Teck fielding expressions of interest for coal business, as Canadian miner considers new restructuring plan

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Teck Resources Ltd. TECK-B-T is fielding expressions of interest from parties potentially interested in mergers-and-acquisitions transactions concerning its metallurgical coal business, as Canada’s biggest diversified mining company weighs the best path forward after a botched restructuring plan earlier this year.

In April, Vancouver-based Teck did not move forward on a planned split of the business that would have seen it spin off its coal division from its metals mines, after it failed to win sufficient support from shareholders. Under the arrangement, the coal operation would have paid a 90-per-cent annual royalty to metals for about a decade, a scenario that a significant contingent of investors did not like. Among the investors that voted against the proposed transaction was China Investment Corp., Teck’s biggest shareholder.

Teck in the aftermath said it would consider a cleaner split of the company, but gave few details on what that might look like.

On Tuesday, the mining company in a statement it will consider and evaluate “all actionable, value-accretive proposals received relating to its steelmaking coal business to determine whether they are in the best interests of Teck’s shareholders and other stakeholders.”

Teck did not say which parties had expressed interest in the coal business, and there was no mention of the two known interested suitors, a consortium led by Canadian mining veteran Pierre Lassonde, and Swiss mining and trading house Glencore PLC.

Glencore earlier in the year tabled a proposal worth US$22.5-billion to buy all of Teck, but the board rebuffed its advances as value-destructive, in part because the transaction would broaden the combined entity’s exposure to environmentally unfriendly coal.

Glencore later indicated it would try again to engage with Teck’s board, and suggested that if that strategy failed, the Swiss giant might take an even higher offer directly to shareholders. But so far, Glencore hasn’t made such a move.

Mr. Lassonde, who is co-founder and chair emeritus of Franco-Nevada Corp., in May tabled a proposal for just Teck’s coal business. He hasn’t revealed the size of the offer, or who else is in the consortium, but last week he told The Globe and Mail that a transaction led by him would likely only be for a portion of the coal business, as opposed to the entire unit, as that was Teck’s preference.

Such a structure would likely negate the need for Teck to hold a shareholder vote, meaning it would not need to win their approval, and the transaction could potentially happen in a prompt fashion. Retaining exposure to coal would also provide ample cash flow to fund growth projects in its metals portfolio, said Mr. Lassonde.

Teck chief executive Jonathan Price wrote in an e-mail to The Globe that, “with all due respect, Mr. Lassonde does not speak for Teck and does not have an informed view of our intentions for Teck’s steelmaking coal business.”

Scotia Capital analyst Orest Wowkodaw wrote in a note to clients on Tuesday that although Teck might prefer to divest its entire coal business at fair value, that’s unlikely, because there are few suitors for such a sizable transaction in coal.

He also cited the limited ability of a stand-alone coal company to take on debt. That’s because banks are lending less to coal companies over time owing to ESG (environmental, social and governance) concerns. He added that a “partial sale of the business to a group of buyers” is a more realistic scenario.

According to Mr. Wowkodaw, if Teck sold 50 per cent of the coal business, it could net up to $4.8-billion in cash.

While Glencore prefers to buy all of Teck, the Swiss suitor’s CEO Gary Nagle recently left the door open to it possibly buying only the coal division.

Several years ago, Teck instigated a strategic review after concluding that even though its coal business generates billions in cash flow every year, it is weighing down the valuation of the larger company because, over time, there has been less investment demand for coal companies owing to the detrimental impact burning the fossil fuel has on the environment.

Teck has been working with bankers at Barclays and Ardea Partners to explore its options.