Teck Resources Limited (TSX: TECK.A and TECK.B, NYSE: TECK)
(“Teck”) announced today the reorganization of its business (the
“Separation”) to separate Teck into two independent,
publicly-listed companies: Teck Metals Corp. (“Teck Metals”) and
Elk Valley Resources Ltd. (“EVR”).
The Separation 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.
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 realize 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 optimize their exposure to
the different underlying commodities, and support a sustainable
future for the benefit of employees, local communities, and
Indigenous peoples.”
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 (the “Royalty”) and preferred shares of
EVR (collectively, the “Transition Capital Structure”). Under the
Transition Capital Structure, 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 of record as of the applicable distribution
record date 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 (or approximately 51.9 million total EVR
common shares) 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 (“TSX” and “NYSE”). EVR has applied to have its
common shares listed on the TSX.
In consideration for the transfer of the steelmaking coal assets
to EVR, EVR will grant the Royalty and issue preferred shares and
common shares to Teck Metals. 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. The Royalty will be payable until the later of (a) an
aggregate amount of $7.0 billion in royalty payments having been
made, or (b) December 31, 2028. The preferred shares will have an
aggregate $4.4 billion redemption amount and a 6.5% cumulative
dividend. The preferred shares will be redeemed out of 90% of EVR
free cash flow after the Royalty is no longer payable. If not
redeemed earlier, the preferred shares will mature 20 years from
their date of issue. Assuming a US$185/tonne long-term benchmark
steelmaking coal price and a CAD/US dollar exchange rate of 1.30,
the Transition Capital Structure could be fully paid in
approximately 11 years.
Cash flow from the 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 received
preliminary indications that S&P, Moody’s and Fitch are likely
to affirm an investment grade credit rating on the existing senior
notes of Teck Metals should the Separation proceed.
These arrangements are designed to provide EVR with flexibility
to operate its business, provide cash returns to shareholders, and
fund its environmental and social commitments in a broad range of
steelmaking coal price environments. On completion of the
Separation, it is expected that:
- EVR will be well-capitalized with $1.0 billion in cash and
other working capital, no debt, and $88 million in leases relating
to operations.
- EVR will have credit facilities in place to meet its existing
reclamation bonding requirements. Additionally, EVR will establish
an Environmental Stewardship Trust and fund it through escalating
fixed annual contributions, starting at $50 million, for long-term
environmental obligations.
EVR is expected to implement an initial distribution policy that
provides for a base annual dividend of $0.20 per share, and
supplemental distributions of 50% of free cash flow available after
Transition Capital Structure payments.
The Nippon Steel and POSCO TransactionsTeck 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. NSC’s exchange of its
Elkview interest and its $1.025 billion cash investment will give
it a 10% interest in EVR common shares and the Transition Capital
Structure. POSCO will receive a 2.5% interest in EVR common shares
and the Transition Capital Structure.
“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 Jonathan 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.”
“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 optimized 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, Utilization, and Storage).”
Pursuant to these transactions:
- NSC has agreed to exchange its current 2.5% interest in Elkview
Operations and $1.025 billion in cash payable to Teck Metals for
common shares of EVR and an interest in the Transition Capital
Structure. This implies an EVR enterprise value of approximately
$11.5 billion. Following these transactions, NSC will own 10% of
the EVR common shares and a 10% interest in the Transition Capital
Structure.
- EVR and NSC will enter into a long-term steelmaking coal
offtake rights arrangement, continuing NSC’s long-standing
commercial arrangements for the purchase of steelmaking coal from
the Elk Valley.
- EVR and NSC will enter into an investor rights agreement,
pursuant to which NSC will be entitled to certain customary rights
including a right to nominate one director to the board of
directors of EVR, pre-emptive rights on future securities
issuances, and registration rights. NSC will agree to certain
customary transfer and standstill restrictions.
- POSCO has agreed to exchange its current 2.5% interest in
Elkview Operations, and its 20% interest in the Greenhills joint
venture, for a 2.5% interest in each of the EVR common shares and
the Transition Capital Structure.
The exchanges of the current interests of NSC and POSCO for
interests in EVR are conditional on the completion of the
Separation and other customary conditions. The additional
investment by NSC is conditional on completion of the Separation,
but the Separation is not conditional on completion of the
additional investment by NSC.
Board RecommendationTeck’s Board of Directors
formed a Special Committee of independent directors to oversee the
consideration of various potential transactions involving Teck’s
steelmaking coal assets. The Special Committee was advised by
independent financial and legal advisors and received opinions from
each of Origin Merchant Partners and BMO Capital Markets to the
effect that, as of the date of each such opinion and subject to the
assumptions, limitations and qualifications set forth therein, the
consideration to be received by Teck shareholders pursuant to the
Separation is fair from a financial point of view to such
shareholders.
