Teck Flashcards
Walk me through the deal
What is the location and background of HCC coal asset?
HCC coal asset is based in BC and operates 4 mines that produced roughly 25 million tonnes of steelmaking coal.
Who are the clients or customers of EVR?
Manufacturers of steels globally due to its low-carbon intensity and ability to enhance blast furnace efficiency.
What is the significance of EVR in the global market?
It is the world’s second largest exporter of steelmaking coal.
When did Teck first invest in EVR?
Teck was an original investor in EVR back in 2003.
What percentage of interest did Teck take in the ELK Valley partnership initially?
40% interest.
When did Teck acquire the remaining interest in the Elk Valley Joint venture?
In 2008.
How much did Teck pay for the remaining 60% of the Elk Valley Joint venture?
US$14 billion.
What was the total enterprise value of the 4 mines that comprised EVR?
Approximately US$24 billion.
What was the implied EBITDA prior to Teck’s acquisition?
Approximately US$2.7 billion.
What trend affected Teck’s multiples relative to peers?
The strong trend of electrification and energy transition away from fossil fuels.
What commitments were at their peak affecting Teck?
ESG and climate change commitments.
What was Teck’s EBITDA percentage for EVR in 2022 and 2023?
Approximately 65-70%.
What was the EBITDA margin for EVR?
52.3%.
Why did Teck hire a bank in early 2023?
To navigate a potential separation of their coal and base metals businesses.
What was CIBC’s role in relation to Teck?
To look at implications and considerations for executing an IPO and potential spin-off of the coal company.
What was the concern regarding selling Teck’s crown jewel?
Resource nationalism perspective; losing control of a strategic metal.
What pressure was Teck facing from ethical investors?
Pressure to exit coal despite it being the cleanest form of coal used to make steel.
What potential did Teck have to attract investors post-separation?
Attract investors from being a pure green metals play.
How much capital was waiting to be deployed from ESG funds?
US$1 trillion.
What was Norman Keevil’s stance on Glencore’s strategy?
Glencore was not the right partner for Teck.
What was Teck generating in terms of free cash flow (FCF)?
Roughly US$1 billion.
What was the margin percentage for Teck at the time?
10%.
What would a spin-off have provided according to the belief expressed?
Reduced exposure to coal and optionality to provide high FCF.
What complaints have been made regarding Glencore?
Not operating the mines accordingly and backlash from local communities regarding water contamination.
What materials were created to guide discussions with the executive team at Teck?
Materials included board of directors materials and discussions from August until the closing of the transaction in November.
These materials were crucial for the final decision-making process by the board at Teck.
What were the key work streams responsible for?
Key work streams included:
* Spot and analyst consensus charts
* Analysis of consensus prices vs realized prices
* Trading analysis and relative positioning
* Case study of Whitehaven acquisition of Daunia & Blackwater
These work streams provided insights and analyses critical for the transaction.
What was discovered about realized prices compared to analyst expectations?
Realized prices were 15%-20% higher than what analysts expected on average.
This analysis was key in demonstrating the potential upside for holding the asset.
What potential value was conveyed through the model regarding EVR actual selling prices?
There was potential for creating roughly 2-3 billion in value if the outperformance of EVR actual selling prices continued.
This insight suggested that holding the asset could be beneficial.
What insights were drawn from trading analysis?
Trading analysis justified that EVR would be trading at the same level as iron ore and oil sands companies.
This relative positioning was important for the overall valuation.
What case study was included in the discussions?
Case study of Whitehaven acquisition of Daunia & Blackwater valued at $3.2 billion, including upfront, deferred, and contingency payments.
The valuation was based on the price of HCC.
What did the experience teach about investor behavior?
Changes in trends can significantly affect investors’ appetite, requiring monitoring and adaptation.
Investors are also drawn to vehicles with a clear strategy, contrasting narratives within an asset can lead to value deterioration
Fascinating to see the different mindset of investors clashing, from one side we had mature mining investors that seek high yield from longstanding producing assets, while on the other side we had a strong investor demand from growth-oriented investors seeking to benefit from the decarbonation and electrification trend through increasing and growing exposure to green metals
Investors must manage acquisitions or disposals accordingly.
Why is the exit strategy important for investors?
The way you exit can be as important as the way you enter, requiring the right partner for smooth operations.
Define Exposure to Coal
Build dry powder to pursue growth opportunities, 7bn vs 1-2 bn
Vulnerable if shareholders dont end up liking the final outcome of the strategic review
This consideration is especially vital when impacts affect large communities.
What complexities must a company navigate when monetizing an investment?
A company must consider implications for various stakeholders and the strategic importance of the asset.
Value, consiedrations on third parties / other stakeholders, and opportunity cost of the foregone benefits of holding the asset and potential upsides.
This includes navigating political and regulatory frameworks.
What is crucial when deciding to expand operations or exit an investment?
It is crucial to consider community impacts and stakeholder interests.
This ensures that decisions are made thoughtfully and responsibly.
