Teck (TCKb.TO), which paid $13 billion for Fording Canadian Coal Trust last year as part of a push to become a global mining leader, is now on the verge of selling off some of its most cherished assets, with Asian and European buyers seen as likely takers.

The takeover saddled Teck with $9.8 billion in debt, $5.8 billion of which is a bridge loan due in October.

While the deal was initially applauded by both analysts and investors, the subsequent slide of metal prices and the freeze-up of credit markets have left Teck with little choice but follow a path taken by Rio Tinto (RIO.L), which is also seeking to sell assets to pay off acquisition debt.

RBC Capital Markets said this week Teck would fall C$3.8 billion ($3.1 billion) short of paying down the loan even if it sells its 20 percent stake in the Fort Hills oil sands project in Alberta.

Such a deal looks increasingly likely, following French major Total SA's (TOTF.PA) C$617 million bid last week for UTS Energy (UTS.TO), which also holds 20 percent of Fort Hills. Teck has reportedly been shopping its holding, and Total has said it may want to add to the UTS stake.

Teck has also said it is talking to bankers about selling some of its stake in Elk Valley Coal, which it took full control of by buying Fording.

Also on the table is Teck's 22.5 percent stake in the Antamina copper-zinc mine in Peru, one of the largest and most lucrative, as well as other non-core holdings, including the company's gold assets, which it has already begun selling off.

The trick will be getting a good price for the assets in an environment where base metal stocks are still trading at a fraction of their values from a year ago.

What they're going to do is try to generate as much cash as possible and pay down as much of that debt as they can so that it can be refinanced. It's just that the terms aren't going to be pretty, said Kerry Smith of Haywood Securities.

Teck stock has fallen more than 90 percent since just after the Fording deal was announced, and RBC estimates the total value of the Elk Valley assets at C$6.3 billion. That implies a huge drop in its value, considering the $13 billion takeover of Fording was basically a purchase of 48 percent of Elk Valley.


The company's change in fortunes has been startlingly fast. Teck shares actually rose when the Fording takeover was announced last July -- rare for an acquiring company -- as investors were drawn to sky-high contract prices for the metallurgical coal produced by the Elk Valley mines.

Consolidating the asset had been part of CEO Don Lindsay's goal of building a mining powerhouse heavily dependent on coal and copper revenues, and with a stake in the oil sands he hoped to eventually build into a 140,000 barrel-a-day operation.

But as demand for steel dried up last year, concerns arose that 2009 metallurgical coal prices could fall sharply from the $275 a pound Teck is contracted to receive for the 2008 year.

RBC lowered its 2009 price forecast to $140 a tonne from $190 a tonne, and some expect it could be well below that.

The coal price almost tripled in 2008, and it looks like it could very well go back down to $100 for 2009, said John Kinsey, a portfolio manager at Caldwell Securities in Toronto.

Potential buyers for an Elk Valley stake include Japanese or Korean steel mills, or perhaps Teck shareholder Sumitomo Metal Mining (5713.T), say analysts.

They're probably the more salable assets for the company in the short term, Desjardins Securities analyst John Hughes said of Elk Valley and Fort Hills.

Based on the price offered for UTS, Teck's Fort Hills stake would likely net just a few hundred million. But it would relieve Teck of billions more it is obliged to fund.

A greater short-term windfall would undoubtedly come from Elk Valley, as RBC estimates a 30 percent stake in the coal assets could be worth C$2 billion.

Also in the mix are Teck's electricity-generating assets at its Trail smelter in southern British Columbia.

Analysts said they expect Teck will find a solution to get the bridge loan down to a level it can refinance in October, and said that concerns about insolvency, which were bandied about last November, are a thing of the past.

Instead, they see a smaller company emerging, still with high-quality assets, but with greatly scaled back ambitions.

I guess there were some mitigating circumstances that all kind of combined to make them shoot themselves in the foot here, but you have to think they could have done it better, said Kinsey.

($1=$1.23 Canadian) (Additional reporting by Jeffrey Jones; Editing by Jeffrey Hodgson)

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