Teck to spin out coal operations, end dual share structure
Teck Resources Ltd. [TECK.B-TSX, TECK.A-TSX, TECK-NYSE] made a series of announcements Tuesday, including its fourth quarter financial results, the spin out of its metallurgical coal operations as well as a sunset period for its dual class share structure.
Analysts said the move positions Teck Metals for industry-leading copper growth and is expected to be positive for the share price.
Under the plan, Teck said it will reorganize its business to separate into two independent, publicly-listed companies. Teck Metals Corp. will contain the metal operations while Elk Valley Resources Ltd. (EVR) focuses on steelmaking coal production.
“This transformative transaction creates two strong, sustainable, world-class mining companies committed to responsibly providing resources the world needs,’’ said Teck CEO Jonathan Price.
The separation is structured as a spin-off of Teck’s steelmaking coal business by way of a distribution of EVR common shares to Teck shareholders. The company said Teck Metals will retain a substantial interest in coal cash flows through a transition period in the form of an 87.5% interest in a gross revenue royalty and preferred shares of EVR
Under the transition capital structure, Teck Metals will receive quarterly payments consisting of royalty payments and preferred share redemption amounts that will in aggregate equal 90% of EVR free cash flow. Teck shareholders of record as of the applicable distribution record date will receive common shares of EVR in proportion to their Teck shareholdings at an exchange ratio of 0.1 common share of EVR for each Teck share (or approximately 51.9 million total EVR shares) and approximately $0.39 cash per share for an aggregate of $200 million in cash.
As part of the separation, Teck will change its name to Teck Metals Corp. and continue to be listed on the Toronto and New York stock exchanges. EVR has applied to have its common shares listed on the TSX.
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.
Meanwhile, Teck also announced a proposed six-year sunset for the multiple voting rights attached to its Class A common shares. “The sunset on the multiple voting rights will modernize Teck’s governance and provide a simplified and competitive capital structure, following an appropriate continuity period, which we believe will benefit Teck and all its shareholders,’’ said Sheila Murray, Chair of the Board.
Teck said it will seek shareholder approval for the coal business spinout and the dual class amendment at its annual meeting on April 26, 2023.
On February 17, 2023, Teck’s Class B common shares traded at $59.40 in a 52-week range of $61.95 and $32.68.