A 75% back in comes with $340 million , a financed to production clause and Teck as operator. Just that is an easy sell to another major.
The more that I think about it, the more I come to the conclusion that a back in of 75% will not be an option that Teck choses. Why? Enormous risk for Teck. The terms of the 75% back in option require Teck to arrange financing for the entire project (3-4B). The terms also stipulate that an operating mine has to be built and operational within a certain time ( 4 years under the old agreement ). But let's say they negotiate 6 years under a new agreemeent.
Who will be on the hook for the money if something goes wrong during the building process? Let's say after 3 years costs of materials escalate out of sight and Teck has already spent 2B into the mine. This scenario is exactly what happened with Galore. Do they put the project on hold? Teck will be in a situation where they are forced to spend even more money to build it or lose it entirely.
Then there is the matter of financing this project. With the BFS as it stands will Teck be able to get financing for this at reasonable rates? I'm not a finance guy but imho, most major banks and lenders will require an improved BFS with better numbers to offer financing at favourable rates on this project. The alternative for Teck would be to finance this entirely by issuing bonds. Their bonds right now pay just under 5% so they can get financing for fairly good rates now. However, Teck has stated that they do not want to jeapordize their credit rating with enormous bond financings.
With this possible scenario in mind, it would be much better for Teck to either buy us out entirely or back in for 40%. Imo, I think a 100% buyout makes much more sense. They can either find a partner to do it now or later after they spend money upgrading the resource and improving the BFS numbers. Then at least Teck will not be under a time constraint to develope this project and be the operator to develope it the way they want. I invite your comments on this.
