Teck Resources Ltd. will spin off its steelmaking coal business and simplify its share structure in a sweeping overhaul that is likely to make the Canadian miner an attractive target for larger rivals.
(Bloomberg) — Teck Resources Ltd. will spin off its steelmaking coal business and simplify its share structure in a sweeping overhaul that is likely to make the Canadian miner an attractive target for larger rivals.
Teck will split into two independent, publicly listed companies: Teck Metals Corp. will focus on metals needed in the clean-energy transition while Elk Valley Resources Ltd. will operate the coal assets. The coal business has an implied enterprise value of about C$11.5 billion ($8.6 billion), the firm said. Teck also plans to wind down the dual-class share structure under which Canada’s Keevil family controls the company, though the change will be over six years.
“The removal of the dual-class share structure is a positive governance initiative,” Scotiabank analyst Orest Wowkodaw said in a note. “However, this change also makes the company potentially vulnerable to a future acquisition.”
Teck shares fell 1.2% to C$58.70 at 10:14 a.m. trading in Toronto. Bloomberg first reported the Vancouver-based company’s plan to spin off the coal division last week.
Some of the world’s biggest mining companies are showing heightened interest in pursuing large acquisitions, with producers including BHP Group and Rio Tinto Group looking to expand in copper. Teck’s standalone metals business would include a suite of copper and zinc mines across the Americas, including its Quebrada Blanca 2 copper project in Chile that has long been admired by rivals. Teck also owns a stake in the Antamina copper and zinc operation with BHP and Glencore Plc.
Teck has been weighing options for its coal business for “a number of years now,” Chief Executive Officer Jonathan Price said in Tuesday’s earnings call. “It’s been an extensive process, as you would imagine, conducted over an extended period of time.”
- Read: Teck Resources Mulls Coal Spinoff in Shift to Focus on Metals
The spinoff completes Teck’s long-awaited transition from fossil fuels to focus on metals key for global energy transition. Last year, the company agreed to sell its 21% stake in a Canadian oil sands project to its partners. The company is one of the world’s largest exporters of the type of coal used in the steel industry.
The world’s biggest miners have for years been withdrawing from fossil fuels — Rio Tinto has exited coal altogether, while Anglo American Plc has sold out of thermal coal. BHP divested some of its thermal coal and quit oil and gas, but still has large steelmaking coal operations.
Elk Valley
Teck Metals will still stand to benefit from coal, though, since it will own a royalty on Elk Valley’s revenue as well as preferred shares in the company, Teck said. The structure is for a transitional period that could last about 11 years.
“Cash flow from the transition capital structure is expected to provide Teck Metals with continued funding for prudent investment in its top-tier copper growth pipeline, while allowing for disciplined returns to its shareholders,” the company said.
Current shareholders will receive 0.1 common share of Elk Valley Resources for each Teck share they hold, plus a cash consideration. Nippon Steel and Posco, two major steelmakers, will own minority stakes in the standalone met coal business.
Teck’s change to its share structure is aimed to “modernize” the company’s governance “and provide a simplified and competitive capital structure” that will benefit Teck and its shareholders, Chair Sheila Murray said in a separate statement.
Shareholders will vote on the changes at a meeting in late April.
(Adds shares, CEO and analysts comments from third paragraphs.)
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