Just weeks after an attempt by one state-run Chinese company to score a stake in Rio Tinto (NYSE:RTP) was thwarted by widespread opposition and a huge joint venture with rival BHP Billiton (NYSE:BHP), China's courtship of mining equity investments shows no signs of waning.
China's sovereign wealth fund -- China Investment Corporation (CIC) -- will purchase a 17% stake in heavily indebted miner Teck Resources (NYSE:TCK) for a cool $1.5 billion. Echoing a clear strategy emerging from China's financial bureaucracy of focusing on commodity investments and strategic stockpiles while prices remain depressed, the investment targets Teck's substantial production of key resources like copper, zinc, and metallurgical coal. Now a mammoth among global commodity investors, China's sovereign wealth fund seems to have honed a strategic focus in the wake of its high-profile miscalculation with a $3 billion IPO stake in The Blackstone Group (NYSE:BX) in 2007.
For Teck, the move goes a long way toward rescuing the company from the ravages of acute debt distress. Combined with the $1.4 billion raised through sales of gold assets and a one-third stake in the Waneta Dam in British Columbia, the miner will now have little trouble meeting the October payment of $1.9 billion. As CEO Don Lindsay points out, the stake also builds strategic ties with "a very deep-pocketed investor who would potentially participate in future development projects."
As long as this equity sale proceeds, I am delighted to finally reaffirm Teck Resources' long-term viability as a major player in global resource mining. In its epic quest for liquidity, the company continues to pursue the sale of a minority stake (about 20%) of coal operations. Frankly, I am surprised at the lack of movement on this front. The merger of Alpha Natural Resources (NYSE:ANR) with Foundation Coal Holdings (NYSE:FCL) reminds Fools that coal industry consolidation has not been entirely extinguished.
Given Teck's limited negotiating stance, I suspect that a Foolish bargain remains up for grabs ... not unlike the bargain Arch Coal (NYSE:ACI) achieved for Rio Tinto's Jacob's Ranch Mine back in March. Perhaps the recently rebuffed Swiss miner XSTRATA would be better served enhancing its impressive coal portfolio with a stake in Teck's coal beds than chasing resource diversification through Anglo American.
Until Teck executes the sale of a coal stake, it's too early to declare the company out of the woods, but with a timely liquidity injection from a promising new partner, Fools can finally scope a clearing ahead.
Further Foolishness:
- The bi-polar world of coal
- The ailing U.S. steel industry
- China holds the key
