(Reuters) - Teck Resources Ltd TCKb.TO has agreed to buy SilverBirch Energy Corp SBE.V for C$435 million ($424.70 million)in cash and stock to take full control of the Frontier oil sands project in northern Alberta.
The deal drove SilverBirch’s shares up by 32 percent in early trading on Monday.
Vancouver-based Teck, which is primarily a copper and coal producer, has a small cluster of long-term oil sands assets, including a 20-percent stake in Suncor Energy’s (SU.TO) and Total SA’s (TOTF.PA) Fort Hills project.
Under the terms of the deal, SilverBirch shareholders will receive C$8.50 in cash and one share of a new company, SilverWillow Energy Corporation, for each share they hold, the companies said.
SilverWillow will hold substantially all of the assets of SilverBirch other than SilverBirch’s 50 percent interest in Frontier. Teck will also contribute C$25 million in working capital to SilverWillow as well as its 50-percent stake in several leases that it currently jointly owns with SilverBirch.
The working capital alone works out to about 50 Canadian cents a share, SilverBirch Chief Executive Howard Lutley said on a conference call
About 50 minutes into trading, Silverbirch’s shares were up C$2.30 at C$9.50 on the TSX Venture Exchange, well ahead of the cash portion of the deal.
Teck was down 56 Canadian cents, or 1.5 percent, at C$37.79 on the Toronto Stock Exchange.
John Hughes, an analyst at Desjardins Securities, said in an emailed note that Teck investors were likely concerned about the extra capital spending the company is taking on to develop the entire Frontier project.
However, he doubted the company will see much competition in its attempt to buy out SilverBirch.
“Given that Teck is buying out its partner, we believe the possibility of a second bidder on SilverBirch is very limited,” he said.
Teck CEO Don Lindsay said the deal gives Teck more flexibility to develop Frontier, and suggested the company might seek out new joint venture partners.
“The Frontier ownership structure is simplified, our exposure to oil sands leases not amenable to mining is reduced, and Teck now has the opportunity to explore new potential partnerships and other alternatives to move Frontier towards development,” he said in a statement.
Frontier is located about 110 kilometres (68 miles) north of the oil sands hub of Fort McMurray, Alberta. The project is expected to produce more than 74,000 barrels per day of bitumen in 2021, rising to more than 277,000 a day by 2030, with lifetime production of 2.8 billion barrels, according to Teck.
SilverBirch said it has lock-up agreements in place with shareholders, including West Face Capital and the U.K.-based Children’s Investment Fund Management, which together hold about 38 percent of the company’s shares.
($1 = 1.0243 Canadian dollars)
Reporting By Cameron French; Additional reporting by Shounak Dasgupta in Bangalore; Editing by Frank McGurty