Canada’s largest diversified miner Teck Resources Ltd. may announce a “simpler and more direct” plan to separate its coal assets from its metals’ unit by the end of the third quarter this year, according to an analyst at the Bank of Nova Scotia.
The Vancouver-based miner has been trying to separate its assets since February, when it announced it was going to divide itself into two publicly-listed companies to unlock shareholder value. One of the companies would focus solely on the metals needed for the energy transition, such as copper and zinc, while the other would run its steelmaking coal operations.
But the company in April decided to come up with a new separation plan as it predicted its original proposal wasn’t going to get the required shareholder support that it needed to go ahead.
The new plan, according to Bank of Nova Scotia analyst Orest Wowkodaw, might be a partial sale of its coal assets.
“Although the probability that Teck can divest the entire (coal) business at fair value has markedly improved over the past six months, we believe this scenario remains challenged by the large size of the transaction and the limited debt capacity of the standalone business,” he said in a note to clients on Aug. 29.
“In our view, a partial sale of the business to a consortium of buyers is a more probable scenario. This structure would also likely eliminate the requirement for a shareholder vote.”
The analyst increased the level of ownership he expects Teck to sell to 70 to 100 per cent, from about 50 per cent.
Teck did not comment on Wowkodaw’s note, but referred to its previous releases that said the company has received multiple indications of interest for its coal assets.
In July, the company’s chief executive Jonathan Price said Teck was “pleased with the progress” it has made so far with respect to its separation plans.
“We are not sitting on our hands here. We are taking a very active and diligent approach to move this forward as quickly as we can,” he said. “There is far more to it than just valuation … there is the allocation of risk and there is the long-term implication for the business beyond the transaction, all of which we have to be cognizant of.”
Teck’s initial separation plan was partially dented by mining giant Glencore PLC, which attempted to take over the entire company. The Swiss-based company also tried to influence Teck’s shareholders to vote against the separation.
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Glencore is one of the companies interested in buying Teck’s coal assets. Pierre Lassonde, a veteran in the mining industry, also expressed his interest in buying the assets with a group of investors.
Bank of Nova Scotia values Teck’s coal business at between $10.5 billion and $11.7 billion, and estimates that a sale of 80 per cent of the business could yield cash proceeds of $7.6 to $8.4 billion.
At 10:30 a.m., Teck’s shares were trading at $55.30, up 64 cents or 1.1 per cent, on the Toronto Stock Exchange, with a 52-week range of $38.8 to $66.04.
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