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Teck secures reprieve from $5.2b loan payment due in October

Teck Cominco chief Don Lindsay, a former investment banker, pulled his company from the financial brink Monday with the announcement of a reprieve from its billion dollar loan payment.

Author: Dorothy Kosich
Posted: Wednesday , 22 Apr 2009

RENO, NV -

Former investment banker turned Teck President and CEO Don Lindsay temporarily snatched his company's fiscal bacon from the fire Monday with the announcement that the company had reached an agreement with banks to defer payments on its US$4.4 billion bridge and term loan.

In a news release, Lindsay announced the rescheduling of the bridge and term debt "will give Teck the time to most effectively execute our asset sales program to significantly reduce our current debt and to access the debt capital markets to replace short-term debt obligations with longer term financing more appropriate to our portfolio of long-life assets."

Teck will be required to reduce the $5.2 billion still outstanding under the Bridge Facility to US$3.5 billion by October 30th of this year. However, the mandatory payment previously due by October 30th will be reduced from US$6.3 billion to $1.9 billion. In exchange for the concession, the interest rate will be increased.

In a conference call with analysts Monday, Lindsay said he did not foresee any problems meeting that deadline. The remaining amounts outstanding under the bridge facility would be due October 30, 2011.

Meanwhile Teck announced other news Monday, noting that the company's net earnings dropped 30% from $345 million or 78-cents per share during the first quarter of 2008 to $241 million or 50-cents per share during the first-quarter 2009. Revenues in the first quarter were $1.7 billion, up 11% from $1.5 billion during the same period of 2008.

Teck--which acquired its heavy debt burden during a deal to own 100% of the Fording Canadian Coal Trust-forecast this year's coal sales to be between 18 million and 20 million tonnes, 90% of which is anticipated to be hard coking coal. "To date, we have concluded price negotiations for approximately 11 million tonnes of coal for the 2009 coal year, with our highest quality coal products being priced at US$128 per tonne."

Operating profit from Teck's coal business accounted for 67% of the company's operating profit and was $429 million in the first quarter compared with $15 million for the same period a year ago. "The significantly higher profit reflected higher coal prices and our ownership of 100% of Teck Coal compared with a 40% direct interest last year."

However, revenues from Teck's copper and zinc operations dropped by slightly more than half during the same period.

In a conference call with analysts Monday, Lindsay reaffirmed that Teck will be bringing in a partner for its coal assets, as a number of companies have inquired about investing in Fording Canadian Coal Trust operations, mainly Elk Valley coal.

While Lindsay said the company really liked the Ft. Hills oil sands project, he stressed that Teck will have to be open to all options including selling its interest in Ft. Hills.