How TECK’s Debt Reduction Strategy Differs from Other Miners’


May. 16 2017, Updated 10:38 a.m. ET

Debt reduction strategy

Last week, Teck Resources (TECK), the Canada-based diversified miner (EWC) (SU), announced that it would be selling “two-thirds interest in the Waneta Dam and related transmission assets in British Columbia, Canada, for $1.2 billion cash.” 

The move should help TECK bring down its debt levels. Credit rating agency Moody’s sees the move as credit positive for the company.

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Peer companies

Notably, Teck Resources isn’t the only miner working to repair its balance sheet. Almost every company in the metals and mining space is making efforts to cut its debt levels. However, there’s a difference between different companies’ debt reduction strategies.

For instance, Glencore (GLNCY) sold stakes in some of its noncore assets such as its coal rail haulage business. The company also entered into some streaming transactions to raise cash upfront. Freeport-McMoRan (FCX) has sold a stake in some of its core copper assets and almost exited its energy business. Both Freeport and Glencore have also raised cash through equity issuances.

No equity issuance

While equity issuance is generally the easiest option available for raising cash, it has long-term ramifications. Equity issuance raises a company’s equity base, leading to earnings dilution.

Meanwhile, Teck Resources’ management was quite clear that the company wouldn’t issue shares at depressed valuations. The company also didn’t sell any stake in its core assets. Notably, Teck continued to invest in future growth during the downturn. Quebrada Blanca Phase 2 and the Fort Hills project are two key growth projects that Teck is currently pursuing.

In the next article, we’ll see which copper miner analysts are most bullish about.


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