Teck Surprises with Equity Issue and Sale

Teck Resources Ltd.’s announcement that it has issued 101.3 million Class B subordinate voting shares at C$17.21 each for C$1.74-billion from sovereign wealth fund China Investment Corp. (CIC) comes as a surprise to some given recent comments from the mining giant that it was not looking to raise equity. Instead, the suggestion was that it was looking at selling a stake in the Elk Valley metallurgical coal operations.

Nonetheless, BMO Capital Markets analyst Tony Robson sees the deal, which represents 17.5% of outstanding B shares and 6.7% voting interest, as positive for Teck given that it comes after a strong share price rally recently.

Mr. Robson noted that the equity issue would be net present value per share accretive on preliminary estimates by approximately 10%. However, 2009 and 2010 estimated earnings per share are expected to fall by 10% to 20%.

“With recent asset sales, today’s move has done much to correct the former severely weakened balance sheet.,” the analyst said in a note to clients, adding that 2009 year-end forecast net debt to equity could improve from a previous estimate of 65% to 45%. Net debt/EBITDA ratios would improve from previous estimates of 2.9x to approximately 2.3x.

Comments

[User 440917:]

This move is very strategic - I don't doubt a Chinese firm will now be looking for that 20% stake in Teck coal ($2B+) which could happen before yr end given CIC support. Also companies looking for coal, zinc, copper will be tuned into Teck.
With the recent bond issue, their bridge loan goes to near 0 and the term loan will be less than $1.5B by year end. They are running full bore on their coal op's, some 20MM t in 2009 in sales. MS just upped their view on copper pricing. Their debt levels are manageable now and China is buying what Teck mines. CIC will hold the shares min 1 year.

Jul 05 01:30 PM

[User 305589:]

even after this capital raise teck remains overleveraged and of course, the management that maneuvered the company into such a precarious position continues to run the company. I can't find any reason why the morons at teck buying overpriced assets for top dollars at the height of a commodities bubble will be any better capital allocators in the future.
That being said, I may scale bacl my short position on Teck since they have of course improved their financial position considerably. Over the longer term , though, this company will continue to baldy lag its competitors, unless competent management takes over. maybe thew Chinese will press for it, eventually.

Jul 06 04:29 AM