Teck Resources Ltd. is facing challenging times. The company is coping with very weak coal prices and it has huge spending commitments at the Fort Hills oil sands project over the next few years. That is putting some pressure on its balance sheet.
National Bank analyst Shane Nagle thinks he\’s the solution to Teck’s problems: buy HudBay Minerals Inc.
He pointed out that acquiring HudBay will give Teck greater exposure to copper and zinc, that have better fundamentals than coking coal right now. Teck would also get some growth opportunities around the copper side, so it is currently lacking because it has not greenlighted either of their two big internal projects: QB2 and Relincho.
“The pro forma company might have an improved growth profile, stronger balance sheet, free cash flow generation and much more compelling valuation,” Mr. Nagle said in a detailed note.
He offered a couple of ways Teck could do this deal. One scenario would be to issue all stock. Another is always to offer stock plus a cash component of $5 a share. He suggested Teck could raise the cash to do this by selling a 20% silver stream from its Trail facility in British Columbia.
HudBay’s market value is all about $2.3-billion.