada Blanca

368,000

513,000

623,000

532,000

Red Dog(2)

948,000

1,284,000

556,000

586,000

Trail Operations

339,000

480,000

334,000

370,000

Corporate Offices and Projects(3)

6,844,000

10,602,000

12,755,000

15,846,000

Exploration

35,000

89,000

69,000

212,000

(1) Steelmaking coal operations include Cardinal River, Coal Mountain, Elkview, Greenhills, Fording River and Line Creek Operations.
(2) The 2012–2014 Red Dog numbers were recalculated to include investments that Vancouver Head Office made in the Northwest Arctic Borough.
(3) Includes Calgary, Santiago, Spokane, Toronto and Vancouver offices as well as resource development projects.
(4) The numbers represent Teck’s portion of ownership only (Carmen de Andacollo 90%, Quebrada Blanca 76.5%, Highland Valley Copper 97.5%).

Given that our community investment budget is tied to earnings on a five-year rolling average, the budget continued to decrease in 2016.   

 

Outlook for Economic Performance and Contributions

Volatility in commodity prices is expected to continue to affect Teck and the broader mining industry in both the near and long term. We will work to ensure our operations are well-positioned to respond to various market scenarios in the future by remaining focused on productivity and cost discipline across our business.

Looking ahead, we will remain focused on our production and cost targets for our steelmaking coal and base metals business units in 2017. We will also concentrate on improving operating excellence to take advantage of the current positive price environment — particularly in steelmaking coal.

We work collaboratively with communities of interest to keep them informed of any potential challenges and the actions we are taking. Wherever possible, we will continue to work to mitigate impacts and create mutual long-term benefits. In 2017, we will be examining opportunities to pursue improvements to our community investment policies and guidance to enhance the quality of decision-making, investment performance and public reporting. Actions determined through this process will be in place and reported upon in 2018.

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Teck is a diversified resource company committed to responsible mining and mineral development with business units focused on copper, zinc, steelmaking coal and energy.