Teck

Question 1

What is the location and background of HCC coal asset?

Answer 1

HCC coal asset is based in BC and operates 4 mines that produced roughly 25 million tonnes of steelmaking coal.

Question 2

Who are the clients or customers of EVR?

Answer 2

Manufacturers of steels globally due to its low-carbon intensity and ability to enhance blast furnace efficiency.

Question 3

What is the significance of EVR in the global market?

Answer 3

It is the world’s second largest exporter of steelmaking coal.

Question 4

When did Teck first invest in EVR?

Answer 4

Teck was an original investor in EVR back in 2003.

Question 5

What percentage of interest did Teck take in the ELK Valley partnership initially?

Answer 5

40% interest.

Question 6

When did Teck acquire the remaining interest in the Elk Valley Joint venture?

Answer 6

In 2008.

Question 7

How much did Teck pay for the remaining 60% of the Elk Valley Joint venture?

Answer 7

US$14 billion.

Question 8

What was the total enterprise value of the 4 mines that comprised EVR?

Answer 8

Approximately US$24 billion.

Question 9

What was the implied EBITDA prior to Teck’s acquisition?

Answer 9

Approximately US$2.7 billion.

Question 10

What trend affected Teck’s multiples relative to peers?

Answer 10

The strong trend of electrification and energy transition away from fossil fuels.

Question 11

What commitments were at their peak affecting Teck?

Answer 11

ESG and climate change commitments.

Question 12

What was Teck’s EBITDA percentage for EVR in 2022 and 2023?

Answer 12

Approximately 65-70%.

Question 13

What was the EBITDA margin for EVR?

Answer 13

52.3%.

Question 14

Why did Teck hire a bank in early 2023?

Answer 14

To navigate a potential separation of their coal and base metals businesses.

Question 15

What was CIBC’s role in relation to Teck?

Answer 15

To look at implications and considerations for executing an IPO and potential spin-off of the coal company.

Question 16

What was the concern regarding selling Teck’s crown jewel?

Answer 16

Resource nationalism perspective; losing control of a strategic metal.

Question 17

What pressure was Teck facing from ethical investors?

Answer 17

Pressure to exit coal despite it being the cleanest form of coal used to make steel.

Question 18

What potential did Teck have to attract investors post-separation?

Answer 18

Attract investors from being a pure green metals play.

Question 19

How much capital was waiting to be deployed from ESG funds?

Answer 19

US$1 trillion.

Question 20

What was Norman Keevil’s stance on Glencore’s strategy?

Answer 20

Glencore was not the right partner for Teck.

Question 21

What was Teck generating in terms of free cash flow (FCF)?

Answer 21

Roughly US$1 billion.

Question 22

What was the margin percentage for Teck at the time?

Answer 22

10%.

Question 23

What would a spin-off have provided according to the belief expressed?

Answer 23

Reduced exposure to coal and optionality to provide high FCF.

Question 24

What complaints have been made regarding Glencore?

Answer 24

Not operating the mines accordingly and backlash from local communities regarding water contamination.

Question 25

What materials were created to guide discussions with the executive team at Teck?

Answer 25

Materials included board of directors materials and discussions from August until the closing of the transaction in November. ## Footnote These materials were crucial for the final decision-making process by the board at Teck.

Question 26

What were the key work streams responsible for?

Answer 26

Key work streams included: * Spot and analyst consensus charts * Analysis of consensus prices vs realized prices * Trading analysis and relative positioning * Case study of Whitehaven acquisition of Daunia & Blackwater ## Footnote These work streams provided insights and analyses critical for the transaction.

Question 27

What was discovered about realized prices compared to analyst expectations?

Answer 27

Realized prices were 15%-20% higher than what analysts expected on average. ## Footnote This analysis was key in demonstrating the potential upside for holding the asset.

Question 28

What potential value was conveyed through the model regarding EVR actual selling prices?

Answer 28

There was potential for creating roughly 2-3 billion in value if the outperformance of EVR actual selling prices continued. ## Footnote This insight suggested that holding the asset could be beneficial.

Question 29

What insights were drawn from trading analysis?

Answer 29

Trading analysis justified that EVR would be trading at the same level as iron ore and oil sands companies. ## Footnote This relative positioning was important for the overall valuation.

Question 30

What case study was included in the discussions?

Answer 30

Case study of Whitehaven acquisition of Daunia & Blackwater valued at $3.2 billion, including upfront, deferred, and contingency payments. ## Footnote The valuation was based on the price of HCC.

Question 31

What did the experience teach about investor behavior?

Answer 31

Changes in trends can significantly affect investors' appetite, requiring monitoring and adaptation. Investors are also drawn to vehicles with a clear strategy, contrasting narratives within an asset can lead to value deterioration Fascinating to see the different mindset of investors clashing, from one side we had mature mining investors that seek high yield from longstanding producing assets, while on the other side we had a strong investor demand from growth-oriented investors seeking to benefit from the decarbonation and electrification trend through increasing and growing exposure to green metals ## Footnote Investors must manage acquisitions or disposals accordingly.

Question 32

Why is the exit strategy important for investors?

Answer 32

The way you exit can be as important as the way you enter, requiring the right partner for smooth operations. Define Exposure to Coal Build dry powder to pursue growth opportunities, 7bn vs 1-2 bn Vulnerable if shareholders dont end up liking the final outcome of the strategic review ## Footnote This consideration is especially vital when impacts affect large communities.

Question 33

What complexities must a company navigate when monetizing an investment?

Answer 33

A company must consider implications for various stakeholders and the strategic importance of the asset. Value, consiedrations on third parties / other stakeholders, and opportunity cost of the foregone benefits of holding the asset and potential upsides. ## Footnote This includes navigating political and regulatory frameworks.

Question 34

What is crucial when deciding to expand operations or exit an investment?

Answer 34

It is crucial to consider community impacts and stakeholder interests. ## Footnote This ensures that decisions are made thoughtfully and responsibly.