Published: February 23, 2023 |

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Teck Resources Limited is reorganizing its business to separate Teck into two independent, publicly-listed companies: Teck Metals Corp. and Elk Valley Resources Ltd. (EVR).

The separation will create two world-class resource companies and provide investors with choice for allocating investment between two businesses with different commodity fundamentals and value propositions. Teck Metals will be growth-oriented, with premier, low-cost base metals production, a top-tier copper development portfolio and a disciplined capital returns policy. Elk Valley Resources will be a high-margin Canadian steelmaking coal producer, focused on long-term cash generation and providing cash returns to shareholders, with significant equity value accretion potential. Both companies will remain committed to strong environmental and social performance.

“This transformative transaction creates two strong, sustainable, world-class mining companies committed to responsibly providing essential resources the world needs,” said Jonathan Price, CEO, Teck.

“Both Teck Metals and EVR have high-quality operating assets and strong financial foundations, with talented and dedicated employees, committed to ensuring safe and responsible operations. The transaction simplifies the portfolio of each company, allowing for strategic and financial focus and the ability to pursue tailored capital allocation strategies. It provides investors with choice in response to the evolving investment landscape, and establishes a pathway to full financial separation of the two companies over time,” added Price.

“This transaction is the culmination of a comprehensive review by our board to determine the best path to realize the full potential of the two businesses, while at the same time ensuring ongoing responsible management and operation for the long term,” said Sheila Murray, chair of the board, Teck.

“We are confident that pursuing this plan will position both businesses for even greater success, allow shareholders to optimize their exposure to the different underlying commodities, and support a sustainable future for the benefit of employees, local communities, and Indigenous peoples,” added Murray.

DETAILS OF THE SEPARATION

The separation is structured as a spin-off of Teck’s steelmaking coal business by way of a distribution of EVR common shares to Teck shareholders. Teck Metals will retain a substantial interest in steelmaking coal cash flows through a transition period in the form of an 87.5 percent interest in a gross revenue royalty and preferred shares of EVR. Under the transition capital structure, Teck Metals will receive quarterly payments consisting of royalty payments and preferred share redemption amounts that will in aggregate equal 90 percent of EVR free cash flow.

In consideration for the transfer of the steelmaking coal assets to EVR, EVR will grant the royalty and issue preferred shares and common shares to Teck Metals. The royalty is a 60 percent gross revenue royalty that will be paid quarterly from EVR’s steelmaking coal revenue.

Cash flow from the transition capital structure is expected to provide Teck Metals with continued funding for prudent investment in its top-tier copper growth pipeline.

THE NIPPON STEEL AND POSCO TRANSACTIONS

Teck has also reached agreement with its steelmaking coal joint venture partners and major customers, Nippon Steel Corporation (NSC) and POSCO, to exchange their minority interests in the Elkview and Greenhills operations for interests in EVR. As a result, EVR will own 100 percent of its steelmaking coal operations. NSC’s exchange of its Elkview interest and its $1.025 billion cash investment will give it a 10 percent interest in EVR common shares and the transition capital structure. POSCO will receive a 2.5 percent interest in EVR common shares and the transition capital structure.

“This significant participation by two of the world’s largest steelmakers highlights the long-term, critical importance of high-quality steelmaking coal in order to reduce emissions and build essential infrastructure globally,” said Jonathan Price.

“We would like to thank our long-term partners NSC and POSCO for their continued support of the business. Their participation as shareholders of EVR is a testament to the strong outlook for the business,” added Price.

“We are excited about participating in EVR, the world class steelmaking coal producer,” said Eiji Hashimoto, the representative cirector and president of Nippon Steel.

“High-quality steelmaking coal is essential in pursuing our carbon neutral strategy, where NSC aims to achieve both stable and efficient steel production and carbon neutrality by the most optimized approach combining several different advanced technological developments including hydrogen injection into blast furnaces, DRI production by hydrogen, high-grade steel production in large size EAF, and CCUS (Carbon Capture, Utilization, and Storage),” added Hashimoto.

BOARD RECOMMENDATION

Teck’s board of directors formed a special committee of independent directors to oversee the consideration of various potential transactions involving Teck’s steelmaking coal assets.

Teck’s board of directors, on the recommendation of the special committee, has unanimously determined that the transaction is in the best interests of Teck and is fair to shareholders, and is recommending that shareholders vote in favor of the separation.

Teck will seek shareholder approval of the separation at its annual and special meeting of shareholders expected to be held on or about April 26, 2023.

About Teck
As one of Canada’s leading mining companies, Teck is committed to responsible mining and mineral development with major business units focused on copper, zinc, and steelmaking coal. Copper, zinc, and high-quality steelmaking coal are required for the transition to a low-carbon world. Teck is headquartered in Vancouver, Canada.

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