FORDING CANADIAN COAL TRUST of Calgary announced this week that Vancouver-based TECK COMINCO has offered to buy all of Fording’s assets in a cash-and-stock deal worth US$14.1 billion. Fording unitholders will receive US$82.00 in cash and 0.245 of a Teck Cominco Class B subordinate voting share for each unit held. That represents a unit value of $93.76, a 17% premium over the recent trading price of Fording units.
I am pleased to see that Canadian coal mines will continue to have a Canadian owner. After watching so much of our nickel industry slip away, Falconbridge to XSTRATA and Inco to VALE, I am particularly gratified that Teck Cominco has come forward this time. Foreign ownership did not figure in this transaction.
Twenty-five or 30 years ago Cominco held 40% of Fording coal. The early ’80s were a time of relatively straight-forward ownership arrangements. Lately, figuring out who owns what has become more difficult. Before this deal, Teck Cominco held a 19.95% interest in the Fording trust, which in turn owned 60% of Elk Valley Coal. The other 40% of Elk Valley was held by Teck Cominco, giving it an effective 52% share of the world’s second largest producer of seaborne hard coking coal. Elk Valley’s six mines have a combined annual production capacity of 25 million tonnes.
The more convoluted ownership reflects the creation of the Fording income trust fund in 2003, when tax laws favoured this type of investment and shareholders were reaping rewards. However, changes to the federal tax legislation announced in October 2006, hobbled income trusts and investors turned their backs on them.
So now the lines of ownership will be drawn directly between Teck Cominco and Elk Valley Coal. Congratulations to the Teck Cominco and Fording teams for having faith in Canada’s metallurgical coal industry.