SHERRITT COAL PARTNERSHIP II
Filed by Sherritt Coal Acquisition Inc.
Filed pursuant to Rules 165 and 425 promulgated under
the Securities Act of 1933, as amended
Subject Company: Fording Inc.
Subject company's Commission File No: 1-15230
FOR IMMEDIATE RELEASE
SHERRITT COAL PARTNERSHIP II ANNOUNCES IMPROVED SUPERIOR
OFFER FOR FORDING INC.
- C$35.00 PER SHARE; CASH COMPONENT INCREASED TO C$20.00 PER SHARE FROM
C$17.63 PER SHARE
- FIRST QUARTER DISTRIBUTABLE CASH FLOW TARGET RAISED FROM C$1.05 PER UNIT
TO C$1.14 PER UNIT
- SUBORDINATION LEVEL INCREASED TO C$1.14 PER UNIT FOR EACH QUARTER OF 2003
AND EXTENDED FOR EACH QUARTER OF 2004 AT C$1.30 PER UNIT, SUBJECT TO
ADJUSTMENT
- CLEARANCES UNDER CANADIAN AND U.S. COMPETITION AND ANTI-TRUST LAWS HAVE
BEEN RECEIVED
TORONTO - JANUARY 6, 2003. Sherritt Coal Partnership II (the Partnership), a
partnership of Sherritt International Corporation (Sherritt) [TSX: S] and
Ontario Teachers' Pension Plan (Teachers'), today announced that it intends,
through a wholly-owned subsidiary (the Offeror), to significantly improve its
superior offer to purchase all of the outstanding shares of Fording Inc.
(Fording) [TSX and NYSE: FDG]. The Partnership will offer Fording shareholders
the choice, subject to proration, of receiving:
1) C$35.00 cash per share, subject to an increased maximum cash
consideration of C$965 million; or
2) One exchange right per share, convertible into one unit in an enhanced
income trust focused on metallurgical coal (Canadian Coal Trust),
subject to a maximum issuance of approximately 38.6 million exchange
rights; or
3) A combination of C$35.00 in cash and exchange rights (subject to the
maximums described above).
Teachers' will elect to receive exchange rights for each of the approximately
3.2 million Fording shares it owns. Should all other Fording shareholders elect
cash, then each shareholder would receive approximately C$20.00 in cash plus
0.429 of an exchange right for each Fording share. The C$20.00 per share in cash
in the maximum cash proration scenario is a significant increase over the cash
consideration from Sherritt/Teachers' previous offer of C$17.63 per share and a
significant improvement
over the C$15.60 per share offered in the maximum cash scenario under the
Fording-Teck proposal.
If shareholders elect exchange rights in excess of the 38.6 million limit, they
will receive a prorated combination of exchange rights and cash for each Fording
share tendered and taken up. If all shareholders elect exchange rights, then
each shareholder will receive approximately C$8.69 cash plus 0.752 of an
exchange right per share.
FORDING SHAREHOLDERS MUST REJECT THE FORDING-TECK PROPOSAL AT FORDING'S
SHAREHOLDERS' MEETING ON JANUARY 22, 2003 IN ORDER TO TAKE ADVANTAGE OF THIS
IMPROVED SUPERIOR OFFER FROM THE PARTNERSHIP.
2
The additional funds required for the improved superior offer will be provided
by Sherritt and Teachers' via the Partnership. The Partnership will fund this
commitment from additional capacity available under the subordinated loan
facility provided by Teachers'. Consistent with the Partnership's previous
offer, the interest expense and repayment obligation associated with the
subordinated loan facility provided by Teachers' will be the responsibility of
the Partnership and will have no impact whatsoever on the financial performance
of the Canadian Coal Trust.