Teck’s Board of Directors, on the recommendation of the Special
Committee, has unanimously determined that the transaction is in
the best interests of Teck and is fair to shareholders, and is
recommending that shareholders vote in favour of the Separation.
Details regarding the process carried out by the Special Committee,
together with a copy of the fairness opinions prepared by Origin
Merchant Partners and BMO Capital Markets, will be contained in the
management proxy circular to be mailed to Teck shareholders.
Approvals and Closing ConditionsTeck 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 (the “Meeting”).
The Separation is expected to be implemented through a plan of
arrangement under the Canada Business Corporations Act, and is
subject to the approval of at least 66 2/3% of the votes cast by
the holders of Class A common shares and Class B subordinate voting
shares of Teck, each voting separately by class. In addition to
Teck shareholder and court approvals, the Separation is subject to
customary conditions. Listing of the EVR common shares is subject
to the approval of the TSX in accordance with its original listing
requirements. The TSX has not conditionally approved the listing
application and there is no assurance that the TSX will approve the
listing application. Teck expects that the transaction will be
completed in the second quarter of 2023.
Temagami Mining Company Limited (“Temagami”), SMM Resources
Incorporated (“SMM”) and Dr. Norman B. Keevil have each agreed to
vote in favour of the resolution approving the Separation, and to
elect to receive the maximum number of EVR shares that may be
distributed to them in connection with the Separation. SMM and Dr.
Keevil have also agreed to not transfer the EVR shares received by
them in connection with the Separation (including EVR shares they
may receive, directly or indirectly, from Temagami) for a period of
18 months following the effective time of the Separation, subject
to certain limited exceptions. Collectively, Temagami, SMM and Dr.
Keevil own or control 6,187,880 Class A common shares, representing
approximately 79.7% of the aggregate voting rights attached to the
Class A common shares, and 1,057,812 Class B subordinate voting
shares, representing approximately 0.2% of the aggregate voting
rights attached to the Class B subordinate voting shares.
Further information regarding the transactions will be included
in the management proxy circular to be mailed to Teck shareholders
for the Meeting, which will be available on SEDAR at www.sedar.com
and on EDGAR at www.sec.gov. The descriptions of the transactions
in this press release do not purport to be complete, and are
subject to, and qualified in their entirety, by reference to the
management proxy circular. Shareholders are encouraged to read the
management proxy circular and other relevant materials when they
become available.
Tax Treatment for the SeparationFor Canadian
federal income tax purposes, the distribution of EVR shares and
cash is expected to be a return of capital to Teck shareholders who
are Canadian residents which should reduce the tax cost of their
shares and be tax-free provided such tax cost does not become
negative (and be a deemed capital gain otherwise to the extent the
tax cost does become negative). Teck believes that for Teck
shareholders that are U.S. persons (for applicable U.S. federal
income tax purposes), the receipt of EVR shares and/or cash, as
applicable, will be treated as a taxable dividend for U.S. federal
income tax purposes. A general summary of the Canadian and U.S. tax
considerations will be described in the management proxy circular.
Teck shareholders are urged to consult their own tax advisors with
respect to the tax consequences of the receipt of EVR shares and/or
cash, as applicable, pursuant to the Separation under their
particular circumstances.
Accounting Treatment for the
SeparationFollowing closing of the Separation, Teck Metals
will not consolidate the assets, liabilities, or financial results
of the steelmaking coal business in its consolidated financial
statements. The preferred shares and Royalty components of the
Transition Capital Structure will be accounted for as financial
instruments and will be measured at fair value through profit and
loss in the consolidated financial statements of Teck Metals. The
Royalty and preferred share dividends will represent recurring cash
flows of Teck Metals until at least December 31, 2028.
Following closing of the Separation, the consolidated financial
statements of EVR will include all of the assets and liabilities of
the steelmaking coal business at their historical carrying values.
The preferred shares and Royalty components of the Transition
Capital Structure will be initially recorded at fair value as
financial obligations in the consolidated financial statements of
EVR. The preferred shares and Royalty will subsequently be measured
at amortized cost.
AdvisorsBarclays Capital Canada Inc., Ardea
Partners LP, TD Securities Inc., and CIBC World Markets Inc. are
serving as financial advisors to Teck. Stikeman Elliott LLP and
Paul, Weiss, Rifkind, Wharton & Garrison LLP are acting as
legal advisors, and Felesky Flynn LLP is acting as legal tax
advisor.
