DBRS Comments on Teck Resources Limited’s $1.7 Billion Equity Sale

DBRS notes that Teck Resources Limited (Teck or the Company) today announced that China Investment Corporation (CIC) has agreed to purchase 101.3 million Teck Class B subordinate voting shares for approximately $1.74 billion at a price of $17.21 per share. Teck has indicated that it will apply the net proceeds of the transaction to reduce outstanding debt. DBRS views this as a positive transaction if completed as indicated, which will help reduce Teck’s heavy debt load ($13.3 billion at March 31, 2009) and high leverage. DBRS estimates that on a pro forma basis at March 31, 2009, gross debt in the Company’s capital structure will be reduced from approximately 54% to 47%. The Company’s credit metrics will continue to be weak for its BB (high) Issuer Rating and DBRS is maintaining Teck’s ratings with a Negative trend until its leverage and other credit metrics are brought more in line with the Company’s ratings.

DBRS notes that the transaction with CIC is expected to close on or about July 14, 2009, and closing will be subject to customary conditions, including stock exchange approvals. As a private placement, the proposed transaction has a number of features including: (1) a one-year hold period for CIC’s Teck shareholdings; (2) CIC will have the right to maintain its percentage ownership interest in Teck Class B shares through open market purchases or through participation in additional issuances or similar securities or securities convertible into such securities, subject to customary exceptions; (3) a standstill agreement between Teck and CIC with CIC agreeing it will not take certain actions, including acquiring additional securities of Teck (other than pursuant to its anti-dilution rights) or soliciting proxies, proposing to effect any extraordinary transaction involving Teck, or assisting any third party in doing so; and (4) CIC will not sell the purchased shares to a participant in the worldwide mining, metals or minerals industries, or to a material customer of Teck.

Teck continues to face the impact of the global economic downturn on commodity prices and demand, particularly with respect to steel-making coal, which now forms the core of the Company’s business. First quarter 2009 coal shipments were very weak and coal prices for the Company’s highest-quality coal products were set at US$128 per tonne, more than 55% below contract prices for the prior year. Despite this, the outlook has improved somewhat with the Company forecasting 18 million to 20 million tonnes of coal sales in 2009, including 2.3 million tonnes of carryover tonnage at high 2008-2009 contract-year prices. Teck has also reduced its near-term liquidity pressures through the rescheduling of the repayment dates on the bulk of the debt related to the Fording acquisition and through the issuance of US$4.2 billion in senior secured notes in May 2009.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating Mining, which can be found on our website under Methodologies.

This is a Corporate rating.