If Tech Resources Ltd sells its core coal business, Norman B. Keeville probably won’t shed any tears.
Tek’s chairman emeritus, who first joined Canada’s largest base metal company in the 1960s, says that tech has always evolved over time, dipping into a commodity, then diving into a commodity based on market demand. But moving on to another.
“You should read my book. It’s called never rest on your ore,” Mr. Keeville said in an interview. “Tech started out as a gold company, and then it became a copper company. Then it moved to silver and niobium. Along the way, it got into coal as a small part of what we were doing. And coal has been a big deal since 2003 when we’ve put various Western producers together in a partnership.”
Investors are waiting for more details from Tech on the future of that coal division. On Tuesday, the company’s chief executive officer, Don Lindsay, will hold an investor and analyst day, and the coal business will likely take center stage. Last week, Bloomberg and Co. reported that the Vancouver-based tech is actively considering selling or spinning off the coal unit into a separate publicly traded entity.
The split has fallen out of favor, generating a substantial amount of free cash flow from record-high metallurgical coal prices. Concerns over the harmful environmental footprint mean that investors do not value coal companies as much as they pay to copper or nickel producers. Those metals are viewed more favorably by their increasing use in wind and solar power, and as a major component in electric car batteries.
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Toronto-based wealth management firm J. John Zeichner, chairman of Zechner Associates Inc., which owns shares in the tech, says getting rid of the coal unit would be a good move. “People have really liked copper plays,” he said. “You’ll find a high valuation for tech today as a pure copper game.”
He said the tech, Hudbay Minerals Inc. and will command a higher market value due to its size compared to copper producers such as First Quantum Minerals Ltd. The company will also attract more interest from US investors, as there are very few pure copper plays, Mr. Zechner said.
But even without selling its coal business, Tech’s exposure to copper is set to grow substantially. The company is building a new copper mine called QB2 in Chile, which is set to begin production in the second half of next year. “Is management really going [sell the coal unit] Anyone’s guess, Mr. Zechner said. “They’re not going to sell it cheap. They’ve always been very disciplined about selling and buying their property, and I don’t expect that to change.
The bulk of Teck’s current coal operations stem from a $14 billion top acquisition of Fording Canadian Coal Trust in 2008. Not long after acquiring the asset, which was primarily funded through debt, commodity prices crashed, and investors were left holding shares in tech.
Like many other large mining companies, Tech hasn’t always got it right in its long-term calls. In the early 2000s, the accepted paradigm was that China and India would power economic growth for decades. And while the 2000s were a good time for better, Mr. Keeville acknowledged that the original thesis was dangerously flawed.
“We are all like lemons,” he said. “We all go in one direction together. In 2005, it was ‘stronger for longer’ than it was for the supercycle coming up. Of course, not many people realized that half of the supercycle is also short. “
The Keeville family has been center stage in tech for decades. Mr. Keeville’s father, Norman Bell Keeville, ran the company in the 1960s and 1970s. Junior Keeville, a geologist by training, joined Tech in 1962 as vice president of exploration and took over as CEO in 1981. He ran it for two decades, then served as chairman until 2018. His son, Norman B. Keeville III has been a director with Tech since 1997.
The Kiwis also dominate the super voting shares of the company. The family’s holding company, Temagami Mining, owns 55 percent of the tech’s Class A stock. Each Class A share has 100 votes, while the more widely held Class B shares have just one. tech says Dual class shares give it additional flexibility to make long-term strategic decisions Although they are unpopular among many institutional investors. The dual-class share structure also means that the company is virtually immune to hostile takeovers, and there is little chance of active investors to force change through shareholder vote.
Mr Keeville said the two classes of shares helped the company grow rapidly in its first few decades. “For 30 years prior to 2005, it was the fastest growing mining company in the world, and the people who did that were the people who created the dual-class share structure,” he said.
Since then, the company’s share-price performance has been subpar for the most part. Tech stocks are trading down 60 percent from their 2011 peak. Asked whether a dual-class share structure is still needed today, Mr. Keeville replied, “I wouldn’t say there’s any need for it. It is what it is. It’s been there for decades.”
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