Teck has been good for the Elk Valley and the corporation will be missed. Teck management brought much needed social, environmental and workplace change to the Elk Valley that advanced all aspects of the coal business. We can expect this positive corporate management to go forward with Elk Valley Resources. The following is the Tecks news release:

The separation creates two world-class, independent companies: Teck Metals and Elk Valley Resources

• Teck Metals – a premier, growth-oriented producer of energy transition metals
• Elk Valley Resources – a pure-play, high-margin steelmaking coal producer
• Teck Metals retains steelmaking coal cash flows for transition period to fund copper growth
• Provides investors choice of businesses with unique fundamentals and value propositions
• Nippon Steel Corporation to pay Teck $1 billion in cash for interest in Elk Valley Resources

Teck Resources Limited announced today the reorganization of its business to separate Teck into two independent, publicly-listed companies: Teck Metals Corp. (“Teck Metals”) and Elk Valley Resources Ltd. (“EVR”).

The Separation will create two world-class resource companies and provide investors with choice for allocating investment between two businesses with different commodity fundamentals and value propositions. Teck Metals will be growth-oriented, with premier, low-cost base metals production, a top-tier copper development portfolio and a disciplined capital returns policy. EVR will be a high-margin Canadian steelmaking coal producer, focused on long-term cash generation and providing cash returns to shareholders, with significant equity value accretion potential. Both companies will remain committed to strong environmental and social performance.

“This transformative transaction creates two strong, sustainable, world-class mining companies committed to responsibly providing essential resources the world needs,” said Jonathan Price, CEO, Teck. “Both Teck Metals and EVR have high-quality operating assets and strong financial foundations, with talented and dedicated employees, committed to ensuring safe and responsible operations. The transaction simplifies the portfolio of each company, allowing for strategic and financial focus and the ability to pursue tailored capital allocation strategies. It provides investors with choice in response to the evolving investment landscape, and establishes a pathway to full financial separation of the two companies over time.”

“This transaction is the culmination of a comprehensive review by our Board to determine the best path to realize the full potential of the two businesses, while at the same time ensuring ongoing responsible management and operation for the long term,” said Sheila Murray, Chair of the Board, Teck. “We are confident that pursuing this plan will position both businesses for even greater success, allow shareholders to optimize their exposure to the different underlying commodities, and support a sustainable future for the benefit of employees, local communities, and Indigenous peoples.”

Details of the Separation
The Separation is structured as a spin-off of Teck’s steelmaking coal business by way of a distribution of EVR common shares to Teck shareholders. Teck Metals will retain a substantial interest in steelmaking coal cash flows through a transition period in the form of an 87.5% interest in a gross revenue royalty (the “Royalty”) and preferred shares of EVR (collectively, the “Transition Capital Structure”). Under the Transition Capital Structure, Teck Metals will receive quarterly payments consisting of Royalty payments and preferred share redemption amounts that will in aggregate equal 90% of EVR free cash flow.

Teck shareholders of record as of the applicable distribution record date will receive common shares of EVR in proportion to their Teck shareholdings at an exchange ratio of 0.1 common share of EVR for each Teck share (or approximately 51.9 million total EVR common shares) and approximately $0.39 cash per share for an aggregate of $200 million in cash. Shareholders will be able to elect to maximize the amount of cash or common shares of EVR they receive, subject to proration, through a Dutch auction election process. Details of the election will be set out in the management proxy circular to be provided to Teck shareholders.

As part of the Separation, Teck will change its name to Teck Metals Corp. and continue to be listed on the Toronto and New York stock exchanges (“TSX” and “NYSE”). EVR has applied to have its common shares listed on the TSX.

In consideration for the transfer of the steelmaking coal assets to EVR, EVR will grant the Royalty and issue preferred shares and common shares to Teck Metals. The Royalty is a 60% gross revenue royalty that will be paid quarterly from EVR’s steelmaking coal revenue, subject to free cash flow and minimum cash balance limitations designed to support the financial resiliency of EVR, and should generally generate payments equal to 90% of EVR free cash flow. The Royalty will be payable until the later of (a) an aggregate amount of $7.0 billion in royalty payments having been made, or (b) December 31, 2028. The preferred shares will have an aggregate $4.4 billion redemption amount and a 6.5% cumulative dividend. The preferred shares will be redeemed out of 90% of EVR free cash flow after the Royalty is no longer payable. If not redeemed earlier, the preferred shares will mature 20 years from their date of issue. Assuming a US$185/tonne long-term benchmark steelmaking coal price and a CAD/US dollar exchange rate of 1.30, the Transition Capital Structure could be fully paid in approximately 11 years.

