The world's second-largest zinc miner, Teck Cominco Ltd., will acquire the world's second-largest seller of seaborne metallurgical coal, Fording Canadian Coal Trust in a cash and stock deal valued at approximately $14.1 billion.

The acquisition will propel Teck to North America's largest exporter of metallurgical coal used for steelmaking.

Under the agreement, Fording Canadian investors will receive $82 in cash and 0.245 of a class B Teck share for each unit they hold, valuing the offer at about 12 per cent to Fording Canadian's closing price on Monday and an 18 per cent premium to the 20-day period (ending 25 July) volume weighted average price of Fording units on the NYSE.

In return, Teck Cominco would receive the 80.1 per cent of Fording it doesn't already own and the open-ended mutual fund's stake in their Elk Valley Coal, the world's second largest exporter of metallurgical coal, in which Fording Canadian owns 60 per cent of  the stake with Teck owning the remainder. 

Teck Cominco has entered into a debt commitment letter with a syndicate of banks to borrow $9.8 billion to finance the cash component of the transaction, which is subject to the availability to Teck Cominco of such financing at closing.

Teck Cominco also intends to sell its 29.5 million Fording units subsequent to the Fording unitholder meeting and utilise the net proceeds to fund a portion of the transaction.

Fording's Elk Valley Coal Partnership, jointly owned with Teck,  produces 21 per cent of the world's seaborne hard metallurgical coal for the international steel industry, only behind Australia's BHP Billiton Ltd. The venture recently negotiated a three-fold increase in prices to $275 in its 2008 marketing year, from a year earlier.

Elk Valley Coal produces coking coal from its six operating mines in British Columbia and Alberta in Canada, which it sells to steel mills mainly in Asia and Europe in addition to North and South America.  Teck is the managing partner of Elk Valley Coal and owns a 52 per cent effective interest in the partnership through its 40 per cent direct interest in the partnership and its 19.9 per cent interest in Fording units.

For Fording, the sale is the culmination of an extensive review of strategic alternatives by its independent committee of the trustees of Fording and the independent committee of the directors of Fording (GP) ULC, a wholly-owned subsidiary of Fording, which resulted in a search for a suitable buyer. 

The independent Fording trustees have unanimously approved the transaction and have received an opinion from RBC Capital Markets to the effect that the transaction is fair, from a financial point of view, to Fording unitholders other than Teck and its affiliates.

Teck's CEO, Don Lindsay said, ''This is a very important transaction for Teck, Fording and Elk Valley Coal.  Fording unitholders are receiving a significant premium to the Fording unit price during a time when comparable coal companies have declined substantially from their highs.  In addition, our detailed knowledge of the assets and the coking coal markets means that the ownership transition and integration will be seamless.  For Teck, the transaction is expected to be immediately and strongly accretive to both earnings and cash flow.''

Lindsay added, ''Based on expectations that the rate of growth in demand for metallurgical coal, especially the high quality coking coal that Elk Valley Coal produces, will continue to outpace relatively constrained growth in supply, we believe that the outlook for this business is strong.   We look forward to having Fording unitholders become Teck shareholders and believe they will benefit greatly from ongoing exposure not only to the metallurgical coal business but the outstanding long term value represented by our diversified portfolio of assets.''

Following Teck's purchase of the Fording assets, Fording will distribute US$ 82.00 in cash and 0.245 of a Teck Cominco Class B subordinate voting share per Fording unit to Fording unitholders and their units will be redeemed.  On closing, Teck will assume any residual liabilities for Fording.  Fording will not pay distributions prior to closing of the transaction. Substantially all of Fording's value is attributable to its principal asset, a royalty paid by its subsidiary, Fording LP, based on cash received from the Elk Valley Coal Partnership.  The balance of Fording's value is attributable to its direct interest in Fording LP, which holds a 60 per cent interest in the Elk Valley Coal Partnership.  The price paid by Teck for the royalty will be treated as a Canadian Development Expense for tax purposes, fully deductible against Teck's taxable Canadian income using the 30 per cent declining balance method.

Teck has also entered into an agreement with an affiliate of the Ontario Teachers' Pension Plan Board under which Teachers, in order to facilitate the transaction, has agreed to amend Teck's ''top-up'' obligations in connection with Teck's September 2007 acquisition of 11.25 per cent of the outstanding Fording units from Teachers.  Teachers will, on completion of the transaction, receive compensation of $105 million for amending its rights, which would have otherwise expired on 31 July 2008.

Closing of the transaction is expected to occur by the end of October, 2008. Closing is expected to occur 20 trading days following unitholder and court approval of the arrangement to provide taxable Canadian unitholders who hold their units as capital property and non-resident unitholders the opportunity to sell their units into the marketplace.  It is expected that many such unitholders may choose to do this because the Canadian tax consequences of such a market sale may be more attractive to them than holding the units through to closing and receiving the final distribution of cash and Teck B shares as income.  All unitholders are advised to consult with their own tax advisors to determine the tax consequences of the transaction to them.

The agreement between Teck and Fording contains a non-solicitation covenant on the part of Fording, subject to customary ''fiduciary out'' provisions that entitle Fording to consider and accept a superior proposal, a right in Teck's favour to match any superior proposal and the payment to Teck of a termination payment of $400 million if the transaction is not completed due to a superior proposal and in certain other circumstances.