BMO Capital Markets, Goldman Sachs & Co. LLC, and Origin
Merchant Partners are serving as financial advisors to the Special
Committee and Blake, Cassels & Graydon LLP and Sullivan &
Cromwell LLP are acting as legal advisors to the Special
Committee.
Investor Conference Call and InformationA
webcast to discuss the Separation and review Teck’s fourth quarter
2022 results will be held as follows:
Date: Tuesday, February 21,
2023Time: 5:00 a.m. PT / 8:00 a.m.
ETListen-Only Webcast: teck.comDial
In for Investor & Analyst Q&A: 416.915.3239 or
1.800.319.4610Quote “Teck Resources”, to join the callAn archive of
the webcast will be available at teck.com within 24 hours.
Additional information including the accompanying presentation
will be available at www.teck.com/separation.
Forward Looking StatementsThis news release
contains certain forward-looking information and forward-looking
statements as defined in applicable securities laws (collectively
referred to as forward-looking statements). These forward-looking
statements relate to future events or our future performance. All
statements other than statements of historical fact are
forward-looking statements. The use of any of the words
“anticipate”, “plan”, “continue”, “estimate”, “expect”, “may”,
“will”, “project”, “predict”, “potential”, “should”, “believe” and
similar expressions is intended to identify forward-looking
statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause actual results or
events to differ materially from those anticipated in such
forward-looking statements.
These forward-looking statements include, but are not limited
to, statements relating to the proposed Separation; expected future
attributes, capitalization and credit metrics of Teck Metals and
EVR following the Separation; the anticipated benefits of, and
rationale for, the Separation; plans, strategies and initiatives
for each of Teck Metals and EVR following the Separation; terms and
conditions of the Separation, including the expected distribution
of EVR shares and cash, available consideration election for
shareholders and the Transition Capital Structure to be retained by
Teck; anticipated dividend policy of EVR; anticipated tax proceeds
of the Transition Capital Structure to Teck and timing for payment
of the Royalty; the timing for completion of the Separation; the
expected voting support by certain shareholders of Teck; the
transactions with each of NSC and POSCO, including the terms and
conditions thereof; the tax and accounting treatment for the
Separation; the anticipated timing for the Meeting; and other
statements that are not historical facts.
Although we believe that the forward-looking statements in this
news release are based on information and assumptions that are
current, reasonable and complete, these statements are by their
nature subject to a number of factors that could cause actual
results to differ materially from management’s expectations and
plans as set forth in such forward-looking statements, including,
without limitation, the following factors, many of which are beyond
our control and the effects of which can be difficult to predict:
the possibility that the Separation and the transactions with NSC
and POSCO will not be completed on the terms and conditions, or on
the timing, currently contemplated, and that the transactions may
not be completed at all, due to a failure to obtain or satisfy, in
a timely manner or otherwise, required shareholder, regulatory and
court approvals and other conditions of closing necessary to
complete the transactions or for other reasons; the possibility of
adverse reactions or changes in business relationships resulting
from the announcement or completion of the Separation; risk that
market or other conditions are no longer favourable to completing
the Separation; risks relating to business disruption during the
pendency of or following the Separation and diversion of management
time; risks relating to tax, legal and regulatory matters; credit,
market, currency, operational, commodity, liquidity and funding
risks generally and relating specifically to the Separation,
including changes in economic conditions, interest rates or tax
rates; and other risks inherent to our business and/or factors
beyond Teck’s control which could have a material adverse effect on
Teck or the ability to consummate the Separation and transactions
with NSC and POSCO.
Teck cautions that the foregoing list of important factors and
assumptions is not exhaustive and other factors could also
adversely affect its results. Further information concerning risks
and uncertainties associated with these forward-looking statements
and our business can be found in our Annual Information Form for
the year ended December 31, 2022, filed under our profile on SEDAR
(www.sedar.com) and on EDGAR (www.sec.gov) under cover of Form
40-F, as well as subsequent filings that can also be found under
our profile.
The forward-looking statements contained in this news release
describe Teck’s expectations at the date of this news release and,
accordingly, are subject to change after such date. Except as may
be required by applicable securities laws, Teck does not undertake
any obligation to update or revise any forward-looking statements
contained in this news release, whether as a result of new
information, future events or otherwise. Readers are cautioned not
to place undue reliance on these forward-looking statements.
About TeckAs one of Canada’s leading mining
companies, Teck is committed to responsible mining and mineral
development with major business units focused on copper, zinc, and
steelmaking coal. Copper, zinc and high-quality steelmaking coal
are required for the transition to a low-carbon world.
Headquartered in Vancouver, Canada, Teck’s shares are listed on the
Toronto Stock Exchange under the symbols TECK.A and TECK.B and the
New York Stock Exchange under the symbol TECK.
