Teck Resources Ltd.’s (TSX-TECK.B, TSX-TECK.A, NYSE-TECK) has agreed to sell its entire interest in its steelmaking coal business, Elk Valley Resources (EVR), via sale of a majority stake to Swiss metals trading giant Glencore Plc and a minority interest to Nippon Steel Corp. for an implied enterprise value of US$9.0 billion.
Subject to the approval of the Canadian government, the Vancouver metals giant said the sale of the steelmaking coal business achieves a simple and complete separation of steelmaking coal from base metals. It also said Glencore will establish a Canadian head office for the coal business in Vancouver.
“This transaction will be a catalyst to re-focus Teck as a Canadian based critical minerals champion with an extensive portfolio of copper growth projects, unlocking the full value potential of the company,’’ said Teck President and CEO Jonathan Price. “This sale will ensure Teck is well capitalized and able to realize value from our base metals business and deliver strong returns to our shareholders while maintaining a robust balance sheet,’’ he said. “Glencore has made strong commitments that will create new benefits for Canada and the Elk Valley and ensure responsible stewardship of the steelmaking coal operations for the long term.’’
“This sale sets the stage for Teck for continued growth as a major Canadian-based producer of copper and other future oriented metals, while preserving the jobs and operations of the coal mines in Elk Valley,’’ said Teck Chairman Emeritus Dr. Norman B. Keevil.
Glencore has agreed to acquire 77% of EVR for US$6.9 billion in cash. Nippon Steel will acquire a 20% interest in EVR in exchange for its 2.5% interest in Elkview Operations, plus US$1.3 billion in cash, payable to Teck at closing and US$0.4 billion in cash flows from EVR. The remaining 3.0% will be held by South Korean steel manufacturer POSCO.
Monday’s announcement comes after Teck recently rejected an unsolicited $23 billion takeover bid from Glencore. The bid followed a series of announcements, including the proposed spin out of Teck’s metallurgical coal operations as well as a sunset period for its dual class share structure. However, the plan to spin out the metallurgical coal operations has been shelved, leaving the company to mull other options.
Teck ranks as the world’s second-largest seaborne exporter of steelmaking coal, with six operations in Western Canada and significant steelmaking coal reserves. They include Elkview, Fording River, Greenhills and Line Creek in southeastern British Columbia.
Steelmaking coal – or metallurgical coal – is a higher-grade coal which is a necessary component in the chemical reactions that transform iron into steel.
Coal production is currently shipped via three B.C. west coast ports including Ridley, Neptune and Westshore Terminals. Located in Delta, British Columbia, Westshore Terminals is Canada’s premier coal export terminal and handles over 33 million tonnes of coal annually.
Teck’s Class B common shares advanced on the news, rising 2.7% or $1.38 to $51.69 in early trading Tuesday. The shares are currently trading in a 52-week range of $66.04 and $42.39.