Teck Resources Ltd. has struck a landmark agreement with a Chinese sovereign wealth fund that will give the company $1.74-billion in cash and a strategic partner in its most important export market.

Under the terms of the deal, announced Friday morning, China Investment Corporation (CIC) will buy 101.3 million of Teck's Class B shares in a private placement. That will give it a 17.2% equity and a 6.7% voting stake in Teck.

Teck will use the proceeds from the placement to continue paying down the massive debts incurred from last year's top-of-the-market, $14-billion acquisition of the assets of Fording Canadian Coal Trust.

"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," chief executive Don Lindsay said in a statement.

Ever since the Fording transaction closed last fall, Mr. Lindsay has worked feverishly to clean up Teck's balance sheet, which came under extreme pressure as commodity prices melted down. He sold some assets and extended the repayment schedules on the debt.

Analysts said that this deal cleans up the balance sheet dramatically. And while it may not have been necessary after Mr. Lindsay's other moves, it is an opportunistic deal that gives the company much more breathing room and a potentially valuable partner that could make it easier to negotiate in China.

The deal with CIC still came as a surprise, as Teck maintained for months that it had no interest in issuing equity. Rather, the company explored the sale of a minority stake in its Elk Valley coal deposits in Western Canada.

The rebound in commodity prices (and Teck's share price) made an equity sale a lot more attractive than it would have been early this year. CIC is buying the shares at a price of $17.21 each. They were worth just $3.35 when they bottomed out in March.

The deal is expected to close by July 14, and CIC has agreed not to sell the shares for at least a year. And after that, it will not sell them to a mining company or "material customer" of Teck.

"CIC has advised Teck that it is acquiring the class B shares for investment purposes as a long-term passive financial investor," Teck's statement said.

The transaction is the latest example of Chinese companies taking advantage of the economic downturn to try and secure access to foreign resources.

Teck is one of the largest resource companies in Canada with interests in copper, metallurgical coal, zinc, gold and energy.

Peter Koven and Eric Lam, Financial Post  Published: Friday, July 03, 2009

http://www.financialpost.com/news-sectors/story.html?id=1756177