Teck Resources will split into two to diversify its steelmaking coal business

A sign for the Elkview coal mine in Sparwood, British Columbia.

Vancouver company Teck Resources unveiled on Tuesday, a plan to separate its operations into two separate companies, Teck Metals and Elk Valley Resources, with the latter becoming responsible for the steelmaking coal business.

Under this plan, Teck shareholders will receive 0.1 common share of Elk Valley Resources for each share of Teck they own, plus 39 cents in cash per share .

In exchange for the coal assets, Elk Valley Resources will make quarterly payments to Teck Metals in the form of royalty payments and preferred stock repurchases.

The royalty will be payable until $7 billion in payments have been made or until December 31, 2028, whichever is later. The preferred shares will have an aggregate redemption value of $4.4 billion and a cumulative dividend of 6.5%.

Teck says it has also reached an agreement with its joint venture partners and its major customers, Nippon Steel and Posco, to exchange their minority stakes in the Elkview and Greenhills coal mining operations for stakes in the new company.

The exchange Nippon Steel's stake in Elkview and a cash investment of $1.025 billion will give it a 10% stake in Elk Valley Resources, while Posco will receive a 2.5% stake.

Teck Resources, Canada's largest coal producer, indicated last week that it was considering exiting its steelmaking coal operations.