Editorial: Teck teeters, Apex falls

Falling commodity prices took deep bites out of another group of zinc miners during the week ended Nov. 15, the 46th trading week of 2008.

• The reputation of Canada’s biggest base metals miner, Teck, as being one of the industry’s savviest players came crashing down along with its stock price. It trades just above $6 at presstime, off from $13 a couple of weeks ago and $41 in early September.

Teck’s high-profile belly flop stems from the US$9.8 billion in debt the company took on in order to buy the assets of Fording Canadian Coal Trust. It’s a deal cooked up in July, when Teck thought the sky was the limit for metallurgical coal prices. While Teck’s met coal prices are locked in at US$300 per tonne until April, there’s plenty of speculation the price may drop next spring well below US$200 per tonne.

Of special concern is Teck’s ability to repay a US$5.8-billion bridge loan that comes due almost a year from now.

Teck has a few not particularly pleasant options for how to come up with a good chunk of that money: suspending its half-billion dollar dividend; pushing to get its billion-dollar tax rebate from the federal government; postponing every kind of capital expenditure around the Teck empire; and selling off its gold assets for a half billion in cash.

There doesn’t seem to be a lot of anger directed at Teck management, with most observers shrugging it off and attributing the fiasco to exquisitely bad timing on Teck’s part. It’ll be interesting to see how much support CEO Don Lindsay will get at the board level going forward, after having steered the company into this very serious situation.

There’s also a broad sentiment that Teck, with its high-quality assets and operational excellence, will sort this out somehow, whatever long-term damage is done to the share price in the meantime.

• The declining SIL stock price over the past year really told the story, but we were still shocked by the quick-and-dirty sale of Apex Silver Mines’ stake in the gigantic San Cristobal zinc-silver-lead mine in Bolivia. Apex sold its 65% interest to its partner at the mine, Sumitomo, for a mere US$22 million plus the assumption of huge liabilities that were racked up after just about everything went wrong at the one-year-old mine: huge debts; construction cost overruns; bad hedging and forward sales; plummeting zinc and silver prices; skyrocketing cash costs; and substantial tax hikes.

It looks now that the political risk was the least of Apex’s problems. The situation at San Cristobal was so bad that even the Bolivian government couldn’t be bothered to nationalize it.

• Another former high-flying Vancouver-based miner, Lundin Mining, posted a US$199-million third-quarter loss and is shutting its Aljustrel zinc mine in Portugal and changing the focus to copper at its Neves-Corvo copper-zinc mine, also in Portugal.

For you kids out there, here’s the lesson: think twice before building a company around zinc. It’s very, very tough for any lone zinc miner to survive the trough of a full commodity cycle.

• On the topic of Vancouverites who’re suddenly poorer, pause a moment to consider the plight of former golden boy Damien Reynolds, who failed to meet a margin call related to a loan he’d taken to support Finavera Renewables. Reynolds has had to relinquish 15 million shares of his baby, Longview Capital, while directors Hein Poulus and Ron Shorr, as well as chief operating officer John Icke, acquired 12 million shares, with the remaining 3 million to be sold into the market. Longview shares now trade at 4 apiece but traded at $2 in spring 2007 — on the back of an envelope, that’s $30 million slipping through Reynolds’ fingers in 18 months. He does get to keep his office key, though; he’s staying on as Longview’s chairman and CEO.

• To close with some good news: Forsys Metals showed there’s still some life for uranium juniors and at least a few people still around ready to lay down some serious cash for mineral properties. Forsys announced a friendly $7-per-share, all-cash offer from George Forrest International Afrique, which values the junior at a sweet $579 million. Forsys has some relatively modest uranium assets in Namibia, near the large Rossing uranium mine owned by Rio Tinto and the Namibian and Iranian governments. (And yes, we’ve asked, and no, Rio Tinto says the mine doesn’t sell its uranium output to the Iranian government, whose 15% stake dates to the 1970s and the Shah’s regime.)

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