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Next Teck targets could be coal, iron income trusts Add to ...

Teck Cominco answered one big question this week by bidding for Aur Resources, but raised another issue: What's it after next? Vancouver-based Teck had been on the sidelines, quietly building up cash, since last summer's failed attempt to purchase Inco. There was low-level muttering that Teck's controlling shareholders, who include the Keevil clan, might sell the base-metal company to one of the global giants, rather than trying to keep pace. By making a $4.1-billion friendly cash-and-share pitch for Aur that builds his company's strength in copper, Tech chief executive officer Don Lindsay showed he's still very much in the deal-making game. The mining types are now abuzz with speculation on what else Mr. Lindsay might buy. He's certainly proud of Teck's war chest. As part of this week's round of analyst interviews to explain the rather expensive Aur acquisition, Mr. Lindsay stressed Teck will emerge from this takeover with $2-billion of cash and very little debt on the balance sheet. When it comes to predicting the next target, analyst Onno Rutten at Scotia Capital says Teck could easily spend another $5-billion and predicted the money will be deployed to buy into "bulk commodities such as iron ore or thermal coal." Which brings us to a pair of fascinating potential openings for an opportunist like Mr. Lindsay, who was a CIBC World Markets investment banker prior to joining Teck. Iron Ore Co. of Canada, or IOC, is a dominant player in domestic mining, with mines in Newfoundland and refineries in Quebec. Teck prefers to own properties in countries with stable regimes. IOC is 59 per cent owned by Rio Tinto. That Aussie/British conglomerate is a rumoured suitor of either Alcan or Alcoa, which are currently in play. If Rio Tinto does bid for either aluminum company, it is going to need to raise a great deal of cash. This is where Mr. Lindsay comes in. Investment bankers are pushing both Rio Tinto and Teck on a deal that would see Mr. Lindsay buy IOC for a total of $7-billion, with part of that cash promptly spent by Rio Tinto to help it become a global leader in aluminum. If the Rio Tinto sale happens, things get interesting for the Canadian income trust crowd. The remainder of IOC is owned by Mitsubishi Corp., with a 26-per-cent stake, and the TSX-listed Labrador Iron Ore Royalty Income Fund, which holds 15-per-cent of the mine, and is worth $1.1-billion. If Teck did take the IOC stake out of Rio Tinto at a premium price, it would likely make a follow-up offer to both Mitsubishi and to Labrador's public unitholders. Speculation on that theme, along with fabulous commodity prices, have combined to boost the price of Labrador fund units by 56 per cent over the last 12 months. If his interests run to coal, not iron, Mr. Lindsay could simply raise Teck's existing stake in the $5.2-billion Fording Canadian Coal Trust. That trust is up 13 per cent in the last 12 months, including distributions. The motivated seller here could be Fording's co-founder, the Ontario Teachers Pension Plan. The pension fund may want to rebalance its portfolio as it moves to acquire BCE for $34.8-billion. Again, if Teck buys out Teachers at a substantial premium, it also has to make a follow-up offers to Fording's remaining owners. The trust sector could be the next hunting ground for Teck Cominco.

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