Fording Purchase Raised Teck’s Risk

Article Excerpt

TECK COMINCO LTD. $6.65 (Toronto symbol TCK.B; Conservative Growth Portfolio, Resources sector; Shares outstanding: 449.4 million; Market cap: $3.0 billion; SI Rating: Extra risk) has completed its purchase of Fording Canadian Coal Trust. Teck is now one of the world’s largest producers of metallurgical coal, a key ingredient in steelmaking. Teck paid roughly $15 billion U.S. in cash and class B subordinate voting shares for Fording. However, Teck expects to receive a $1 billion (Canadian) tax refund on the transaction. The company had to borrow $9.8 billion U.S. to finance the purchase. That included a $5.8 billion U.S. loan due in less than a year. Teck’s shares have dropped over 80% in the past three months. That’s mainly because lower prices for zinc, copper and gold could hurt Teck’s ability to quickly repay the new debt. Falling commodity prices could also prompt Teck to sell some of its operations, issue new shares or cut its $1.00 dividend (15.0% yield). Fording’s coal prices are…

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