The number of units to be outstanding under the Partnership's improved superior
offer has been reduced to 46.8 million from 51.4 million under its previous
offer. Including the units to be issued to CONSOL and Luscar associated with the
purchase of the Met Coal Assets (collectively, a 100% interest in the Line Creek
mine, a 100% interest in the undeveloped Cheviot mine project and a 46.4%
interest in Neptune Bulk (Canada) Terminals Ltd.), and assuming the Luscar mine
put option is exercised, the fully-diluted units outstanding for the Canadian
Coal Trust will be reduced from 57.8 million under the previous offer to 53.2
million under the improved superior offer. As a result, regardless of the
outcome of the elections made by Fording shareholders, the distributable cash
per unit will increase and the allocated cost to the Partnership of each unit it
is ultimately entitled to of the Canadian Coal Trust will be C$35.00 per unit.
In order to achieve the reduced number of units outstanding, the Offeror has
modified the structure of its offer such that the special cash distribution of
up to C$210 million associated with its previous offer, which was available to
unitholders in the event of maximum exchange rights election, has been
eliminated. In addition, under the new structure, the Offeror will bear the
estimated C$50 million in transaction costs associated with this offer.
HIGHLIGHTS OF THE IMPROVEMENTS TO THE SUPERIOR OFFER
The Partnership has improved its superior offer with the following enhancements:
- HIGHER CASH CONSIDERATION: The Partnership has increased the aggregate
amount of cash available to Fording shareholders from C$850 million to
C$965 million and will now offer Fording shareholders approximately C$20.00
per share, up from C$17.63 per share, at a maximum cash proration;
- INCREASED TARGET Q1 2003 DISTRIBUTABLE CASH FLOW: The target first quarter
2003 distributable cash flow per unit for the Canadian Coal Trust has been
increased to C$1.14 from C$1.05 as a result of the reduction of
fully-diluted units outstanding from 57.8 million to 53.2 million;
- IMPROVED SUBORDINATION LEVELS AND EXTENDED SUBORDINATION PERIOD TO TWO
YEARS: Subordination demonstrates Sherritt and Teachers' confidence in
Canadian Coal Trust's ability to achieve the expected cost savings. During
every quarter of 2003, the Partnership has increased its subordination
provided to public holders from C$1.05 to C$1.14 per unit. The Partnership
will also extend this subordination protection to cover every quarter in
2004 and will increase the base subordination level to C$1.30 per unit for
each quarter in 2004. The per unit subordination level in 2004 of C$1.30
will be subject to adjustment, upwards or downwards, based on the average
realized coal price for each quarter of 2004 compared to the average
realized price for 2003. The maximum subordination amount for each quarter
in 2003 and 2004 will be C$11.25 million, for an aggregate maximum of
C$45.00 million annually; and
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- REGULATORY CLEARANCES RECEIVED: The Partnership has received the clearances
it requires under Canadian and U.S. competition and anti-trust laws in
connection with its offer to acquire Fording.
"We have committed a significant amount of time and effort communicating with
Fording shareholders. In light of these discussions, and in consultation with
our financial advisors, Goldman, Sachs & Co., National Bank Financial Inc. and
BMO Nesbitt Burns Inc., we have today improved our offer. Sherritt and Teachers'
believe that our offer is substantially superior to the Fording-Teck proposal,"
said Sherritt's Chairman Ian W. Delaney. "Given Teachers' election to receive
exchange rights, we are offering approximately C$225 million more cash to
Fording shareholders and we are offering an income trust unit with greater cash
flow, lower risk and more value than the Fording-Teck proposal. In order to
demonstrate our confidence in the achievability of our synergy targets and the
sustainability of our distributable cash flow, we have enhanced and extended our
subordination protection to unitholders to two years."
"We believe the Canadian Coal Trust creates substantially more value for Fording
shareholders than the trust proposed under the Fording-Teck plan," said Brian J.
Gibson, Senior Vice-President of Global Active Equities for Teachers'. "The
Canadian Coal Trust will continue to have less debt, more cost saving
opportunities and no future dilution when compared to the trust created under
the Fording-Teck proposal. Our trust will now have even more distributable cash
flow per unit and greater subordination protection. Teachers' is demonstrating
its confidence in the value and the quality of the Canadian Coal Trust by
electing to take units for our Fording shares. In addition, the Partnership will
be the single largest holder of Canadian Coal Trust units. Teachers' intends to
vote against the Fording-Teck plan and will not elect and will not hold Fording
trust units because it believes that they would be unattractive from an
investment point of view."
