Friday, Canadian diversified resource company Teck Resources Limited (TCK, TCK-A.TO, TCK.B.TO) said it has agreed to sell about 17.2% of its equity to state-owned China Investment Corp. through a C$1.74 billion private placement, with which the company expects to reduce its outstanding bank debt. The transaction is expected to close on or about July 14, 2009, subject to customary conditions, including applicable stock exchange approvals.
The Vancouver, Canada-based diversified mining, mineral processing, and metallurgical company said it will sell 101.3 million Class B subordinate voting shares for C$17.21 per share. China Investment is investing through a special purpose vehicle, Fullbloom Investment Corp., the company noted.
Teck noted that, on the deal closure, China Investment will indirectly hold about 17.5% of Teck's outstanding Class B subordinate voting shares, representing approximately 17.2% equity and 6.7% voting interests in Teck. Upon completion of the transaction, Teck's Class A shareholders as a group will hold a 61.8% voting interest in Teck with Temagami Mining Co.Ltd. holding a 28.5% voting interest.
Commenting on the transaction, Teck President and Chief Executive Officer Don Lindsay said, "This transaction will have an immediate and very positive effect on Teck's balance sheet, and represents an attractive opportunity for Teck to establish a relationship with a major Chinese financial investor, with a deep understanding of China, the world's largest consumer of our principal products."
Teck pointed out that it was advised by the Chinese company that it is acquiring the Class B shares for investment purposes as a long- term passive financial investor, and has also agreed to hold the purchased shares for at least one year following closing. The company noted that China Investment will have the right to maintain its percentage ownership interest through open market purchases or through participation in additional issuances of Teck Class B shares, provided it does not sell any purchased shares.
Further, the company noted that if it were to issue additional Class B shares within 12 months of closing at a price less than C$17.21 per share, or securities convertible into Class B shares with a conversion price less than C$17.21, China Investment would be entitled to a partial make-whole payment, capped at about 8.4% of the aggregate subscription price, payable at Teck's option in cash or in Class B shares.
China Investment has also agreed that it will not sell the purchased shares to a participant in the worldwide mining, metals or minerals industries, or to a material customer of Teck after the one year hold period. If there is a takeover bid for Teck, the Chinese company will be permitted to tender its shares, provided that the bid has features associated with a 'permitted bid' customary in Canadian shareholder rights plans, or is supported by the Teck board, and in certain other circumstances, the company noted.
On June 17, Teck said that it entered into a non-binding memorandum of understanding with BC Hydro regarding the proposed sale of a one-third interest in Teck's Waneta Dam in southeastern British Columbia for C$825 million. Teck then said it expects to record a pre-tax gain of about C$625 million on the deal, and that it would apply the entire proceeds of the transaction to reduce indebtedness. Teck expects the deal to close by year end.
In early May, Teck offered senior secured notes for US$4.225 billion in aggregate principal amount through private placement, consisting of US$1.315 billion aggregate principal amount of five-year notes, US$1.06 billion aggregate principal amount of seven-year notes and US$1.85 billion aggregate principal amount of ten-year notes. The proceeds from the placement was to pay down borrowings under its existing bridge loan to US$603 million, due on October 30, 2011.
TCK closed Thursday's regular trading session at US$16.09, down US$0.69 or 4.11%, on a volume of 4.8 million shares, against a 3-month average volume of 8.9 million shares. The shares have been trading in a broad range of $2.60 - $48.09 for the past 52 weeks.
TCK-A.TO last traded on June 30 at C$20.25, while TCK-B.TO closed Thursday's trading at C$18.50.
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