UPDATE 4-Teck to sell stakeUPDATE 4-Teck to sell stake in Chilean gold production
Mon Apr 6, 2009 9:36pm BST
* Teck's share of proceeds valued at about $270 mln
* Royal Gold to offer 6.5 mln shares to fund the deal
* Teck, Royal Gold shares close lower (Adds analysts' comments; in U.S. dollars unless noted)
TORONTO, April 6 (Reuters) - Canada's Teck Cominco Ltd (TCKb.TO: Quote, Profile, Research) said on Monday it will sell a stake in the gold produced from the Andacollo mine in Chile to Royal Gold Inc (RGL.TO: Quote, Profile, Research) (RGLD.O: Quote, Profile, Research) for $270 million as part of its efforts to pay down debt.
Teck owns a 90 percent stake in the copper/gold mine, while a Chilean state-owned entity holds the remaining 10 percent. The deal has a total value of $300 million. About $30 million will go to ENAMI, the Chilean entity.
Analysts see the deal as a step in the right direction for Teck, which is scrambling to sell assets in a bid to raise cash to pay off a $5.8 billion bridge loan to help finance last year's acquisition of Fording Canadian Coal Trust.
Teck took the bridge loan to buy Fording and gain full ownership of Elk Valley Coal, a top producer of coking coal, which is used in the steel-making process.
The bridge loan comes due in October. Teck also took on $4 billion in term debt to make the $13 billion acquisition.
Teck had hoped to pay off the bridge debt using a tax break and cash flow. But coal, copper and zinc prices have since plunged, forcing the company to sell some non-core assets and to contemplate selling stakes in core assets to get the loan down to a manageable level.
A spokeswoman for Teck Cominco said the company is making progress in its efforts to refinance the remainder of the $5.8 billion bridge loan.
In March, Standard & Poor's lowered its long-term corporate credit and senior unsecured debt ratings on Teck to BB+ to BBB- respectively, and put them on review with "negative implications" on concerns about the company's high debt level and expectations of persistent weakness in metals prices.
Even so, analysts are optimistic that Teck will be able to push the asset sales, but remain cautious.
"We continue to believe that Teck will be challenged to meet its debt obligation without further changes to operations, a larger asset sale, and/or other financing," said UBS analyst Brian MacArthur, in a note to clients.
Teck has stated that it is in advanced discussions with potential purchasers of their Pogo, Morelos, and Turkey Exploration assets.
Canada's Globe and Mail newspaper reported on Monday that Teck was planning a series of measures, including more than $2 billion in asset sales, a debt restructuring and a potential equity issue in coming weeks, to reduce its debt.
The report, citing sources familiar with the plan, also stated that Teck was considering selling the 2.5 million ounces of silver it produces each year at its Red Dog zinc mine in Alaska. The article identified Silver Wheaton Corp (SLW.TO: Quote, Profile, Research) as a potential buyer.
Teck declined comment on the Globe and Mail report. Silver Wheaton could not be reached immediately for comment.
Royal Gold is paying for the Andacollo gold stake with $100 million in cash, plus 4.45 million shares valued at about $200 million. Teck expects the Andacollo deal to close in the second quarter of 2009.
The Andacollo mine has been in production since 1996. However, production from the sulfide portion of the mine is only expected to start in the fourth quarter of 2009.
Royal Gold will receive 75 percent of the gold produced from the sulfide portion of the Andacollo deposit until 910,000 ounces of gold have been sold, after which Royal Gold will receive 50 percent of all future payable gold production from the property.
Teck expects this portion of the mine to produce about 53,000 ounces of gold and 76,000 tonnes of copper concentrate a year during its first 10 years of operation. Royal Gold's interest does not apply to the copper produced.
Teck Cominco's class B shares closed down 5 Canadian cents to C$8.40, while Royal Gold shares closed down C$3.25 at C$50.30 on the Toronto Stock Exchange. (Reporting by Euan Rocha in Toronto and R. Manikandan in Bangalore; Editing by Maureen Bavdek and Rob Wilson)