DBRS Comments on Teck Resources Share Repurchase Program

DBRS notes today that Teck Resources Limited (Teck or the Company) has announced that it intends to pursue a normal course issuer bid for up to 40 million of its Class B subordinate voting shares (Class B shares) commencing on June 27, 2011, and extending until the earlier of the date on which Teck acquires 40 million Class B shares and June 26, 2012. The 40 million shares represent about 7% of Teck’s Class B shares outstanding as at June 15, 2011. At current prices and current exchange rates, the cost of purchase of the full 40 million Class B shares would be about $1.8 billion. Although potentially a significant outlay for the Company, Teck has made great strides in restoring its liquidity and balance sheet strength from high levels of debt at the end of 2008, and in an environment of strong coal and copper prices, DBRS believes that the Class B share purchases, handled prudently, would be expected to not affect Teck’s ratings, which are BBB (low) with a Positive trend.

On a pro forma basis at March 31, 2011, DBRS estimates that, if the purchase is financed with debt, a $1.8 billion purchase of Class B shares and corresponding reduction of the Company’s equity base would increase Teck’s gross debt in its capital structure from 23% to about 31%, which is still robust for the Company’s rating. With $1.1 billion in cash on the Company’s balance sheet at March 31, 2011 and strong cash flow generation due to high coal and copper prices, any actual share purchase may well be funded with available cash resources.

Nonetheless, DBRS expects that Teck will be prudent in matching the timing of its share purchase, its other shareholder returns and its capital expenditure requirements with available cash flows in order to maintain its balance sheet strength.

Notes:
All figures are in U.S. dollars unless otherwise noted.

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