Home Commodities Teck Resources plans $11.5 billion coal spin-off to focus on copper

Teck Resources plans $11.5 billion coal spin-off to focus on copper

by SuperiorInvest

Canadian mining group Teck Resources is set to spin off its coal business to focus on metals vital to low-carbon energy, completing a transition away from fossil fuels amid growing criticism of the sector.

Teck said Tuesday it plans to spin off its metallurgical coal operations — used in steelmaking — into a new company, Elk Valley Resources, which will have an enterprise value of $11.5 billion.

By splitting the company in two, Teck said the two entities could attract new capital at a time when investors with significant mandates have been more careful about where they put their money.

“The intention here is twofold: one is to improve the strategic and financial focus of both companies,” said Jonathan Price, CEO of Teck, in an interview with the Financial Times. “[And two,] it’s about giving investors a choice in how they build their own portfolio.”

Teck, which has a market capitalization of about $22 billion, is looking to shed fossil fuels from its portfolio and focus on copper, a metal critical to the transition to more renewable forms of energy. Last year, it sold its 21.3 percent stake in a Canadian oil sands project to Suncor Energy for about C$1 billion ($743 million) in cash.

The coal spin-off will be done through a distribution of shares in Elk Valley to existing shareholders of Teck Resources – which will be renamed Teck Metals. The company’s four metallurgical coal mines produced 24.6 million tons in 2021, making it the largest North American producer and the world’s second largest marine exporter.

Tuesday’s announcement comes after Teck confirmed last week that it was “evaluating alternatives for its coal-based steel business,” according to Bloomberg message that a spin-off was on the table.

Other mining companies have spun off or divested coal assets. Rio Tinto has completely discarded coalwhile Anglo American exited its exposure to thermal coal, which is used to generate electricity, when it dialed out Thungela Resources based in South Africa in 2021.

However, BHP and Anglo maintain large steelmaking coal operations and Glencore is listed on the London Stock Exchange benefit from clinging to thermal coal after prices skyrocketed as Europe struggled to secure energy supplies following Russia’s invasion of Ukraine.

“For a long time, mining companies have been very focused on diversification – and they’ve done that by bringing together a whole range of different commodities to simply expand their portfolios and make them bigger,” Price said. “I think what we’re seeing today is that investors prefer building their own portfolios.”

The split will leave Teck Metals with a portfolio of copper and zinc mines in the Americas, including the massive Quebrada Blanca 2 mine in Chile, which will begin production later this year.

Nippon Steel and Posco – two of the world’s largest steelmakers – will own 10 percent and 2.5 percent stakes in Elk Valley Resources in exchange for giving up their minority stakes in Teck’s mines. Nippon will also pay $1 billion in cash.

During the transition period, Teck will receive payments from Elk Valley in the form of royalties and preferred stock buybacks worth 90 percent of its cash flow. It said it would use the funds to expand its copper operations.

The transaction is subject to a shareholder vote on April 26.

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