Pierre Lassonde, the wealthy gold mogul turned ally of Teck Resources Limited (NYSE: TECK) controlling shareholder Norman Keevil, plans to purchase a blocking position in Teck’s spin-off coal business to ensure it remains in Canadian hands.
Lassonde’s plan is philosophically similar to Keevil’s, who rejected this past week’s request by Glencore of Switzerland, one of the world’s largest commodities corporations, to merge with the Vancouver-based miner in a $23 billion all-share deal. Keevil, a Canadian resources nationalist who has criticized the hollowing out of Canada’s mining industry in recent decades, has stated that he will not sell to a foreign business at any cost.
In an interview Friday, Lassonde, co-founder of Canada’s Franco-Nevada gold royalty corporation, said he had a dual reason for investing heavily in Elk Valley Resources, the coal company that Teck plans to spin off later this month, subject to shareholder approval.
“I believe Elk Valley is fantastic, long-term value and I want this world-class asset to remain Canadian,” he said.
Instead of the rejected proposal, the Teck board is recommending shareholders vote in favor of its own separation plan, dividing the firm into Teck Metals and Elk Valley Resources. The vote is scheduled for April 26.
Teck’s metallurgical coal assets in British Columbia would be held by Elk Valley, leaving Teck as a base metals firm focused on copper and zinc. Teck’s Elk Valley offspring is worth $11.5 billion. The stock will be listed on the Toronto Stock Exchange and will begin trading on June 6.
Elk Valley, which would begin with a debt-free financial sheet, would pay Teck at least $14 billion in royalties and dividends for up to 11 years after the spin-off.
Lassonde expressed surprise that Elk Valley would emerge without a substantial Canadian stakeholder capable of blocking a takeover bid. Nippon Steel of Japan and Posco of South Korea would be the largest stockholders, with a combined 12.5% stake. The remaining 87.5% would be held by a diverse group of Teck shareholders.
Elk Valley would be exposed to a takeover without a blocking shareholder from the first days of trade, when a rush of buying and selling is expected as millions of shares reach the market. According to industry sources, various investment groups from Australia, the United States, and Europe are interested in purchasing Elk Valley and taking it private. If a buyer changes the company’s nature, for example, by reducing production or canceling new coal projects, Teck’s payment stream may be endangered.
Lassonde is attempting to put together a group of investors who would acquire up to $300 million in Elk Valley stock, giving them a 10% to 20% stake in the company. He stated that he would put up more than a third of the money and would buy with a small number of Canadian co-investors.
“I would love to own up to 20% of Elk Valley,” Lassonde said. “It will be a Canadian mining giant and should absolutely stay in Canadian hands.”
Should it push through, Lassonde’s stake, along with the 12.5% stakes held by Nippon Steel and Posco, all of which are considered Teck and Keevil’s supporters, would form a control block, making an Elk Valley takeover impossible without their permission.
In Glencore’s rejected proposal, they want to merge its base metals segment with Teck, resulting in the formation of a new firm called GlenTeck. Glencore and Teck Resources would form a new company to house its thermal and metallurgical coal assets, according to the second half of Glencore’s proposal.
Teck is the owner of four copper mines in South America and Canada, which produced 270,000 tons of copper last year. After the second phase of its Quebrada Blanca project in Chile reaches full capacity by the end of this year, the business plans to increase copper output. It also has coking coal mines, which are regarded as its crown gem.
Information for this briefing was found via The Globe And Mail, Bloomberg, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.