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Investing.com — Shares in Teck Resources (NYSE:TECK) rose over 4% in premarket trading on Tuesday after the mining company said it will spin off its coal mining business to focus on copper.
The spinoff will create two companies with sharper profiles, with the renamed Teck Metals being a pure play on metals related to the long-term energy transition, and the metallurgical coal business, renamed Elk Valley Resources (EVR), becoming a more focused steel-themed investment.
Under the terms of the separation, Nippon Steel (TYO:5401) and South Korea’s POSCO (KS:005490) will exchange their minority stakes in two of EVR’s projects for stakes in the company itself, valuing EVR at $11 billion.
According to Teck’s calculations, that would imply the market values the remaining copper business at only 4.6 times this year’s expected earnings before interest, taxes, depreciation, and amortization, compared to an average multiple of 7.5 for rivals such as Antofagasta (LON:ANTO) and Freeport-McMoran (NYSE:FCX). Teck will continue to have access to some 90% of EVR’s cash flows for a “transitional” period, the company said.
Teck is currently a relatively small copper producer, with only 220,000 tons of output last year, but it owns a portfolio of undeveloped properties, largely in North America, that will allow it to raise output to 1.5 million tons a year within a decade.
By contrast, EVR is North America’s biggest producer of metallurgical coal, which is used in primary steel production. It produced over 24M tons of coal last year, most of it being exported to Asia.
The deal will also see Teck end the super-voting rights of its Class A shares and instead adopt a single share class.
It’s the second move in as many years by the Canadian company to enhance its appeal to investors focused on sustainability. It sold its stake in an oil sands producer to Suncor (TSX:SU) last year for around CAD 1 billion.