BENEFITS OF THE IMPROVED SUPERIOR OFFER
The Partnership's improved superior offer delivers greater value to Fording
shareholders than the Fording-Teck proposal because:
- MORE CASH OFFERED TO SHAREHOLDERS: The superior offer will deliver up
to C$965 million of cash to Fording shareholders, compared to only
C$795 million under the Fording-Teck proposal. Since Teachers' will
elect units for its 6.2% stake in Fording under the Partnership's
improved superior offer and would elect cash under Fording-Teck's
inferior proposal, the cash available to each shareholder under the
maximum cash scenario will be approximately C$20.00 per share under
the Partnership's improved superior offer, which is 28% higher than
the C$15.60 per share delivered under the Fording-Teck proposal, a
full C$4.40 higher per Fording share;
- HIGHER DISTRIBUTABLE CASH FLOW PER UNIT: The Canadian Coal Trust's
revised first quarter 2003 target distributable cash flow per unit is
C$1.14, approximately 9% higher than Fording-Teck's first quarter 2003
target distributable cash flow of C$1.05 per unit. Furthermore, under
the Fording-Teck proposal, if Teck were to convert its 38% partnership
stake into trust units, Fording shareholders could be subject to
substantial dilution in their distributable cash flow per unit;
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- GREATER GROWTH POTENTIAL IN DISTRIBUTABLE CASH FLOW PER UNIT: Canadian
Coal Trust's first quarter 2003 distributable cash flow per unit
target includes 1/3 of the total expected C$50 million in annual cost
savings. This cash flow per unit would increase by C$0.16 to C$1.30
per quarter or C$5.20 annually if the C$50 million annual cost savings
were fully realized immediately. This is the basis for the
Partnership's 2004 subordination level of C$1.30 per unit. In
addition, it is expected that Canadian Coal Trust's quarterly
distributable cash flow per unit would increase even further once Line
Creek and Cheviot reach normalized production levels. The performance
of the Line Creek mine was negatively impacted in 2001 and 2002 by,
among other things, the decision of Sherritt, Teachers' and CONSOL to
eliminate the overburden backlog. Once this higher than normal
overburden removal is completed in early 2003, EBITDA is expected to
recover to near 1998 levels (approximately C$42 million based upon
current metallurgical coal pricing). The mining plan and reserves have
been extensively studied and documented. The future mine plan has been
reviewed and opined upon by the Norwest Corporation, as set forth in
Appendix D of the December 16, 2002 Notice of Variation. Norwest
Corporation is a well-recognized coal mine engineering consulting firm
that has, at various times, provided technical reviews of reserves
and/or mine plans for all of the major Canadian coal producers,
including Fording and Teck Cominco.
In addition, subject to the determination of the independent trustees
of the Canadian Coal Trust, once Cheviot is developed after capital
expenditures of approximately C$80 million, its annual metallurgical
coal production is anticipated to be 2.0 million tonnes, which could
generate EBITDA of approximately C$30 million, assuming current
metallurgical coal prices and a cost structure consistent with that of
the Luscar mine on a normalized basis;
- TWO YEARS OF SUBORDINATION: The Partnership will provide subordination
protection to unitholders in the Canadian Coal Trust during each
quarter in 2003 and 2004. During 2003, the subordination level will be
C$1.14 per unit per quarter and will increase to C$1.30 per unit per
quarter during 2004, subject to adjustment. The maximum subordination
provided by the Partnership during any quarter will be C$11.25 million
or an aggregate maximum of C$45 million annually. The C$1.30
subordination level will be subject to adjustment, upwards or
downwards, based on the average coal price realized by the Canadian
Coal Trust for each quarter of 2004 compared to the average realized
price for 2003. For every C$1.00 change in the average quarterly coal
price realized during a quarter in 2004 compared to the average annual
coal price realized in 2003, the C$1.30 subordination level in 2004
will be adjusted by approximately C$0.10 per unit.
