Creating an image from a Time Machine backup – "Operation Cancelled"
For some reason, this only works via command line using the hdiutil tool.

First, open Disk Utility, right click the source drive (the Time Machine volume), and choose Unmount. Do not eject it!

Then, open a Terminal window, and enter:

diskutil list


You should be able to locate your volume. For example, in my case, it was listed as follows:

/dev/disk5 (external, virtual):
   #:                       TYPE NAME                    SIZE       IDENTIFIER
   0:                  Apple_HFS Backup Apollo          +500.0 GB   disk5
                                 Logical Volume on disk4s2
                                 8577521E-D394-45A0-BB7E-26F9E19C1FE7
                                 Unlocked Encrypted


Copy the identifier, /dev/disk5. This is what we want to convert into an image.

Then, run the following command, which will create an encrypted image of the source volume:

hdiutil create /Volumes/Data/Backup.dmg -encryption -stdinpass -srcdevice /dev/disk5


Here, /Volumes/Data/Backup.dmg is the target file. Change it according to your needs.

You need to use sudo to run this command (left out for security reasons), so when you're sure it's correct, run sudo hdiutil create ….

After hitting Enter, you will be asked for an encryption password. This takes a while, but it works:

Elapsed Time:  7h 15m 52.227s
File size: 293424025874 bytes, Checksum: CRC32 $753B4175
Sectors processed: 976562496, 968645649 compressed
Speed: 18.1Mbytes/sec
Savings: 41.3%
created: /Volumes/Data/Backup.dmg


For more options, run man hdiutil.