Teck Resources Ltd. will sell its coal business to Glencore Plc. in a multibillion dollar deal which could offer great value to shareholders, according to an investment advisor.

Swiss miner Glencore will pay Vancouver-based Teck US$6.93 billion for a 77 per cent stake in its coal business while steelmakers Nippon Steel Corp. and Posco will hold the remainder of the company. The deal requires approval from Canada’s federal government to move forward.

“I think it’s a good deal for shareholders, perhaps shareholders might even get some of that money given back to them,” Allan Small, senior investment advisor at IA Private Wealth, told BNN Bloomberg in an interview on Tuesday.
Teck has considered selling its coal assets for some time and the news of Tuesday’s sale to Glencore could allow Teck to strengthen its business, Small added.

"They’re going to refocus, fix their balance sheet, improve their balance sheet, pay down some debt and … hopefully give some money back to shareholders,” Small said.

The deal will also allow Teck to focus its efforts on other commodities, such as copper, which is positioned to be in great demand amid the clean energy transition, he added.

The company's stock surged following the deal announcement, but Small noted that shares of Teck have been under pressure for some time due to a challenging economic environment.

"Strong dollar, higher interest rates (are) usually not good for commodities in general," Small explained.

Small sees this overall dip in Teck's stock performance as a buying opportunity, even more so now that company is set to receive an influx of proceeds from the sale of its coal business.

“I think the valuations are very reasonable,” he said.

‘IT ALL DEPENDS’

Another investment expert said he views the deal as a positive move for Teck depending on what the company does with the influx of cash.

“It’s probably not a bad move, of course it all depends on how they redeploy the cash they get,” Lorne Steinberg, president of Lorne Steinberg Wealth Management, told BNN Bloomberg in an interview on Tuesday.

He added that commodity stocks such as Teck should not be highly indebted, and he thinks it would be wise for the company to use the incoming funds to improve its balance sheet.

Steinberg expressed some caution over Teck’s future growth plans, which focus on producing copper as the next “big” mineral. 

“I’m always a little wary when the next mineral is going to be the big mineral, like lithium and everything else, because we’ve seen that game play out before,” he said.