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Rating Action:

Moody's upgrades Teck Resources to Baa3; stable outlook

16 Jan 2019

Toronto, January 16, 2019 -- Moody's Investors Service ("Moody's") upgraded Teck Resources Limited 's (Teck), senior unsecured notes rating to Baa3 from Ba2, affirmed the Baa3 rating on the company's 8.5% notes due June 2024, and withdrew Teck's Ba1 Corporate Family Rating, Ba1-PD Probability of Default Rating, and the SGL-1 Speculative Grade Liquidity Rating . The rating outlook has been changed to stable from positive.

"The ratings have been upgraded because Teck's operations continue to produce material cash flow which has been used to delever and Teck has derisked the development of its important Quebrada Blanca II copper project in Chile", said Jamie Koutsoukis, Moody's Vice President, Senior Analyst.

DEBT LIST

Upgrades:

..Issuer: Teck Resources Limited

....Senior Unsecured notes, Upgraded to Baa3 from Ba2

Affirmations:

..Issuer: Teck Resources Limited

....Senior Unsecured notes, Affirmed Baa3

Withdrawals:

..Issuer: Teck Resources Limited

.... Probability of Default Rating, Withdrawn , previously rated Ba1-PD

.... Speculative Grade Liquidity Rating, Withdrawn , previously rated SGL-1

.... Loss Given Default (Senior Unsecured), Withdrawn , previously LGD5

.... Loss Given Default (Senior Unsecured), Withdrawn , previously LGD3

.... Corporate Family Rating, Withdrawn , previously rated Ba1

Outlook Actions:

..Issuer: Teck Resources Limited

....Outlook, Changed To Stable From Positive

RATINGS RATIONALE

Teck's Baa3 senior unsecured rating is supported by, 1) good scale (~$10 billion revenue), 2) excellent liquidity, including low future funding requirements from Teck for its Quebrada Blanca II (QB2) copper project, 3) product and geographic diversity (met coal, copper, zinc, and energy at 14 operating sites), 4) good average cost positions 5) adjusted debt/EBITDA of less than 1x currently, and not expected to exceed 2.5x before QB2 starts producing cash flow in 2022, 6) low geopolitical risk (Canada, Chile, Peru and US), and 7) a more conservative approach to project development and liquidity risk than in the past. Teck's rating is constrained by 1) its exposure to volatile commodity prices (met coal in particular, but also copper and zinc) which can result in large swings in leverage and cash flow and 2) execution risk for QB2. Copper and zinc prices have declined from highs seen earlier in 2018, however pricing of met coal, which represents about 65% of operating profits, remains strong, though it shows greater volatility than the other metals, swinging between US$90/t and US$300/t in recent years (US$200/t currently). Current met coal pricing provides strong cash flow to Teck, but the volatility in pricing of the commodity creates difficulty in estimating future cash flow.

At the same time Teck sanctioned QB2, it announced a partnership agreement with Sumitomo Metal Mining Co., Ltd. (unrated) and Sumitomo Corporation (Baa1 stable) ("Sumitomo") where Sumitomo will earn into a 30% stake in QB2 for $1.2 billion, and Teck's interest will be reduced to 60% from 90%. With the partnership, an expected US$2.5 billion of project financing to be put in place, and remaining capital to be funded two-thirds by Teck and one-third by Sumitomo, Teck has substantially removed future funding risk for the $4.7B QB2 project.

Teck's liquidity is excellent. Sources of liquidity over the next year totals about CAD$6.5 billion. Sources include 1) cash of about CAD$1.5 billion at Sep, 30 2018, and 2) CAD$5 billion (equiv.) of unused availability on its CAD$6 billion (equiv.) in committed credit facilities. Uses of liquidity will be about CAD $250 million of negative free cash flow (using Moody's price sensitivities, including stripping costs, and net of Sumitomo's expected funding at QB2 for the year). There are no material debt maturities until 2024. Teck's credit facilities consist of a $600 million facility, which matures in Nov 2021 as well as a $4 billion facility that matures in Nov 2023 ($730 million of availability on the facilities was used for letters of credit at Q3/18). Moody's expects that Teck will maintain ample cushion to its net debt/capitalization debt covenant.

The stable outlook reflects Moody's expectation that Teck has sufficient funding and liquidity in place to develop its QB2 project through a range of commodity prices with limited financing risk. It also incorporates our expectation that the company will maintain financial discipline regarding expansion capital expenditures and shareholder distributions and maintain strong liquidity to mitigate commodity price volatility and project spending risk.

An upgrade to Baa2 would be considered if Teck is able to reduce its concentration in met coal, which is more volatile than copper or zinc, progress its development of QB2 and maintain strong liquidity even in adverse market conditions. An ugrade would also require (CFO-Dividend)/debt to be consistently at or above 40% (60% at Q3/18) and adjusted debt/EBITDA maintained at or below 2x (1x at Q3/18).

The ratings could be downgraded if adjusted debt /EBITDA is sustained above 2.75x (1x at Q3/18) and (CFO-Dividend)/debt is sustained below 35% (60% at Q3/18), or if liquidity weakens materially, most likely during adverse market conditions coupled with project spending.

The principal methodology used in these ratings was Mining published in September 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Vancouver, Canada, Teck Resources Limited is a diversified mining company with assets in Canada, the U.S., Peru and Chile. The company is a leading producer of metallurgical coal, operates one of the world's largest zinc mines (Red Dog in Alaska) and also produces a meaningful amount of copper. Revenues were CAD$12.6 billion for the twelve months ending September 30, 2018.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Jamie Koutsoukis
Vice President - Senior Analyst
Corporate Finance Group
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Donald S. Carter, CFA
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Canada Inc.
70 York Street
Suite 1400
Toronto, ON M5J 1S9
Canada
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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