Teck Lets The Dragon In The Door

The last trading week of the second quarter of 2009 brought an end to the worst first half of the year for miners since 2002, though the signs of continued recovery point to a brighter second half and 2010.

• Debt-addled Teck took another big step towards recovering a strong balance sheet with the announcement that it had lined up Chinese state-owned China Investment Corp. for a $1.74-billion private placement.

CIC is buying 101.3 million class B shares for $17.21 per share. That represents 17.5% of the class B shares, 17.2% of the combined A and B shares, and 6.7% of the aggregate voting rights.

Selling a big chunk of one of Canada’s premier mining companies to an authoritarian regime broadly hostile to Western values naturally raises sovereignty concerns. So Teck and its new best buddy are going out of their way to emphasize the “passive” nature of CIC’s investment, and have added on various restraints in the form of a hold period, a standstill provision, and limits on whom CIC can sell to. This tight leash, plus the relative small size of the deal in percentage terms as well as the deal being announced during the sleepy holiday period, will combine to ensure the financing is quickly accepted by shareholders and regulators.

• Rio Tinto, another big miner that ran to the Chinese when it was crippled by M&A debt, is selling off another asset to raise cash.

The mega-miner will sell its Chicago-headquartered Alcan Packaging Food Americas division to Bemis Co. for US$1.2 billion, of which US$200 million may be Bemis shares. The division, which enjoyed US$1.5 billion in revenues last year, employs 4,600 people at 23 locations in the U. S., Canada and Mexico, Brazil, Argentina and New Zealand.

While Rio Tinto has been selling billions of dollars’ worth of assets for many months now, this is the first significant Alcan asset to be unloaded. It was Rio Tinto’s ill-timed, all-debt US$38-billion cash acquisition of Alcan in 2007 that precipitated all these balance sheet problems in the first place. Next up, start looking for Rio Tinto to write down the value of some of its remaining Alcan assets.

• Lundin Mining is another miner brought back from the brink of debt disaster. In co-operation with lead arranger Scotia Capital, the Vancouver-based company has executed a third amendment to its credit agreement that gives it a three-year, fully revolving credit line of US$225 million at reasonable interest rates.

Lundin has drawn down US$210 million on the facility but has US$150 million cash on hand, meaning it can now refocus on operations and project development and leave behind a stressful winter of dealing with nervous bankers.

• Meanwhile, at the other end of the financing spectrum, Saskatoon, Sask.-based junior Golden Band Resources unveiled an intriguing $15-to $30-million convertible debenture the company is selling in order to build its La Ronge gold mine in Saskatchewan.

Rather than the typical debenture that’s convertible into shares, this one is also convertible into ounces of gold at the debenture holders’ discretion. Golden Band wants to produce at least 75,000 oz. gold annually from La Ronge over a 10-year mine life.

• Gold prices straddled the mid-year mark in a newly weakened state, slumping well below the US$930-per-oz. mark, as the U. S. dollar regained ground against its counterparts and drove down prices for key commodities such as copper, oil and the rest of the energy complex.

• Breakwater Resources said operations at its Mochito zinc mine in Honduras were “unaffected” by the military coup there on June 28.

In late June, the company said there had been no disruption to the operations nor were any anticipated, and that all its production and shipping schedules were intact.

Yamana Gold also has its San Andres open-pit heap-leach mine in western Honduras. It’s one of the three marginal mines it announced in mid-June that it’s selling to Aura Minerals. With political tensions rising in Honduras, maybe this is why the price seemed cheap at the time?

Thirdly, via its acquisition of Glamis Gold in 2006, Goldcorp has its San Martin heap-leach mine in Honduras, but 2007 was its last year of commercial production and the site is now undergoing final closure and reclamation.

The fourth Canadian company with a significant presence in Honduras is Montreal-based t-shirt, sock and underwear maker Gildan Activewear, which has made the country its base of production.

Honduras ranks as the largest recipient of Canadian aid in Central America.

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