MINING FINANCE / INVESTMENT

Teck looking to gold asset sales, cashflow and big tax break to repay Fording bridge loan

Teck is looking towards selling its gold assets, cutting capital commitments, utilising a $1 billion tax break and cashflow to repay its bridging loan for the acquisition of Fording earlier this year.

Author: Cameron French
Posted: Thursday , 13 Nov 2008

TORONTO (Reuters) - 

Teck Cominco (TCKb.TO) is in talks to sell its gold assets as part a plan to quickly pay off a $5.8 billion bridge loan used to finance its takeover of Fording Canadian Coal Trust, it said on Wednesday, after its shares tanked on concerns over its ability to repay the debt.

The Canadian mining company will use cash flow, a C$1 billion tax break, asset sales and capital cost cuts to pay down a big chunk of the loan by the middle of next year, Teck Senior Vice President Ron Vance said during an investor conference in New York.

"We remain very confident that we can effectively and efficiently deal with the challenge of servicing the acquisition debt," he said.

His comments came as Teck's shares dropped 16 percent on Wednesday, following a 20 percent decline in the previous session, as the market fretted about Teck's ability to pay off the debt.

Teck unveiled the $14 billion offer in July and nailed down $9.8 billion in financing -- including a $4 billion term loan -- in September, just as credit markets seized up and ahead of a sharp drop in demand for coal used in the steelmaking process.

Now, with reports coming in that steelmakers are asking some metallurgical coal suppliers to renegotiate contracted prices lower, investors wonder whether Teck will sink under the debt, unable to repay it through cash flows that promise to be much less than forecast just months ago.

Asked if the company could have $3 billion paid off by the middle of next year, Vance said the figure was realistic.

He said strong cash flows were pretty much locked in until the end of March, due to contracted coal sales and copper hedges. The coal business alone should generate $1 billion in pre-tax cash flows in the first quarter next year, he said.

IN TALKS TO SELL GOLD ASSETS

Regarding asset sales, he said Teck was more actively pursuing its long-stated goal to sell its gold assets, which include a 40 percent stake in the Pogo mine in Alaska and a 50 percent interest in the Hemlo operations in Ontario.

"We have a number of attractive gold assets, and we are currently in discussions with a number of interested parties," he said.

Capital spending will be reduced, and many feel the company could walk away from the Petaquilla copper project in Panama.

Teck said last month that it and its partners in the Fort Hills oil sands project could delay part of the development of the project. UTS Energy Corp (UTS.TO) and Petro-Canada (PCA.TO) are Teck's partners in Fort Hills.

However, Teck has funding obligations to Fort Hills that will kick in as the project progresses.

The company's stock was down C$1.44 at C$7.30.

The shares are down 81 percent since mid-September, also hurt by falling prices for zinc and copper, which Teck also produces. Teck raised its copper production significantly last year through its takeover of Aur Resources.

"It's pretty amazing when you think back to where this company was before they made the Aur bid about a year ago. The company had over C$4 billion in cash and no debt. Here they are today with $10 billion in debt," said Kerry Smith, an analyst at Haywood Securities.

"Right now people are assuming this company's going out of business. I think it's pretty unlikely that happens."

Smith has forecast metallurgical coal prices of $100 a tonne for next year, well below the $275 the company realized in the contract year that ends March 31.

($1=$1.23 Canadian) (Reporting by Cameron French; Editing by Frank McGurty)

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