This subordination demonstrates the Partnership's confidence in
achieving the anticipated C$50 million in cost savings. The
Partnership will be responsible for delivering the expected cost
savings even if coal prices increase in 2004. Furthermore, Fording
shareholders holding exchange rights on the date of exchange will
receive a cash distribution at the rate of C$1.14 per calendar quarter
for the period beginning the day Fording shares are first taken up
under the improved superior offer until the date of exchange. The
Fording proposal offers no such protection and no demonstration of
Fording management's confidence in their estimated cost savings;
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- GREATER OPPORTUNITY FOR COST SAVINGS: Canadian Coal Trust expects to
generate approximately C$50 million in annual cost savings, excluding
marketing and blending synergies, whereas Fording has indicated it
anticipates achieving only approximately half that amount in cost
savings, with an additional C$25 million coming from marketing and
blending synergies. The enhanced cost savings are primarily driven by
three factors:
(i) CLOSER GEOGRAPHIC PROXIMITY OF MINES - The Line Creek mine is
contiguous with certain Fording mines, enabling easier sharing of
equipment, resources and personnel; Teck Cominco's Elkview mine
operations are farther away from any of the Fording mine
operations, making such efficiencies more difficult. Furthermore,
there are a number of potential pit areas within the Line Creek
property that could be economically and synergistically developed
as an extension of Fording's Greenhills operations;
(ii) INCREASED VOLUME THROUGH NEPTUNE TERMINALS - Current excess
capacity of Neptune Terminals is estimated to be 4 million tonnes
annually, with an additional 4 million tonnes available with
minimal capital expenditures. Based on Luscar's previous
experience, shifting coal shipments from Westshore Terminals to
Neptune Terminals has generated cost savings of approximately
C$2.50 per tonne, including any variance in rail switching costs.
In addition, the ability to ship through both the Westshore and
Neptune Terminals will provide greater flexibility and security
in managing coal shipments; and
(iii) LINE CREEK MINERAL TAX POOL - Given the geographic proximity of
the mines and the anticipated plans to operate them as a cohesive
unit, the Partnership believes that the C$300 million mineral tax
pool at the Line Creek mine can be applied against profits earned
by Fording's contiguous metallurgical operations.
- LESS INDEBTEDNESS: Canadian Coal Trust is expected to have pro forma
consolidated debt of approximately C$300 million, excluding working
capital, which includes the costs of unwinding Fording's foreign
exchange hedge, the C$51 million break-up fee payable by Fording to
Teck Cominco and Westshore Terminals and other costs and fees
associated with this transaction. If the Cheviot project proceeds,
debt levels are expected to be a maximum of C$380 million. Fording's
proposed trust is expected to have pro forma debt of approximately
C$425 million, excluding working capital. This indebtedness will
increase by approximately C$50 million to a total of C$475 million
once certain capital expenditures associated with Fording's Prairie
operations are funded with new debt. Canadian Coal Trust's lower debt
level will be achieved, in part, by the monetization of Fording's
thermal coal assets;
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- NO HEDGE EXPOSURE: The Partnership will eliminate Fording's USD$1.5
billion foreign exchange hedge position with an estimated mark to
market liability of C$95 million (as of January 3, 2003), eliminating
the possibility of further losses that would reduce distributable cash
flow per unit due to the hedge. For the nine months ended September
30, 2002, Fording experienced hedging losses of C$65 million. While
the Fording hedge loss is expected to be lower in 2003, Fording's
hedge loss could still be approximately C$0.25 per Fording trust unit
in 2003 based on current exchange rates;
- NO DILUTION: Under the Fording-Teck proposal, Teck's 38% partnership
interest is exchangeable at any time for an unknown number of trust
units, which could result in significant dilution of public
unitholders' distributable cash flow per unit. In addition, the
generous management option plan could dilute public unitholders by
approximately 9%. There will be no dilution under the Partnership's
proposal;
- LOWER MANAGEMENT COSTS: The MetCoal Company will enter into a
management agreement under which the administrative costs will be no
