Teck Resources Ltd.'s purchase of SilverBirch Energy Ltd. is more about strategy than growth.
Before Monday, Teck already held 50 per cent working interests in SilverBirch's most prized assets, the Frontier and Equiox projects, both of which are truck and shovel oil sands developments that compliment Teck's mining expertise.
The problem, however, is that these projects will cost billions of dollars to develop, and SilverBirch isn't big enough to cough up the funds. To solve that, Teck is acquiring the remaining 50 per cent stake, while spinning out SilverBirch's in situ oil sands assets into a new company called SilverWillow Energy Corp.
Through shuffling the assets and ownership, Teck now has room to go out and find new joint venture partners, which are desperately needed because its work load will be massive. Developing just the first two phases of Frontier and Equinox is expected to cost in the neighbourhood of $14-billion, according to Desjardins Securities.
Even though Teck has over $4-billion in cash on its balance sheet, chief executive officer Don Lindsay made note of the help it will need when announcing the deal. "...Teck now has the opportunity to explore new potential partnerships and other alternatives to move Frontier towards development," he said in a statement.
Lucky for Teck, oil prices have been hot with crude now trading just north of $100 (U.S.) per barrel, so partners won't be so shy to step forward. It's also convenient timing for the firm to strike an energy deal, because its stock has been under pressure since copper and coal prices started to sag. Since peaking around $65 a year ago, Teck's stock has fallen around 40 per cent.
(Frontier and Equinox aren't Teck's only oil sands assets. The firm also holds a 20 per cent interest in the Fort Hills project, shared with Suncor and Total E&P Canada, which is expected to start producing in 2016.)
As for SilverWillow, the firm will wholly-own SilverBirch's Audet properties, the Birch Mountain and Jordan leases, and will get $25-million in working capital from Teck.
A slew of bankers and lawyers worked on the deal. RBC Dominion Securities and TD Securities advised SilverBirch on financial matters, while Blake Cassels & Graydon LLP and Torys LLP advised on legal issues. Stikeman Elliot offered legal advice to Teck.