Cash flow from the Transition Capital Structure is expected to provide Teck Metals with continued funding for prudent investment in its top-tier copper growth pipeline, while allowing for disciplined returns to its shareholders. Teck has received preliminary indications that S&P, Moody’s and Fitch are likely to affirm an investment grade credit rating on the existing senior notes of Teck Metals should the Separation proceed.

These arrangements are designed to provide EVR with flexibility to operate its business, provide cash returns to shareholders, and fund its environmental and social commitments in a broad range of steelmaking coal price environments. On completion of the Separation, it is expected that:

• EVR will be well-capitalized with $1.0 billion in cash and other working capital, no debt, and $88 million in leases relating to operations.
• EVR will have credit facilities in place to meet its existing reclamation bonding requirements. Additionally, EVR will establish an Environmental Stewardship Trust and fund it through escalating fixed annual contributions, starting at $50 million, for long-term environmental obligations.
• EVR is expected to implement an initial distribution policy that provides for a base annual dividend of $0.20 per share, and supplemental distributions of 50% of free cash flow available after Transition Capital Structure payments.

The Nippon Steel and POSCO Transactions
Teck has also reached agreement with its steelmaking coal joint venture partners and major customers, Nippon Steel Corporation (“NSC”) and POSCO, to exchange their minority interests in the Elkview and Greenhills operations for interests in EVR. As a result, EVR will own 100% of its steelmaking coal operations. NSC’s exchange of its Elkview interest and its $1.025 billion cash investment will give it a 10% interest in EVR common shares and the Transition Capital Structure. POSCO will receive a 2.5% interest in EVR common shares and the Transition Capital Structure.

“This significant participation by two of the world’s largest steelmakers highlights the long-term, critical importance of high-quality steelmaking coal in order to reduce emissions and build essential infrastructure globally,” said Jonathan Price. “We would like to thank our long-term partners NSC and POSCO for their continued support of the business. Their participation as shareholders of EVR is a testament to the strong outlook for the business.”

“We are excited about participating in EVR, the world class steelmaking coal producer,” said Eiji Hashimoto, the Representative Director and President of Nippon Steel. “High-quality steelmaking coal is essential in pursuing our carbon neutral strategy, where NSC aims to achieve both stable and efficient steel production and carbon neutrality by the most optimized approach combining several different advanced technological developments including hydrogen injection into blast furnaces, DRI production by hydrogen, high-grade steel production in large size EAF, and CCUS (Carbon Capture, Utilization, and Storage).”

Pursuant to these transactions:
• NSC has agreed to exchange its current 2.5% interest in Elkview Operations and $1.025 billion in cash payable to Teck Metals for common shares of EVR and an interest in the Transition Capital Structure. This implies an EVR enterprise value of approximately $11.5 billion. Following these transactions, NSC will own 10% of the EVR common shares and a 10% interest in the Transition Capital Structure.
• EVR and NSC will enter into a long-term steelmaking coal offtake rights arrangement, continuing NSC’s long-standing commercial arrangements for the purchase of steelmaking coal from the Elk Valley.
• EVR and NSC will enter into an investor rights agreement, pursuant to which NSC will be entitled to certain customary rights including a right to nominate one director to the board of directors of EVR, pre-emptive rights on future securities issuances, and registration rights. NSC will agree to certain customary transfer and standstill restrictions.
• POSCO has agreed to exchange its current 2.5% interest in Elkview Operations, and its 20% interest in the Greenhills joint venture, for a 2.5% interest in each of the EVR common shares and the Transition Capital Structure.

The exchanges of the current interests of NSC and POSCO for interests in EVR are conditional on the completion of the Separation and other customary conditions. The additional investment by NSC is conditional on completion of the Separation, but the Separation is not conditional on completion of the additional investment by NSC.

Board Recommendation
Teck’s Board of Directors formed a Special Committee of independent directors to oversee the consideration of various potential transactions involving Teck’s steelmaking coal assets. The Special Committee was advised by independent financial and legal advisors and received opinions from each of Origin Merchant Partners and BMO Capital Markets to the effect that, as of the date of each such opinion and subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by Teck shareholders pursuant to the Separation is fair from a financial point of view to such shareholders.

Teck’s Board of Directors, on the recommendation of the Special Committee, has unanimously determined that the transaction is in the best interests of Teck and is fair to shareholders, and is recommending that shareholders vote in favour of the Separation. Details regarding the process carried out by the Special Committee, together with a copy of the fairness opinions prepared by Origin Merchant Partners and BMO Capital Markets, will be contained in the management proxy circular to be mailed to Teck shareholders.