Teck and Cominco feel the urge to merge

Vancouver — Continuing the trend towards consolidation in the mining industry, two of Canada’s oldest mining firms have agreed to merge.

Diversified miner Teck (TEK-T) and the world’s largest producer of zinc, Cominco (CLT-T), have entered into a merger agreement which would create a mining powerhouse called Teck Cominco Ltd.

“The new Teck Cominco will have strong cash flow from world-class assets,” says Norman Keevil, Teck’s CEO. “The combined company’s exceptional pipeline of expansion and development projects will fuel its ongoing growth.”

Under the terms of the merger, Cominco shareholders will receive 1.8-class B shares of Teck and $6 in cash for each Cominco share. This marks a 21% premium over the average closing prices of the two companies during the past 20 trading days.

Driving the future expansion of the new entity will be:

• expanded capacity at the Red Dog zinc mine in Alaska;
• development of the Pogo gold deposit in Alaska;
• expansion of the Cajamarquilla zinc refinery and Elkview coal mine in B.C.;
• the nearly completed Antamina copper-zinc mine in Peru; and
• development of the San Nicolas copper-zinc deposit in Mexico.

“With consolidation occurring across country borders around the world, it is only logical that two related companies based in the same city join forces to become more competitive in the world mining industry,” says Keevil.

David Thompson, Cominco’s president and CEO, is expected to be the new company’s CEO.

“The merged company will continue to be a leader in the zinc business, with interests in two of the three largest zinc properties in the world and with strong refining operations balanced by substantial operating assets in copper, gold and coal as well,” says Thompson.

Teck, which already holds a 51% stake in Cominco, reported first-quarter earnings of $55 million, or 46 per share, on revenues of $672 million for the quarter ended March 31. Cominco tallied earnings of $83 million, or 97 per share, during the same period.

The surge in profits was the direct result of increases in power sales to the United States at above normal rates.

Between December 2000 and September of this year, Cominco has cut zinc production by 120,000 tonnes at its Trail refinery in B.C. in order to increase power exports to the U.S. electricity grid.

The sale of surplus power, combined with metal sales, resulted in a $97-million pretax improvement in the operating profit from Trail. This was due mainly to a $122-million increase in operating profit from power sales. Trail’s surplus power sales nearly doubled and power prices were 18 times higher then in the first quarter of 2000.