Teck Resources Ltd. (TSX: TECK-B) is leaning toward selling only a portion of its coal business, according to mining veteran Pierre Lassonde, who is hoping to emerge the victor in a continuing auction of the company, Canada’s biggest diversified miner.
After a failed restructuring plan earlier in the year, Vancouver-based Teck indicated its next move would likely be a clean split of the company. The market interpreted this to mean that it would retain its metals mines, and possibly sell its entire metallurgical coal division.
“Teck is not focused on selling the entire thing,” said Mr. Lassonde, a co-founder and chairman emeritus of Toronto-based Franco-Nevada Corp., the world’s largest mining royalty company.
Mr. Lassonde has been in contact with Teck on an almost daily basis since a consortium led by him tabled a buyout proposal for the coal unit last month.
He said Teck is considering selling only a portion of the coal business in part because limiting the size of the deal would allow the company to avoid a shareholder vote. And he added that Teck also wants to retain a stake in the coal business to feed its copper business, which isn’t generating anywhere near the level of cash that coal is.
“They want to retain optionality,” Mr. Lassonde said. “I mean, don’t forget this business last year generated cash flow of C$7 billion.”
Teck needs funding for several growth projects, which are not in production yet. The company also wants to retain a stake in the coal business as a way to reassure its Canadian employees and Indigenous stakeholders, he added.
“Their management team is very concerned about the Indigenous [agreements] that they have, and whether any new owner will respect the commitments that they’ve made.”
Teck spokesperson Chris Stannell declined to comment.
Swiss trading house and miner Glencore PLC has been attempting to engage with Teck on a proposed $22.5-billion takeover proposal for the entire company. While Teck has rejected its advances on two occasions, Glencore continues to insist that it is interested in buying all of Teck, and has floated the possibility of taking an offer directly to shareholders.
Teck’s roots in Canada go back more than 100 years. The federal government has expressed concern over Glencore buying the company. Prime Minister Justin Trudeau, Finance Minister Chrystia Freeland, Industry Minister François-Philippe Champagne and Natural Resources Minister Jonathan Wilkinson have all publicly cited Teck’s importance to the domestic critical minerals industry, and said they like the fact that Teck is Canadian.
In April, Teck called off plans to split the company into two separate units, with one holding the coal business and the other its metals business, after not receiving sufficient support from its shareholders. The structure of the split was lambasted because 90 per cent of the cash flow from Teck’s coal business would have gone to the metals business for about a decade. Among the entities to vote against the split was Teck’s biggest shareholder, China Investment Corp.
Avoiding a shareholder vote on a partial sale of the coal business would mean the company would not have to win the blessing of CIC this time around, nor would it need to consult with its hedge fund investors, who may prefer a quick cash exit for the coal business. Teck would also not have to engage with proxy advisory firms, who give advice to shareholders in votes, and whose backing the mining company can’t rely upon.
Mr. Lassonde’s structured buyout proposal for Teck’s coal business consisted of cash, equity and streaming components. He has not revealed the dollar value of the proposal.
On Friday, he said that the exact percentage of the coal business that his consortium could buy has not been finalized yet, because lawyers are studying what level is feasible to avoid a shareholder vote at Teck.
Mr. Lassonde said Teck has also been meeting with its Japanese stakeholders to see what role they will play in any transaction. Under the original split proposal, Nippon Steel was poised to exchange its stake in Teck’s Elkview coal operation in British Columbia for equity in the coal spinout, and inject a further C$1.15-billion into the company.
“Management went over there last week to ascertain their willingness to maybe put in even more,” Mr. Lassonde said.