more than Fording's 2002 levels excluding any unusual and one-time
items. Furthermore, there will be management incentives to decrease
costs and, unlike the Fording-Teck proposal, no unitholder dilution is
anticipated due to a management option plan. In addition, Canadian
Coal Trust will enter into an administration agreement, under which
administrative expenses are estimated to be approximately C$2.0
million annually. The Canadian Coal Trust trustees and the MetCoal
Company directors will be able to cancel the management contracts upon
notice without penalty;
- STRONG CORPORATE GOVERNANCE: Unitholders will be protected by a strong
corporate governance structure. The Canadian Coal Trust will have all
independent trustees and its operating company will have a majority of
independent board members. Under the Fording-Teck proposal, both the
Fording Trust and Fording Inc. (the operating company) will have a
majority of its trustees and board members, respectively, nominated by
Teck Cominco and Westshore Terminals; and
- HIGH QUALITY METALLURGICAL COAL ASSETS ACQUIRED AT A BETTER VALUE: The
Line Creek mine produces the second highest quality coal in the Elk
Valley region. The Partnership acknowledges that Teck Cominco's
Elkview mine also produces high quality coal, but believes that
Fording would be overpaying for the asset. The Fording Trust proposes
to acquire the Elkview mine at an estimated purchase price of C$125
per tonne of coal produced, which is more than double the estimated
C$58 per tonne that the Canadian Coal Trust would pay for the Met Coal
Assets. Notwithstanding the high quality of coal produced at the
Elkview mine, the structure of the Fording-Teck proposal can only
offer Fording shareholders a target distribution of C$1.05 per unit in
the first quarter of 2003, whereas Canadian Coal Trust is able to
offer a target distribution of C$1.14 per unit.
7
In addition, there is significant and credible upside potential in the
cash flow produced by the Met Coal Assets due to the expected cost
reductions at Line Creek and the development of the Cheviot mine, while
the Elkview mine is more mature with limited growth prospects. The fact
that the Met Coal Assets provide better value to the Canadian Coal
Trust than the Elkview mine provides to the Fording Trust is supported
by the Canadian Coal Trust's higher initial distributable cash flow per
unit target, greater distributable cash flow per unit growth potential
and enhanced cost savings and synergy potential.
Based on the above benefits of the improved superior offer, Sherritt and
Teachers' believe that the Canadian Coal Trust should be valued at a higher per
unit valuation than the trust created under the Fording-Teck proposal. The
Canadian Coal Trust will have a higher initial distributable cash flow per unit
target and greater distributable cash flow per unit growth potential. In
addition, Sherritt and Teachers' believe that the reduced risk associated with
the Canadian Coal Trust from two years of subordination protection provided by
the Partnership, less indebtedness, no hedge risk exposure and no dilution
should result in a lower yield demanded by investors.
Norwest Corporation, a well-recognized coal mine engineering consulting firm,
was engaged by the Offeror to review the geology, mine plans and cost estimates
pertaining to the Line Creek mine, part of the Met Coal Assets. Norwest's
opinion was included as Appendix D to the December 16, 2002 Notice of Variation.
In its "Second Supplement to the Management Information Circular" dated December
30, 2002, Fording included an opinion of Anderson & Schwab, Inc. which also made
statements concerning the Line Creek mine. Norwest has reviewed the Anderson &
Schwab opinion, and by way of comment, has prepared a Supplement to its previous
opinion. A copy of the Norwest Supplement will be posted on Sherritt
International's website and will be included in the Notice of Variation and
Extension relating to the improved superior offer.
The Partnership intends to mail to Fording shareholders shortly the Notice of
Variation and Extension that will contain details of the variations to the
offer. The Partnership is confident that once Fording shareholders have had the
opportunity to review the materials, they will agree that this improved superior
offer provides substantially greater value and flexibility to shareholders than
the Fording-Teck proposal.
A more detailed comparison of the Sherritt and Teachers' improved superior offer
and the inferior Fording-Teck proposal is attached as Appendix A.
