Teck announces spinoff steelmaking coal company

Key Takeaways:

• Teck plans to reorganize of its business into two independent, publicly-listed companies: Teck Metals Corp. and Elk Valley Resources Ltd. (EVR).
• Teck also reached agreement with its steelmaking coal joint venture partners and major customers, Nippon Steel Corporation and POSCO, to exchange their minority interests in the Elkview and Greenhills operations for interests in EVR.
• Teck will seek shareholder approval of the separation at its annual and special meeting of shareholders in April.

The Whole Story:

Teck Resources is getting a spinoff. 

The Canadian mining company announced the reorganization of its business into two independent, publicly-listed companies: Teck Metals Corp. and Elk Valley Resources Ltd. (EVR)

Company officials stated that the separation will create two resource companies and provide investors with choice for allocating investment between two businesses with different commodity fundamentals and value propositions. 

Officials explained that Teck Metals will be growth-oriented, with premier, low-cost base metals production, a top-tier copper development portfolio and a disciplined capital returns policy. Elk Valley will be a high-margin Canadian steelmaking coal producer, focused on long-term cash generation and providing cash returns to shareholders, with significant equity value accretion potential. They added that both companies will remain committed to strong environmental and social performance.

“This transformative transaction creates two strong, sustainable, world-class mining companies committed to responsibly providing essential resources the world needs,” said Jonathan Price, CEO, Teck. “Both Teck Metals and EVR have high-quality operating assets and strong financial foundations, with talented and dedicated employees, committed to ensuring safe and responsible operations. The transaction simplifies the portfolio of each company, allowing for strategic and financial focus and the ability to pursue tailored capital allocation strategies. It provides investors with choice in response to the evolving investment landscape, and establishes a pathway to full financial separation of the two companies over time.” 

Sheila Murray, chair of the Teck’s board of directors, noted that the transaction is the culmination of a comprehensive review to determine the best path to realize the full potential of the two businesses, while at the same time ensuring ongoing responsible management and operation for the long term.

 “We are confident that pursuing this plan will position both businesses for even greater success, allow shareholders to optimize their exposure to the different underlying commodities, and support a sustainable future for the benefit of employees, local communities, and Indigenous peoples,” said Murray. 

Details of the Separation 

The separation is structured as a spin-off of Teck’s steelmaking coal business by way of a distribution of EVR common shares to Teck shareholders. Teck Metals will retain a substantial interest in steelmaking coal cash flows through a transition period in the form of an 87.5% interest in a gross revenue royalty and preferred shares of EVR. Teck Metals will receive quarterly payments consisting of royalty payments and preferred share redemption amounts that will in aggregate equal 90% of EVR free cash flow. 

Teck shareholders will receive common shares of EVR in proportion to their Teck shareholdings at an exchange ratio of 0.1 common share of EVR for each Teck share and approximately $0.39 cash per share for an aggregate of $200 million in cash. Shareholders will be able to elect to maximize the amount of cash or common shares of EVR they receive, subject to proration, through a Dutch auction election process. Details of the election will be set out in the management proxy circular to be provided to Teck shareholders. 

As part of the separation, Teck will change its name to Teck Metals Corp. and continue to be listed on the Toronto and New York stock exchanges. EVR has applied to have its common shares listed on the TSX.

The Nippon Steel and POSCO Transactions

Teck has also reached agreement with its steelmaking coal joint venture partners and major customers, Nippon Steel Corporation (NSC) and POSCO, to exchange their minority interests in the Elkview and Greenhills operations for interests in EVR. As a result, EVR will own 100% of its steelmaking coal operations.

“This significant participation by two of the world’s largest steelmakers highlights the long-term, critical importance of high-quality steelmaking coal in order to reduce emissions and build essential infrastructure globally,” said Price. “We would like to thank our long-term partners NSC and POSCO for their continued support of the business. Their participation as shareholders of EVR is a testament to the strong outlook for the business.” 

Teck will seek shareholder approval of the separation at its annual and special meeting of shareholders expected to be held in April.

The separation is expected to be implemented through a plan of arrangement under the Canada Business Corporations Act=.