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Dec 4, 2018

Early Christmas for Teck shareholders as CEO promises cash back

Don Lindsay

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Teck Resources Ltd. can afford to reward shareholders with stock buybacks and dividends even as it undertakes a US$4.74 billion flagship copper project in Chile, its chief executive officer said.

“We certainly can, throughout the construction period, continue to buy back stock, pay dividends -- and not just the base dividend,” Don Lindsay said Tuesday in an interview at Teck’s Toronto offices. “We will have significant cash flow available for return of capital to shareholders.”

Earlier Vancouver-based Teck announced that Sumitomo Corp. and Sumitomo Metal Mining Co. have agreed to pay US$1.2 billion for a 30 per cent stake in the Quebrada Blanca expansion project, known as QB2, in northern Chile. Production is expected to start in late 2021.

The deal reduces Teck’s share of equity contribution for the project’s development to $693 million with the first payment not due until late 2020, which should put to rest any investor concerns that the project would eat up all Teck’s cash flow, Lindsay said. The company’s shares were up 2.6 per cent at 12:25 p.m. in Toronto, even as many of its peers declined.

Other highlights from the interview:

  • Teck may use proceeds from the sale to pay down a US$600 million bond due June 2019, in addition to returning cash to shareholders.
  • The miner is in advanced talks with institutional lenders for US$2.5 billion in project finance loans.
    • The financing is expected to close at the same time as the deal, which is “conservatively” estimated at April 2019.
    • Financing terms are expected to be “attractive,” Lindsay says.
  • On acquisitions, Lindsay sees little of interest: the top priority is QB2 and returning cash to shareholders.
  • Teck is not looking at buying Rio Tinto Group’s IOC assets in Canada, Lindsay says.

Longer-term, developing the Chilean asset will move Teck deeper into copper, giving it an equal portfolio weighting to coal at a time when demand for the metal is growing and the market is likely to be in deficit, Lindsay said.

The company has no plans to scale back metallurgical coal to narrow the gap, he said, noting that the coal market is “really tight” and the commodity is “one of the best money-businesses in the world.” However, boosting copper should ease investor concerns about volatility in coal prices.

“We are aware that shareholders would like to see better balance in a diversified portfolio,” Lindsay said. “We’re generating really good cash in coal, and really good cash in zinc, and it’s being invested in copper.”