On January 4, 2003, the media reported that Westshore Terminals had suffered
significant damage from violent windstorms, which have disabled two of its three
mechanical shiploading towers, reportedly for at least three months. Neither
Westshore Terminals nor Fording has as yet made any disclosure as to the effect
these events may have on Fording's ability to ship its coal through the
Westshore terminal. The Partnership will monitor and carefully consider any
disclosure Fording or Westshore may make in this regard, and reserves the right
to vary the provisions of its improved superior offer relating to the C$1.14 per
unit per quarter payment accruing while the exchange rights are outstanding, and
the quantum of subordination thereafter, to reflect any material adverse change
to Fording's realized revenues as a result of the inability of Westshore
Terminals to meet Fording's shipping needs.
8
ACCEPTING THE IMPROVED SUPERIOR OFFER
The improved superior offer will be conditional upon the Fording plan of
arrangement not being approved by Fording shareholders at the upcoming special
meeting to be held on January 22, 2003. For this condition to be satisfied, in
excess of 33 1/3% of shares voted at the meeting must be voted against the
proposed Fording plan of arrangement. The improved superior offer is also
conditional upon Fording shareholders tendering a minimum of 66 2/3% of the
outstanding shares of Fording into the Partnership's offer as well as other
normal conditions.
The improved superior offer will be open for acceptance by Fording shareholders
until 8:00 pm, Toronto time, on January 23, 2003.
Goldman, Sachs & Co., National Bank Financial Inc. and BMO Nesbitt Burns Inc.
have been retained to act as financial advisors to the Partnership. National
Bank Financial Inc. and BMO Nesbitt Burns Inc. have also been retained to serve
as the dealer managers for the improved superior offer and to solicit
acceptances of the superior offer in Canada and the United States. Innisfree M&A
Incorporated has been retained as information agent. Peters & Co. Limited has
been retained as a strategic advisor to the Partnership.
Sherritt International Corporation is a widely held, diversified Canadian
resource company that operates in Canada and internationally. Sherritt's 97.7
million restricted voting shares and C$600 million 6% convertible debentures
trade on the Toronto Stock Exchange under the symbols S and S.DB, respectively.
Teachers' is one of Canada's largest financial institutions and a member of the
Canadian Coalition for Good Governance with net assets as of June 30, 2002 of
C$68 billion. With a solid track record of investment in Canada and worldwide,
Teachers' has achieved an 11.7 percent average rate of return since its
investment program began in 1990. Teachers' invests to secure the retirement
income of approximately 154,000 elementary and secondary school teachers and
88,500 retired teachers and their families. The pension plan is co-sponsored by
the Ontario government and the plan members who are represented by the Ontario
Teachers' Federation.
THIS NEWS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING
STATEMENTS ARE NOT BASED ON HISTORICAL FACTS, BUT RATHER ON CURRENT EXPECTATIONS
AND PROJECTIONS ABOUT FUTURE EVENTS. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO RISKS AND UNCERTAINTIES. THESE RISKS AND UNCERTAINTIES COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FUTURE RESULTS EXPRESSED OR IMPLIED
BY THE FORWARD-LOOKING STATEMENTS.
THIS NEWS RELEASE DOES NOT CONSTITUTE AN OFFER TO SELL SECURITIES IN ANY
JURISDICTION.
9
NOTE TO INVESTORS
In connection with the proposed business combination, Sherritt Coal Acquisition
Inc. has filed with the U.S. Securities and Exchange Commission a Schedule
14D-1F/A and Sherritt International Corporation and Canadian Coal Trust have
filed a registration statement both containing an Offer and Circular, and will
file amendments thereto, relating to the proposed business combination described
in this press release. Investors and security holders are urged to read these
documents because they contain important information about Sherritt Coal
Acquisition Inc., Sherritt International Corporation, Canadian Coal Trust,
Fording Inc. and the proposed business combination. The Notice of Variation and
Extension will be sent to security holders of Fording. Copies of the documents
(when available) as well as other SEC filings of Sherritt Coal Acquisition Inc.,
Sherritt International Corporation and Canadian Coal Trust may be obtained, free
of charge, from the SEC's website at www.sec.gov as well as from Sherritt Coal
Acquisition Inc. by directing a request to Investor Relations, 1133 Yonge
Street, Toronto, Ontario, Canada M4T 2Y7, Telephone (416) 934-7655.
