April 21, 2009 / 10:36 AM / in 9 years

UPDATE 4-Teck Cominco defers debt payments, shares leap

* Defers $4.4 billion in 2009 debt payments

* Stock leaps 30 percent to C$11.86

* EPS ex-items C$0.47 vs consensus C$0.43 (Add CEO and analyst comments. In U.S. dollars unless noted)

By Cameron French

TORONTO, April 21 (Reuters) - Canadian miner Teck Cominco TCKb.TO said on Tuesday its lenders have agreed to defer $4.4 billion in debt payments due in 2009, giving it breathing room in its attempt to pay down debt from its purchase of Fording Canadian Coal Trust, and driving its shares up by 30 percent.

The reworked financing plan, announced after Teck released first-quarter earnings, will give it some time to continue selling assets to help pay down $1.9 billion in debt still due this year, and to try to convert the bridge loan to longer-term debt, the company said.

Before the deferment, Teck had been on the hook for $6.3 billion in debt payments this year.

“It substantially diminishes (Teck’s) risk profile,” BMO Capital Markets analyst Tony Robson said of the agreement.

Teck borrowed $9.8 billion in total last year to pay for Fording so that it could take control of the Elk Valley Coal Partnership, one of the world’s top producers of coal used in the steelmaking process.

The debt included a $5.8 billion bridge loan due on Oct. 30 and $4 billion in term debt that was due in installments beginning this month.

Teck could still reduce the amount due this year to $1.7 billion if remaining negotiations with lenders in the syndicate of 25 banks bear fruit, officials said on a conference call.

Under the new agreement, Teck will extend the maturity date of $3.5 billion of the bridge loan by two years, and will reschedule about $3.3 billion of amortization payments under the term loan, with the bulk of it due in 2012.

“We believe the $1.86 billion that is due of the rest of the year will be quite manageable,” Teck Chief Executive Don Lindsay said. He said the company did not plan to issue any equity to pay down the remainder of the debt.


By mid-afternoon, the company’s shares were up 30.4 percent at C$11.88, on the Toronto Stock Exchange, after earlier touching their highest level since early November.

“This event clearly relieves some pressure in terms of their liquidity, and you see some light on the horizon with respect to how they may eventually come out of this,” said Brian Hicks of Teck shareholder U.S. Global Investors.

Teck has been in the process of selling of gold assets, has been taking bids on a minority stake in the Elk Valley Coal assets has also been considering selling the company’s 20 percent stake in the Fort Hills oil sands project.

Lindsay said the company still planned to sell more gold assets, and still intends to take on a partner for Elk Valley.

On Fort Hills, he said the company was still looking at its options, but said Teck likes the project.

BMO’s Robson said he expects Fort Hills is likely still for sale given that Teck’s spending commitments for the project would weigh on its cash flow down the road.


The shares were also helped by a slightly stronger-than-expected quarterly profit and news that Teck had firmed up price negotiations for more than half of its 2009 coal sales, which is key to projecting the company’s cash flows.

Teck said it had negotiated contracts on 11 million tonnes of coal at $128 a tonne, roughly in line with expectations.

It expects to produce 18 million to 20 million tonnes of coal this year, slightly less than previously forecast.

First-quarter profit fell 30 percent to C$241 million ($194 million), or 50 Canadian cents a share, down from C$345 million, or 78 Canadian cents a share, a year before.

Stripping out unusual items, Teck earned 47 Canadian cents a share, beating the 43 Canadian cents expected by analysts.

Realized coal prices were $204 a tonne in the quarter, which was better than expectations of $190 a tonne, according to RBC Capital Markets analyst Fraser Phillips.

Revenue rose 11 percent to C$1.71 billion as coal sales volumes rose due to the Fording acquisition, while realized coal prices also climbed. The coal contract season runs from April to March, so coal sales in the first quarter were mostly at prices negotiated in early 2008, when coal demand was much stronger.

Revenue from copper and zinc weakened, due mainly to a sharp year-over-year drop in prices.

$1=$1.24 Canadian Additional reporting by Scott Anderson in Toronto and Bhaswati Mukhopadhyay in Bangalore; editing by Peter Galloway

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