Waratah Capital Advisors Votes AGAINST the Proposed Teck Resources Separation
TORONTO, April 19, 2023 /CNW/ - Waratah Capital Advisors Ltd. ("Waratah", "Waratah Capital Advisors", or "we") is releasing this statement in regard to the upcoming Teck Resources Limited (TSX: TECK.A) (TSX: TECK.B) (NYSE: TECK) ("Teck Resources" or "Teck") shareholder vote set for Wednesday, April 26, 2023.
Waratah Capital Advisors is releasing this statement to announce it has voted AGAINST the proposed Teck Resources spin-off of the coal business (the "Separation") and FOR the proposed six-year sunset for the multiple voting rights attached to the Class A common shares (the "Sunset"). Waratah's vote against the Separation and for the Sunset is consistent with the Glass Lewis and ISS recommendations.
In light of recent developments, we do not believe the proposed separation of Teck Metals Corp. ("Teck Metals") and Elk Valley Resources Ltd. ("EVR") maximizes shareholder value. The proposed Separation is an unnecessarily complex break of the two proposed entities, as they will remain highly intertwined for the next several years. Given the unsolicited Glencore plc (AIM: GLEN) (JSE: GLN) ("Glencore") bid for Teck, we strongly believe that a more fulsome strategic review needs to be conducted by Teck and the Board of Directors.
We do not believe EVR is the right structure for Teck's world class steelmaking assets and are expressing our concern regarding recent changes made to the Separation proposal. Teck's 2023 guidance for capital expenditures in the steelmaking coal unit is $1.54 billion, or $1.32 billion excluding water capital expenditures. The new proposed annual capital spending limit of $1.3 billion could therefore result in a significant reduction in either sustaining capital expenditure or capitalized stripping, which are necessary to maintain the coal production profile into the future. This capital spending limit also leaves no allowance for unforeseen capital projects that may arise for EVR.
We are also not convinced that Teck Metals will obtain an immediate ESG-driven valuation re-rate as a base metal company, as the company will continue to effectively own most of the underlying EVR coal cash flows through the proposed royalty and preferred share structure. Waratah does not believe there is a robust market of buyers for the EVR royalty given the royalty's short life and the complex controls placed on the underlying coal assets. Furthermore, when a royalty consumes 90% of EVR's bottom-line, it is a royalty in name only. We believe the lack of buyers for the royalty inhibits strategic optionality for Teck post-Separation and means that any transaction to sell the royalty would be conducted at a large discount to intrinsic value. In addition, we do not believe the preferred share can be refinanced until the royalty is paid off in its entirety. In summary, we believe the proposed Separation does not properly relinquish Teck Metals' coal exposure – it simply swaps the method by which the coal assets are owned by Teck, from direct asset ownership to indirect ownership via an overly-complex royalty and a quasi-vendor take-back arrangement.
We believe the right decision for Teck shareholders is to engage with Glencore and other interested parties in a more fulsome auction process.
As of the March 7 date of record, Waratah funds hold in aggregate 2,343,461 Teck Resources Class B subordinated voting shares. Waratah has been a shareholder of Teck since the third quarter of 2021.
Based in Toronto, Canada, Waratah Capital Advisors manages over $4 billion in assets from high-net-worth individuals, family offices, foundations, Canadian bank platforms, and pension funds. With a team of 52 experienced professionals, Waratah combines intensive research-driven stock selection with a disciplined and robust risk management program. Founders and employees collectively represent over $228 million of the firm's assets under management. For more information about Waratah please visit https://waratahadvisors.com/
SOURCE Waratah Capital Advisors Ltd.
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