Canadian mining group Teck Resources is set to spin off its coal business to focus on metals that are vital for lower carbon energy, completing a shift out of fossil fuels amid mounting criticism of the sector.
Teck said on Tuesday it planned to hive off its metallurgical coal operations — used in steelmaking — into a new company, Elk Valley Resources, which will have an enterprise value of $11.5bn.
By splitting the company in two, Teck said both entities could attract fresh capital in an era when investors with distinctive mandates were more particular about where they put their money.
“The intent here is twofold: one to enhance the strategic and financial focus of the two companies,” said Jonathan Price, Teck chief executive, in an interview with the Financial Times. “[And two,] it’s about providing investors choice, in terms of how they build their own portfolio.”
Teck, which has a market capitalisation of about $22bn, has been moving to strip out fossil fuels from its portfolio and focus on copper — a metal vital for the shift to more renewable forms of power. Last year, it sold its 21.3 per cent stake in a Canadian oil sands project to Suncor Energy for about C$1bn (US$743mn) in cash.
The coal spin-off will be carried out through a distribution of stock in Elk Valley to existing shareholders of Teck Resources — which will be renamed Teck Metals. The company’s four metallurgical coal mines produced 24.6mn tonnes in 2021, making it the biggest North American producer and the world’s second-biggest seaborne exporter.
Tuesday’s announcement comes after Teck confirmed last week it was “evaluating alternatives for its steelmaking coal business” in the wake of a Bloomberg report that a spin-off was on the table.
Other mining companies have spun off or divested coal assets. Rio Tinto has completely exited coal, while Anglo American ditched its exposure to thermal coal, which is used for electricity production, when it spun out South Africa-based Thungela Resources in 2021.
However, BHP and Anglo maintain large steelmaking coal operations and London-listed Glencore has benefited from sticking with thermal coal after prices rocketed when Europe scrambled to secure energy supplies following Russia’s invasion of Ukraine.
“For a long time, mining companies have been very focused on diversification — and they’ve done that by bringing together a whole series of different commodities to simply scale their portfolio and make it bigger,” said Price. “I think what we see today is investors have a preference to create their own portfolio exposure.”
The split will leave Teck Metals with a portfolio of copper and zinc mines in the Americas, including the massive Quebrada Blanca 2 mine in Chile, which will begin production later this year.
Nippon Steel and Posco — two of the world’s biggest steelmakers — will own stakes of 10 per cent and 2.5 per cent respectively in Elk Valley Resources, in exchange for giving up their minority interests in Teck’s mines. Nippon will also pay $1bn in cash.
During a transition period, Teck will receive payments from Elk Valley in the form of royalties and preferred share redemptions worth 90 per cent of its cash flow. It said it would use the funds to expand its copper operations.
The transaction is subject to a shareholder vote on April 26.