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China's CIC fund to invest $1.5 billion in Canadian miner news
04 July 2009

China Investment Corporation (CIC), the state-owned Sovereign Wealth Fund has agreed to buy about 17.2 per cent equity in Canada's debt-laden mining giant Teck Resources Ltd. (Teck) for $1.5 billion, continuing the Country's investment and acquisition spree of world's natural resources during the economic downturn.

Under the deal, CIC will purchase through a wholly owned subsidiary 101.3 million Class B subordinate voting shares of Teck for $14.84 (C$17.21) per share which is approximately 17.5 per cent, representing 17.2 per cent equity and 6.7 per cent voting interests since Teck has a two class share structure.

Teck president and CEO Don Lindsay said: "This transaction will have an immediate and very positive effect on Teck's balance sheet, and represents an attractive opportunity for Teck to establish a relationship with a major Chinese financial investor, with a deep understanding of China, the world's largest consumer of our principal products."

The deal is expected to close by 14 July, 2009 subject to customary approvals. On closing of the transaction, Teck's Class A shareholders would have a 61.8 per cent voting interest in Teck with Temagami Mining Co. Ltd. holding 28.5 per cent, a press release said.

CIC said that it is acquiring the Class B shares as a ''long-term passive financial investor'' and has agreed to hold the shares bought for at lease one year, further agreeing that it will not sell the purchased shares to a miner or a material customer of Teck. In the event of a takeover bid for Teck, CIC will be permitted to tender its shares.

A standstill provision also provides that CIC will not take certain actions, including acquiring additional securities of Teck.

Teck will use the net proceeds of the private placement to reduce its $10 billion bank debt. Further to granting of reprieve by lenders few months ago, Teck's payments due this October were reduced to about $1.9 billion from $6.3 billion.

Vancouver-based Teck is Canada's largest diversified mining company focused in the production of copper, zinc, gold, molybdenum, metallurgical coal apart from its interests in oil sands. The company owns, or has interests in 15 mines in North and South America and its shares are listed on the Toronto and New York Stock Exchanges.

Last year Teck acquired full control of coal miner Elk Valley Coal Corporation by adding the 60 per cent stake held by Fording Canadian Coal Trust for $14 billion which made it a top producer of metallurgical or coking coal–coal used in steel plants. However, after striking the deal, commodity prices nose-dived as a result of the global economic downturn, severely affecting the company's financial position.

China which produces more than one-third of word's steel has recently started buying more coal from Teck and could turn out to be a major customer through this deal.

Teck is in the process of raising funds through the sale of its assets to pay its debts. Last month it agreed to sell part of its interest in Waneta Dam in British Columbia for $825 million. Earlier the company sold few of its gold assets to raise $700 million, and has plans to sell a minority stake in its coal business.

CIC is a Chinese investment institution responsible for managing part of the country's foreign exchange reserves with $200 billion of assets under management, making it the world's fourth largest Sovereign Wealth Fund. It was established with the intent of utilising the reserves for the benefit of the state through stable long-term risk-adjusted investments.

CIC will make the investment through Fullbloom Investment Corporation, a special purpose vehicle. Scotia Capital Inc. acted as financial advisor to CIC in the deal.

Teck shares closed 8.05 per cent higher at C$19.99 Friday on Toronto Stock Exchange.

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China's CIC fund to invest $1.5 billion in Canadian miner