Teck may reap gains from CIC alliance
0 Comments
Teck Resources Ltd, Canada's largest base-metals producer, said its partnership with China's sovereign wealth fund will win the company more coal, copper and zinc sales and provide financing for future acquisitions.
China Investment Corp (CIC), which bought about 17 percent of Teck in July, has helped the company gain better access to customers including Jiangxi Copper Co as well as three of the nation's largest steelmakers, Chief Executive Officer Don Lindsay said in an interview yesterday in New York.
Teck and China Investment have discussed at least a dozen ways to cooperate, including some acquisitions of a couple of billion dollars, he said. CIC may provide financing for purchases if Teck decided to make any, Lindsay said. While Teck doesn't need takeovers, "opportunities will continue to be shown to us", he said.
"We have a financial partner there that has basically the deepest pockets in the world," said Lindsay, 51, a former investment banker at CIBC World Markets who took over as Teck's CEO in April 2005. "These people can open doors."
Teck and CIC have discussed opportunities including copper projects, Lindsay said, without providing details. So far, Teck has chosen not to move ahead because the assets were too low-grade or were subject to environmental or political risks, Lindsay said.
Shares surge
The market hasn't priced much of a contribution from the CIC partnership into Teck's shares, and the stock could gain if it leads to additional sales, said John Hughes, an analyst at Desjardins Securities Inc in Toronto. He rates the shares "buy" and doesn't own any.
"Ultimately, CIC could provide a conduit for Teck to sell additional commodities such as metallurgical coal, zinc and copper into China," Hughes said in an interview.
Teck's shares have risen more than sixfold this year, partly driven by a recovery in demand for metallurgical coal, copper and zinc, the company's three biggest products. Vancouver-based Teck rose 19 cents to C$36.49 on Monday in Toronto Stock Exchange trading.
China's imports of metallurgical coal this year will surge to more than 30 million tons from 3.2 million tons last year, Lindsay said.
"In a year when you have the greatest economic meltdown the world has seen in three generations, the demand for our core product increased by a factor of 10 in China," Lindsay said. "This is something we thought would occur over a three-to-five-year period. Yet in one year the market has changed that much."
Coal, used as a key ingredient in steelmaking, accounted for 59 percent of Teck's operating profit in the first nine months this year, Lindsay said. A year earlier, copper was the largest component, at 52 percent.
Disputes with resource suppliers in Australia may also benefit Teck as it forges closer ties with CIC, Lindsay said.
"CIC and China are quite welcome in Canada, and clearly their investments have not been as welcome in other countries. Obviously, in Australia there was a lot of friction," Lindsay said.
