 TORONTO (miningweekly.com) – Vancouver-based Teck Resources may still sell a 20% stake in its coal unit, but only to a partner that brings some strategic benefit of its own to the table, and for “a very full and fair price”, CEO Don Lindsay said on Friday.
And after announcing a C$1,74-billion private placement to China Investment Corp (CIC) and outlining a plan to cut Teck's bank debt significantly, the former investment banker can afford to be picky, especially with potential buyers for the coal stake knocking on the door.
“We have had a lot of interest, including people making deliberate trips to Vancouver to try and get something started,” he said.
Teck bought Canada's Fording Canadian Coal Trust last year, making it one of the world's biggest producers of steelmaking coal and the second largest for seaborne hard coking coal.
Lindsay said from the outset that he expected to bring on a partner, but, with the bulk of the group's heavy debt burden about to be lifted, the firm is definitely in no rush to get a deal done.
“We are going to examine the options very carefully,” he said.
“We may also still bring on a 20% partner in our coal business, but we certainly won't need to do that for debt repayment purposes.”
In one potential scenario, the stake could be sold to a major customer, that would take a percentage of the business, as well as a fairly large tonnage of offtake.
Secondly, and this is also something Lindsay has mentioned before, Teck could partner with “a large international mining company that has assets in Australia”.
“We think that would just be a much stronger business,” he said on Friday.
“It would have the full range of product quality to deliver to customers, you could deliver from either source - Australia or Canada, you wouldn't be dependent on a single rail line, shipping costs would vary, and you would have both exchange rates in the cost base which makes a big difference.”
The biggest supplier of seaborne hard coking coal is an alliance between BHP Billiton and Mitsubishi, in Australia.
But, if Lindsay is looking for other big international groups with metallurgical coal mines down under, one candidate that certainly fits the bill would be Anglo-Australian miner Rio Tinto, which, conveniently, has just completed a successful $15,2-billion rights issue to raise funds to pay off some of its own large debt.
Anglo American and its hostile suitor Xstrata also have coal operations in Australia.
MARKET CONTINUES TO TIGHTEN
Teck said last month it expects coal sales this year will be at the upper end of its previous 18-million to 20-million ton forecast, mainly thanks to increased demand from China.
“China has started to increase imports of metallurgical coal quite dramatically this year,” Lindsay said on Friday.
“I can safely say that, since our update a couple of weeks ago, the market has continued to tighten...and our order book has continued to increase.”
The company has cancelled previously announced production shutdowns at several mines, to help meet the increased demand.
Teck announced on Friday morning that it would sell C$1,74-billion worth of shares to the CIC, a $200-billion sovereign wealth fund.
The transaction will give the Chinese firm about 17,2% of equity and 6,7% voting interests in Teck.
But Lindsay said that he also expects the deal will create inroads into Chinese markets, and especially with regard to marketing opportunities for its metallurgical coal.
China is consolidating its fragmented steel industry by shutting down inefficient inland plants and building huge coastal steel production facilities.
There are currently four steel plants under development along the coast of China, which will ultimately have a capacity of 20-million to 30-million tons a year of steel each and will require high-quality hard coking coal.
Lindsay said last month he had returned from a visit to the most advanced of the four, and that Teck had held talks with all the major Chinese steel producers.
For the 2009 contract year, Teck achieved a benchmark price for its premium brand of coal of $128/t, and the company is also still receiving 2008 contract prices for a large component of carry-over tons that were not delivered to customers during the 2008 contract year.
|
|