INTERACTIVE CONFERENCE CALL NOTICE
Ian W. Delaney, Chairman of Sherritt International Corporation and Brian J.
Gibson, Senior Vice-President of Global Active Equities, Ontario Teachers'
Pension Plan will host a conference call on Monday, January 6, 2003 at 11:00
a.m. eastern time.
Teleconference dial in particulars are as follows:
Please call in 15 minutes prior to the call.
For the live call please dial:
Toronto area: (416) 640-1907
Outside Toronto: (800) 814-4857
or listen to the web cast live at: www.sherritt.com
For the PostViewTM of the call, please dial:
Toronto and area: (416) 640-1917 Access code: 230687#
Outside Toronto: (877) 289-8525 Access code: 230687#
or listen to the web cast archive at: www.sherritt.com
----------------
For further information please contact Sherritt Coal Partnership II Investor
Relations: Ernie Lalonde (416) 934-7655
- 30 -
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APPENDIX A
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OUR IMPROVED OFFER IS SHERRITT'S/TEACHERS' SUPERIOR FORDING-TECK
SUPERIOR PROPOSAL PROPOSAL
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MORE CASH |X| C$35.00 per Share x C$34.00 per Share
|X| Maximum cash proration: x Maximum cash proration:
C$20.00 plus 0.429 of an C$15.60 cash plus 0.541 of a
Exchange Right (Teachers' will trust unit (Teachers' will elect
elect units) cash, not units)
---------------------------------------------------------------------------------------------------------------
MORE DISTRIBUTIONS PER |X| Estimated C$3.42 in 2001 and x Pro forma C$2.75 in 2001 and
UNIT C$2.88 for the nine months C$2.30 for the 9 months ending
ending September 30, 2002 September 30, 2002
|X| C$1.14 in the first quarter of x C$1.05 in the first quarter of
2003 2003
|X| Greater growth potential in
distributable cash flow per
unit given more cost savings
opportunities, improved
production at Line Creek and
the development of the Cheviot
mine
---------------------------------------------------------------------------------------------------------------
TWO-YEAR SUBORDINATION |X| Subordination level raised to x None
C$1.14 per unit per quarter in
2003
|X| Subordination level of C$1.30
per unit per quarter in 2004,
subject to upward and downward
adjustment based on relative
coal pricing in 2004 vs. 2003
|X| Subordination of distributions
for the first two years up to
C$11.25 million in each quarter
for an aggregate maximum of C$90
million over two years
---------------------------------------------------------------------------------------------------------------
LESS DEBT |X| Approximately C$300 million of x Approximately C$425 million of
debt, excluding working capital debt, excluding working capital
|X| Approximately 1.1x pro forma x Approximately 2.0x pro forma
annualized EBITDA, no hedging annualized EBITDA
liability
--------------------------------------------------------------------------------
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OUR IMPROVED OFFER IS SHERRITT'S/TEACHERS' SUPERIOR FORDING-TECK
SUPERIOR PROPOSAL PROPOSAL
---------------------------------------------------------------------------------------------------------------
NO HEDGE EXPOSURE |X| Hedge eliminated x Estimated mark-to-market hedge
liability of approximately C$95
million as of January 3, 2003 based
on the forward exchange rate curve
x Significant potential
volatility in distributable cash
flow per unit due to remaining
hedge risk
x Based on exchange rates as of
January 3, 2003, the impact on
2003 distributable cash flow
per unit would be approximately
C$0.25 per Fording unit
---------------------------------------------------------------------------------------------------------------
MORE COST SAVINGS & |X| C$50 million of COST SYNERGIES x C$50 million of COMBINED COST
SYNERGIES alone AND MARKETING synergies
|X| Additional marketing and coal
blending synergies
|X| Enhanced synergies driven by:
-- Geographic proximity of mines
-- C$2.50/tonne estimated savings
at Neptune Terminals
-- Expected mineral tax savings
|X| Subordination demonstrates x No subordination to back up
Sherritt/Teachers' confidence in synergy claims
achieving synergies
--------------------------------------------------------------------------------
