China gives Teck breathing room on debt

COMMENT: This "strategic partnership with the mining industry's most important customer", as Teck CEO Don Lindsay puts it, indeed secures Canadian coal for Asian buyers. Japanese (Sumitomo already owns X% of Teck), Korean, and Chinese investment in Teck structurally locks in certain things:

- BC's annual production of coal (mostly from Teck) amounts to a third of the greenhouse gas emissions for which this province can be held accountable. This deal implies the continuation of coal exports (and GHG emissions) for years to come, completely contrary to what we must do if we are to reduce carbon emissions globally

Andy Hoffman
Globe and Mail
July 3, 2009

State-owned fund invests $1.7-billion in miner and offers hope of new markets

China is taking a major stake in Teck Resources Ltd. (TCK.B-T17.97-0.46-2.50%) in a $1.7-billion deal that will give the Canadian miner a partnership with the world's largest commodity buyer and much needed cash to reduce its debt load.

The deal between Vancouver-based Teck and state-controlled China Investment Corp. comes as Chinese companies have been scouring the globe for resource assets, most notably oil and copper.

CIC is acquiring more than 101 million Class B Teck (TCK.B-T17.97-0.46-2.50%) shares at $17.21 each through a private placement, or about 17.5 per cent of that class of stock, Teck said Friday.

That would give the Chinese sovereign wealth fund about 17.2 per cent of Teck's equity and a voting stake of 6.7 per cent. Teck's Class A shareholders would hold a 61.8-per-cent voting interest in the company.

On a conference call, Teck chief executive officer Don Lindsay described the deal as a “strategic partnership” with the mining industry's most important customer.

He said the private placement would create a “financial relationship with a deep pocketed investor who could provide potential financing assistance for existing development projects and potential new growth opportunities.”

Mr. Lindsay, a former investment banker, also said CIC would help give Teck insight into the Chinese economy and metals demand.

“This will deepen our relationship with what is clearly the biggest customer of our core products,” Mr. Lindsay said.

China's cash-rich, state-controlled companies have been on acquisition sprees. In the oil industry, the Chinese have become the most aggressive deal makers, taking advantage of low oil prices (CL-FT59.66-0.75-1.24%) to help feed the country's energy needs. China had won a deal to take a major stake in one of the world's largest miners – Rio Tinto PLC – but the deal was scrapped in favour of massive rights issue a joint venture between Rio and BHP Billiton Ltd.

Teck, in turn, has been moving to cut the $9.8-billion (U.S.) in debt it loaded up on to pay for the takeover of Fording Canadian Coal Trust last year.

It has made several inroads, trimming a $5.8-billion bridge loan that was to come due in October and arranging a series of asset sales at better-than-expected prices. The company also suspended its dividend and slashed 1,400 jobs.

Teck said CIC is acquiring the stock for investment purposes as a “long-term passive financial investor” and will hold the shares for at least a year following the anticipated closing in mid-July.

The Chinese company has also agreed that after that year, it won't sell the stock within the industry or to any large Teck customer.

Teck had previously said it did not plan to issue equity to help pay down its crushing debt load. However, Canada's largest base metals miner had indicated it could sell a 20 per cent interest in its coal operations or strike a partnership agreement with one of its large metals customer.

“The move is surprising given recent company quotes that it was not looking to raise equity but rather potentially sell a stake in the Elk Valley [metallurgical] coal operations,” BMO Nesbitt Burns analyst Tony Robson said in a report to clients.

In the past, China has not been a major buyer of Teck's coking coal, which is used to make steel. However, the Asian super power has recently been buying more of Teck's coal and will presumably increase its purchases under the arrangement.

Teck's dual class share structure gives voting control of the company to the family of chairman Norman Keevil and Japan's Sumitomo Metals.

China's resource plays

A look at 2009's slate of Chinese investments in commodities

Teck Resources (TCK.B-T17.97-0.46-2.50%) said on Friday it will sell a 17.2-per-cent equity stake to state-owned China Investment Corp. through a private placement that will raise $1.74-billion and help the miner pay down debt.

China's Commerce Ministry recently said that China would steadily push its “go abroad” investment policy, unperturbed by the collapse of a $19.5-billion tie-up between Rio Tinto and Chinese metals conglomerate Chinalco.

The following are some major Chinese investments in the commodities and energy sectors this year:

June 24, 2009 – Sinopec, China's largest oil refiner, agreed to buy Swiss oil explorer Addax Petroleum Corp. (AXC-T49.900.731.48%) for $7.24-billion, a deal that will give it access to high-potential oil blocks in West Africa and Iraq.

June 23, 2009 – Chinese power company GCL-Poly Energy Holdings said it would pay $3.38-billion for a Jiangsu province solar parts maker in a move to tap the country's growing solar energy industry.

June 9, 2009 – Canadian mining and exploration company Consolidated Thompson (CLM-T3.240.175.54%) said it had finalized terms of an agreement with China's Wuhan Iron and Steel Corp for a $240-million investment.

May 24, 2009 – Asia's largest oil and gas producer PetroChina agreed to buy Keppel Corp.'s 45.5 per cent stake in Singapore Petroleum Company for $1.02-billion U.S.).

April 30, 2009 – Chinese state-owned China Nonferrous Metal Mining Group agreed to take a majority stake in Australian rare earths miner Lynas Corp Ltd. $185.7-million.

April 1, 2009 – Australian zinc miner OZ Minerals agreed to sell most of its assets to China's Minmetals for $1.21-billion.

Feb. 24, 2009 – Chinese steel mill Hunan Valin Iron and Steel said it will pay $1.2-billion ($770-million) for a 16.5 per cent stake in Fortescue Metals Group.

Feb. 5, 2009 – Shenzhen Zhongjin Lingnan Nonfemet, China's third-largest zinc producer, wins Australian government approval to acquire a controlling stake in zinc miner Perilya.