Teck Resources sells future silver output on Peru mine, shares surge

Wed Oct 7, 2015 4:44pm EDT
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By Nicole Mordant

(Reuters) - Teck Resources Ltd TCKb.TO said on Wednesday it has agreed to sell future silver production from a mine in Peru to Franco-Nevada Corp (FNV.TO: Quote) for $610 million in upfront funds, a cash boost for the debt-laden miner that sent its shares soaring.

The so-called "streaming" deal is on Teck's share of the by-product silver production from the large Antamina copper mine in Peru. Vancouver-based Teck owns a 22.5 percent stake in Antamina.

In streaming transactions, mining finance companies such as Franco-Nevada provide miners with funds upfront in exchange for a portion of the future production from a mine at a set, discounted price.

This type of alternative finance has been emerging as the new go-to funding for miners bowed by debt as weak share prices, courtesy of a four-year commodities' downturn, make raising equity finance expensive.

The deal is beneficial for Teck "as it adds cash immediately to Teck's balance sheet particularly after the recent credit rating downgrades on the company," Barclays analyst Farooq Hamed said in a note to clients.

Teck's shares ended 14 percent higher at C$8.89 on the Toronto Stock Exchange.

Moody's Investors Service downgraded Teck's credit rating to junk last month, blaming weak commodity prices and heavy capital spending by the Canadian coal and base metals miner.

The transaction is enough to cover Teck's estimated free cash burn in 2016, Citi analyst Brian Yu said.   Continued...

Don Lindsay CEO of Teck Resources in Vancouver, British Columbia April 22, 2010. REUTERS/Lyle Stafford