Teck Resources Abandons Separation Proposal At Last Minute, Snubs Glencore

Teck Resources (TSX: TECK.B) has evidently left it until the last minute to abandon its previously announced separation agreement. The firm put out a release this morning indicating that the company has “determined not to proceed with the consideration by its shareholders.”

“On behalf of Teck’s Board, I thank our shareholders for their support and consideration, as well as the feedback shared throughout this process. The Board will focus on incorporating the feedback heard into a revised value-enhancing separation to maximize value for shareholders,” commented Sheila Murray, Chair of the Board.

In cancelling the proposed separation agreement, the company stated that it “received very strong support from shareholders for the goal of separation,” however shareholders have evidently indicated they would prefer a more “direct approach” to separation.

“Our plan going forward is to pursue a simpler and more direct separation, which is the best path to unlock the full value of Teck for our shareholders,” said CEO Jonathan Price.

READ: Teck Resources Sees Earnings Fall In Q1 Ahead Of Shareholder Vote

Presumably, this relates to the egregious royalty structure that would have been placed on Elk Valley Resources, which was to contain the firms steelmaking coal business. The royalty structure would have seen a gross revenue royalty of 87.5%, which would of equated to 90% of free cash flow, with that royalty to be in place for several years and a convoluted “transition capital structure” expected to be paid off in full after roughly 11 years.

This, despite the steelmaking coal business accounting for 60% of revenue and 75% of gross profit of Teck.

The terrible capital structure lead to a competing offer being made to shareholders by Glencore, whom effectively wanted to acquire Teck to spin out its coal (and Glencore’s oil trading business) into a clean structure with no messy royalty structures.

“Glencore’s rejected proposals remain a non-starter, with the same flawed structure and material execution risks identified by our Board,” continued Price. “In the interim, Teck is poised for value creation; we are ramping up our flagship QB2 copper project to full production, advancing our industry-leading pipeline of copper growth projects, and safely and responsibly optimizing production at our existing operations.”

Despite the objections of some of Canada’s largest mining names, including Pierre Lassonde and Robert Friedland, the Glencore transaction had legs, if not for the capital structure of Teck that basically has Dr Norman Keevil with a controlling stake.

Mining peers such as Vale and Freeport-McMoRan meanwhile were interested in acquiring the base metals business of Teck once the spin-out of the steelmaking coal business was complete.

Teck Resources Class B shares last traded at $58.96 on the TSX.

Information for this briefing was found via Sedar 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.

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