UPDATE 2-Teck says Citi advises on possible coal sale

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By Cameron French and Michael Erman

TORONTO/NEW YORK, Dec 9 (Reuters) - Teck Cominco (TCKb.TO) has consulted with Citigroup Inc (C.N) on a possible sale of minority stakes in core assets, including the Elk Valley Coal business, a company spokesman said on Tuesday.

Teck, which took full control of Elk Valley with its October $13 billion acquisition of Fording Canadian Coal Trust, has cut costs and begun selling non-core assets to pay down a $5.8 billion bridge loan taken on to finance the Fording deal.

The takeover was lauded when it was announced in July, but falling base metal and coal demand since then, combined with the freezing up of credit markets, have hammered the company's shares and forced the company to now contemplate selling off part of the recently acquired asset.

Greg Waller, Teck's vice-president of investor relations, said core asset sales could be a possible option next year if the company has trouble refinancing the remainder of the bridge loan.

"They're providing some consultation on it, but it's not something that's high on our list to do," Waller said. "The fact that they're giving us advice on it doesn't really indicate that we're actually going ahead with anything."

Teck also took on $4 billion in term debt in the acquisition.

A Citi spokeswoman declined to comment.

One source familiar with the matter said Teck could be looking to sell up to 49 percent of the Elk Valley assets.

It was not immediately clear who would bid on Elk Valley, and valuing the assets will be difficult because of uncertainty about the price of metallurgical coal, which is used in the steelmaking process.

Teck unveiled the Fording takeover deal in July, when copper prices were soaring and the outlook for metallurgical coal was strong.

The company expected to pay down the debt quickly using a C$1 billion tax break and expected robust cash flows from Elk Valley.

The coal operation has contracted prices of $275 a tonne through March, but the outlook for metallurgical coal has darkened since the acquisition. As of last week, consensus estimates for metallurgical coal were $160 per tonne for 2009, down from $200 a tonne just a month earlier. (Additional reporting by Michael Flaherty and Joe Chaney in Hong Kong; editing by Carol Bishopric)