12
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OUR IMPROVED OFFER IS SHERRITT'S/TEACHERS' SUPERIOR FORDING-TECK
SUPERIOR PROPOSAL PROPOSAL
---------------------------------------------------------------------------------------------------------------
LOWER CORPORATE OVERHEAD |X| Annual corporate overhead is x No commitment to reduce or
COSTS capped at 2002 levels adjusted maintain base corporate overhead
to exclude unusual and one-time costs
expenses
|X| Management's incentive based on x Lucrative management option
ability to cut costs; adds no plan driven primarily by coal
additional costs to Trust prices
|X| Additional public issuer costs x Additional public issuer costs
to manage trust estimated to be to manage trust estimated to be
C$2 million C$2 million
---------------------------------------------------------------------------------------------------------------
SUPERIOR GOVERNANCE |X| All of the trustees will be x A majority of trustees and
independent of the Partnership, board members are appointed by
Sherritt and Teachers' Teck and Westshore
|X| A majority of the operating
company board will be
independent of the Partnership,
Sherritt and Teachers'
---------------------------------------------------------------------------------------------------------------
NO DILUTION |X| None x Teck is able to convert its 38%
partnership stake into trust
units on a basis which could
result in material dilution to
distributable cash flow per unit
depending on market price of
units at time of conversion and
net liability levels in the
trust (including mark-to-market
hedge liabilities)
x Units may trade at a discount
given potential dilution risk
x Potential additional 9%
dilution from lucrative
management option plan
--------------------------------------------------------------------------------
13
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OUR IMPROVED OFFER IS SHERRITT'S/TEACHERS' SUPERIOR FORDING-TECK
SUPERIOR PROPOSAL PROPOSAL
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RELATIVE VALUATION OF |X| Line Creek, Cheviot and 46% x Elkview mine contributed at an
ASSETS stake in Neptune terminals (Met estimated C$750 million implied
Coal Assets) contributed at valuation (approximately C$125
C$207 million implied valuation per tonne produced)
(approximately C$58 per tonne
produced at Line Creek)
|X| Number of trust units issued to x Number of trust units issued to
Luscar and CONSOL fixed at Teck for Elkview mine is
5.9 million for the Met Coal Assets undetermined; would result in
(plus 0.5 million if the Luscar 51% ownership of trust at C$34
mine is purchased) per unit valuation
|X| Met Coal Assets have greater x No meaningful upside potential
upside potential at Elkview mine since asset is
relatively mature
-- Line Creek poised for
significant reduction in
operating costs
-- Upside from development of
Cheviot, which is already
permitted for 3.2 million
tonnes
-- Cheviot cost structure expected
to be in line with existing
Luscar mine
|X| Fair value being paid for x Mature Prairie assets with
Prairie assets at approximately limited upside potential and
5.0-5.5x EBITDA significant capital requirements
associated with Highvale and
-- No cash flow growth over Genesee contracts (approximately
last three years C$50 million)
-- Low margin, low return Highvale
and Genesee contracts
-- Substantial capital requirement
for Highvale and Genesee
contracts (approximately C$50
million)
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OUR IMPROVED OFFER IS SHERRITT'S/TEACHERS' SUPERIOR FORDING-TECK
SUPERIOR PROPOSAL PROPOSAL
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MORE FLEXIBLE AND LESS |X| Access to two west coast coal x Port alternatives restricted by
COSTLY ACCESS TO TERMINAL ports 10-year exclusive contract with
FACILITIES Westshore
|X| Terminal services at Neptune x Non-arms length contract with
provided at cost resulting in undisclosed pricing
estimated savings of at least
C$2.50/tonne (including rail
switching costs)
x Reliance on one west coast port
facility increases risk of
disruption if unforeseen events
impact throughput
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