Investor Contact:Fraser PhillipsSenior Vice
President, Investor Relations and Strategic
Analysis604.699.4621fraser.phillips@teck.com
Media Contact:Chris Stannell Public Relations
Manager604.699.4368chris.stannell@teck.com
Backgrounder: Teck Metals and Elk Valley
Resources (“EVR”)
Teck Metals – A Premier, Growth-Oriented Base Metals
Company
Teck Metals will focus on maximizing cash flow from operations
and prudently allocating capital between investments in copper
growth and shareholder returns, while maintaining investment grade
credit metrics. Teck Metals will be well-positioned to capitalize
on the robust outlook for the copper market based on rising global
demand driven by the transition to a low carbon economy.
Teck Metals will retain all of Teck’s base metals portfolio
including its interest in Quebrada Blanca (Chile), Highland Valley
Copper (Canada), Antamina (Peru), Carmen de Andacollo (Chile), Red
Dog (United States) and Trail Operations (Canada). Teck Metals will
also retain all of Teck’s copper and zinc development projects
including the QB Mill Expansion, San Nicolás, Zafranal, NewRange,
Galore Creek, NuevaUnión, Schaft Creek, Aktigiruq, Cirque,
Anarraaq, Teena and Su-Lik, as well as an extensive base metals
exploration portfolio.
Teck Metals key highlights:
- World-class base metals portfolio of
scale with near-term doubling of copper production when QB2 is
fully ramped-up
- Industry-leading copper growth and
significant resource optionality anchored by flagship QB2
project
- High-quality, low-cost and long-life
operations situated in well-established mining jurisdictions in the
Americas
- Attractive investment proposition
underpinned by disciplined capital allocation framework
- Strong operating cash flows and
Transition Capital Structure support funding of Teck Metals’
growth, while allowing for disciplined return of capital to
shareholders, and financial resilience
- Industry-leading emissions reduction
trajectory, commitment to net-zero emissions at operations by 2050
and nature positive by 2030
Teck Metals will continue to be listed on the TSX and NYSE, with
continuation of Teck’s board and experienced senior management,
including Jonathan Price as CEO and Red Conger as President and
COO. Teck Metals will continue to be headquartered in Vancouver,
B.C.
EVR – A World-Class, High-Margin Steelmaking Coal
Business
As the world’s second largest exporter of seaborne steelmaking
coal, EVR will be a high-margin Canadian resource company focused
on long-term cash generation and providing cash returns to
shareholders. EVR’s low-carbon intensity, high-quality, hard coking
coal improves blast furnace efficiency and reduces emissions, and
is sought after by the world’s largest steelmakers, positioning the
company to meet future long-term demand for steelmaking coal. EVR
is expected to implement an initial distribution policy that
provides for a base annual dividend of $0.20 per share and
supplemental distributions of 50% of free cash flow available after
Transition Capital Structure payments. It will remain committed to
responsible operations, engaging with Indigenous Peoples, and
contributing to the economy of B.C. and Canada.
EVR will operate four integrated steelmaking coal operations
with total annual production capacity of 25-27 million tonnes of
high-quality steelmaking coal and an integrated logistics chain
including ownership of the recently expanded steelmaking
coal-handling facilities at Neptune Bulk Terminals in North
Vancouver, B.C.
EVR key highlights:
- World’s second largest exporter of
seaborne steelmaking coal
- World-class Canadian steelmaking
coal producer with long-life, high margin operations and
demonstrated through the cycle cash flow generation
- Significant equity value accretion
potential as Transition Capital Structure is paid
- High-quality, low emissions, hard
coking coal product sought after by the world’s largest steelmakers
to contribute to their stable and environmental-friendly blast
furnace operation through its capability to make high-strength
coke, which is important for the steel industry’s carbon neutral
program
- Cornerstone
investment from NSC validates value of the business and robust
demand fundamentals for high-quality steelmaking coal
- Proven management team ensures
continuity and ongoing commitment to social and environmental
responsibility
- Environmental Stewardship Trust
established and funded by fixed annual contributions
- Low carbon intensity producer with
continued commitment to achieving net-zero GHG emissions at
operations by 2050 and becoming nature positive by 2030
EVR will be governed by an experienced Board of Directors
chaired by Marcia Smith, former Senior Vice President,
Sustainability and External Affairs of Teck. The existing Elk
Valley operating team, led by President and CEO Robin Sheremeta,
currently Teck’s Senior Vice President, Coal, will continue to lead
EVR and ensure continuity of operating principles and responsible
environmental and social stewardship.
EVR will be headquartered in Vancouver, B.C.
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