I would imagine that the management of Teck Cominco would like to take a mulligan on its purchase of Fording Canadian Coal Trust. The timing was terrible. The company agreed to pay US$12.4 billion and issue 36.9 million Teck Class B subordinate voting shares for the coal miner, saddling itself with US$9.8 billion of debt. That was July 2008.
Then the bottom fell out of commodity prices, the stock market took a nosedive, and the value of the Canadian dollar against the U.S. greenback began its decline in October 2008.
The acquisition of the Elk Valley Coal operations was and remains important for Teck. However, the unfortunate timing has Teck selling assets to trim its indebtedness.
Teck’s first move was to sell Fording units to a Canadian chartered bank and to an affiliate of Ontario Teachers Pension Plan Board. Those transactions raised US$2.4 billion.
But the global financial crisis has not been kind to Teck. The company’s net loss for Q4 2008 was C$607 million, despite vigorous actions to control spending. The final decision on development of the Fort Hills oil sands project in which Teck holds a 20% interest was deferred for a year due to skyrocketing costs.
In November 2008, the company announced that it had suspended its 2009 dividend, cut C$730 million from its capital expenditures budget, cut zinc production 20% at its Trail Metallurgical Complex in British Columbia, and sold its 60% interest in the Lobo Marte gold project in Chile to Kinross Gold. Teck temporarily shut down its Pend Oreille zinc mine in Idaho. As this was going to press, Teck announced the sale of 5.6 million Kinross shares, bringing Teck’s gross proceeds on the Lobo Marte sale to US$141 million.
This January, Teck cut 13% of its worldwide workforce, or 1,400 jobs, to save $85 million this year. It also announced that coal production during 2009 would fall to only 20 million tonnes due to declining demand for steel.
In February, Teck announced that it sold its 50% interest in the Williams and David Bell gold mines near Hemlo, ON, to Barrick Gold for US$65 million. Teck sold its indirect interest in Sociedad Minera El Brocal for US$35 million.
Earlier this month, Teck announced that an interest in the gold production from the Andacollo copper mine in Chile was sold to Royal Gold for US$300 million. Since Teck owns 90% of the Andacollo project, its share of the deal is worth US$270 million.
A report earlier this month in the Globe and Mail speculated that a minority stake in Teck’s coal division could be worth C$1.2 billion and C$1.8 billion if it were sold. The company’s 20% stake in the Pogo gold mine in Alaska might be on the block for between C$350 million and C$450 million. As well, gold exploration projects on Mexico and Turkey could be auctioned, raising another $100 million. And an equity offering could also be in the works, although Teck’s stock price has fallen 80% from its high of approximately C$50 per share in May 2008.
Perhaps if Teck management had foreseen the depth of the global financial crisis that began in October 2008, it would have rethought its purchase of Fording. But no one’s crystal ball is that clear, and now the company is taking the necessary steps to successfully weather the crisis.