Gross profit at Trail before depreciation and amortization declined from a year ago due to lower zinc production and sales volumes, lower silver prices and a stronger Canadian dollar, partially offset by higher sales volumes of silver.
Record silver production in the quarter was due to the treatment of additional silver-bearing concentrate and an increased silver refining capacity. Higher Kivcet on-line time, combined with additional lead in feeds, resulted in higher lead production compared to the same period a year ago. Zinc production in the fourth quarter was affected by poor operating performance in the zinc electrolytic cell house which resulted in a temporary build-up of in-process inventory.
Concentrate purchase costs increased in the fourth quarter compared with a year ago as a result of the purchase of an additional amount of silver bearing concentrates. Operating costs on a year-to-date basis in 2012, before the one-time labour settlement charges of $59 million for labour settlement and post-retirement benefits, rose by $24 million. This was partly due to higher manpower levels to allow for succession planning, higher wages, increased consumable costs, use of additional operating supplies and increased maintenance activity.
Construction continued on the new acid plant project with an expected start-up date in the first quarter of 2014. As part of the capital deferrals announced in October 2012, spending on the $210 million Number 4 Furnace project was deferred as major excavation and construction had not commenced and detailed engineering had yet to be completed.
Trail's production in 2013 is expected to be in the range of 280,000 to 290,000 tonnes of refined zinc, 85,000 to 90,000 tonnes of refined lead and 22 to 25 million ounces of silver.
Upper Columbia River Basin (Lake Roosevelt)
Teck American Incorporated continues studies under the 2006 settlement agreement with the U.S. EPA to conduct a remedial investigation on the Upper Columbia River in Washington State.
The Lake Roosevelt litigation involving Teck Metals Ltd. in the Federal District Court for the Eastern District of Washington continues.
In September, Teck Metals entered into an agreement with the plaintiffs, agreeing that certain facts were established for purposes of the litigation. The agreement stipulates that some portion of the slag discharged from our Trail Operations into the Columbia River between 1896 and 1995, and some portion of the effluent discharged from Trail Operations, have been transported to and are present in the Upper Columbia River in the United States, and that some hazardous substances from the slag and effluent have been released into the environment within the United States. In October, the Federal District Court for the Eastern District of Washington heard argument with respect to personal jurisdiction and certain legal issues with respect to CERCLA. In December the court found in favor of the plaintiffs in phase one of the case, issuing a declaratory judgement that Teck is liable under CERCLA for response costs, the amount of which will be determined in a subsequent phase of the case. TML has filed a notice of appeal with respect to the decision. The subsequent hearing, with respect to claims for natural resource damages and costs, is expected to be deferred while the remedial investigation and feasibility study being undertaken by Teck American are completed, which is currently expected to occur in 2015.
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