Teck Resources Ltd has announced today the reorganisation of its business to separate Teck into two independent, publicly-listed companies: Teck Metals Corp and Elk Valley Resources Ltd.
The separation it said “will create two world-class resource companies and provide investors with choice for allocating investment between two businesses with different commodity fundamentals and value propositions.”
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.” EVR 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.” Teck adds 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.”
“This transaction is the culmination of a comprehensive review by our Board to determine the best path to realise the full potential of the two businesses, while at the same time ensuring ongoing responsible management and operation for the long term,” said Sheila Murray, Chair of the Board, Teck. “We are confident that pursuing this plan will position both businesses for even greater success, allow shareholders to optimise their exposure to the different underlying commodities, and support a sustainable future for the benefit of employees, local communities, and Indigenous peoples.”
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. The royalty is a 60% gross revenue royalty that will be paid quarterly from EVR’s steelmaking coal revenue, subject to free cash flow and minimum cash balance limitations designed to support the financial resiliency of EVR, and should generally generate payments equal to 90% of EVR free cash flow.
Cash flow from the this transition capital structure is expected to provide Teck Metals with continued funding for prudent investment in its top-tier copper growth pipeline, while allowing for disciplined returns to its shareholders.
Teck has 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. As a result, EVR will own 100% of its steelmaking coal operations.
“We are excited about participating in EVR, the world class steelmaking coal producer,” said Eiji Hashimoto, the Representative Director and President of Nippon Steel. “High-quality steelmaking coal is essential in pursuing our carbon neutral strategy, where NSC aims to achieve both stable and efficient steel production and carbon neutrality by the most optimised approach combining several different advanced technological developments including hydrogen injection into blast furnaces, DRI production by hydrogen, high-grade steel production in large size EAF, and CCUS (Carbon Capture, Utilisation, and Storage).”
Teck will seek shareholder approval of the separation at its annual and special meeting of shareholders expected to be held on or about April 26, 2023. Teck expects that the transaction will be completed in the second quarter of 2023.
