Teck Resources to spin off coal business, end Keevil family control – The Globe and Mail

Teck Resources Ltd. TECK-B-T launched a sweeping overhaul of its corporate structure on Tuesday by announcing plans to spin off its coal business and end the founding Keevil family’s control of the country’s largest base metal mining company.

Vancouver-based Teck will ask shareholders to approve splitting off its British Columbia steelmaking coal mines, its largest business, into a company called Elk Valley Resources Ltd. The new company will be listed on the Toronto Stock Exchange. The parent company will own copper and zinc mines and be renamed Teck Metals Corp.

Teck earns the majority of its profit and free cash flow from selling coal to Asia-based steelmakers. After the spin off, Teck will continue to receive cash from the coal business for up to 11 years through royalty payments and ownership of $4-billion of preferred shares in Elk Valley. Teck predicts it will receive approximately $14-billion during this transition period, a payout that would increase if steelmaking coal prices rise.

“This transformative transaction creates two strong, sustainable, world-class mining companies committed to responsibly providing essential resources the world needs,” said Jonathan Price, Teck’s chief executive officer, in a press release. Mr. Price was named CEO in September and joined Teck in 2020.

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Two of Teck’s steelmaking customers, Japan’s Nippon Steel Corp. and South Korea’s POSCO, will swap stakes in the company’s B.C. coal mines for minority holdings in Elk Valley. Nippon will pay Teck $1.025-billion for a 10-per-cent stake in both Elk Valley and a share in Teck’s future cash flow from the business. POSCO will own 2.5 per cent of the coal company and Teck’s cash flow agreement.

When listed, Elk Valley will be one of the world’s largest steelmaking coal companies, with a forecast market capitalization of $8-billion to $11-billion. Mr. Price said the decision to spin out the division, rather than sell it, came after years of review and negotiations with rival mining companies. Teck made coal its major business by acquiring Fording Canadian Coal Trust in 2008 for $14.1-billion.

Vancouver’s Keevil family currently controls Teck through ownership of class A shares that each carry 100 votes. On Tuesday, the company announced plans to convert the multiple voting shares into single-vote class B shares in six years. Analysts said the move will mean Teck, a mid-tier mining company by global standards, eventually becomes a takeover target.

“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 of its shareholders,” said Sheila Murray, chair of Teck’s board.

Owners of Teck multiple voting will initially receive one new class A common share and 0.67 of a Class B share. In six years, the new class A shares will convert into class B shares on a one-for-one basis. Analysts said the final step in the process would mean existing minority shareholders face “minimal dilution” of just 1 per cent of their current ownership.

“The proposed structure is an elegant solution to creating an attractive copper growth focused (and ESG friendly) company via Teck Metals that will continue to benefit from elevated near-term steelmaking coal free cash flow,” said analyst Orest Wowkodaw at Scotiabank in a report.

“In our view, the removal of the dual-class share structure is a positive governance initiative,” said Mr. Wowkodaw. “However, this change also makes the company potentially vulnerable to a future acquisition.”

Teck shareholders are expected to vote on the proposals at the company’s annual meeting in April and the spin out is expected to be completed in the second quarter of 2023. Investment banks Origin Merchant Partners and BMO Capital Markets advised Teck on the restructuring.

On Tuesday, Teck also announced record financial results for 2022, along with plans to buy back up to $250-million of its own shares this year. The company’s profit attributable to shareholders was $4.1-billion last year, compared to $2.9-billion in 2021, as revenues increased to $17.3-billion from $12.8-billion.

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