Glencore offers to buy Teck's coal business as takeover battle for Canadian mining company takes a new twist - The Globe and Mail

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The Teck Resources logo is seen on a podium before the company's special meeting of shareholders, in Vancouver on April 26, 2023.DARRYL DYCK/The Canadian Press

Glencore PLC has offered to pay cash for the enormous coal business of Canada’s Teck Resources Ltd., a variation of the Swiss mining giant’s original effort to buy all of Teck.

Responding to press reports on Sunday that Glencore was in talks to buy the coal assets, the company issued a statement Monday morning confirming that it has submitted a “proposal” to the Teck TECK-B-T board of directors. Glencore did not mention a price in its statement, but analysts assume it would be about US$8.2-billion - the value that Glencore attached to the Teck coal assets in April.

Shortly after Glencore issued its statement, Teck said it “confirms it is engaging with Glencore around their proposal regarding the steelmaking coal business. The proposal is preliminary in detail, conditional and non-binding.”

If its coal bid is successful, Glencore would combine its thermal coal business with Teck’s metallurgical, or steel-making, division. Teck is the world’ second-largest seaborne exporter of metallurgical coal; Glencore is the largest exporter of thermal coal, which is burned in power plants to make electricity.

Glencore’s proposal seems to mark a turning point in the company’s three month-effort to merge with Teck in an all-share deal. That effort has been formally rejected by the Teck board and was not supported by the company’s chairman emeritus Norman B. Keevil, who, with Sumitomo of Japan, controls the super-voting Teck A shares.

Glencore offered to merge its metals business with those of Teck - forming one of the world’s largest producers of copper, nickel and cobalt - then create a separate company that would hold their metallurgical and thermal coal assets.

In a Monday note, Deutsche Bank said “we would view the sale of the coking [steel-making] coal assets to Glencore as an attractive ‘middle ground’ for both companies.”

The bank noted that it would provide Teck with a “cleaner exit from coal” that is original spin-off proposal, and allow Glencore to split its own business in half, eventually creating separate metals and coal companies.

Glencore said it would demerge the coal business in a year or two if its offer to buy Teck’s coal business were to succeed. It would first use the coal company’s cash flow to reduce the debt taken on to buy Teck’s coal division, reducing the business’s net debt by about half, to US$5-billion.

Teck suggested that no deal for the coal assets is imminent, noting that the board and an independent committee “are continuing to consider and evaluate all actionable, value-accretive proposals received relating to Teck’s steelmaking coal business.”

Glencore’s only known rival for Teck’s coal division is a group led by Pierre Lassonde, co-founder of gold royalty company Franco-Nevada Corp. Mr. Lassonde has said he hopes to buy a significant minority stake in the division, though he may have to revise his plans now that Glencore has offered to buy all of Teck’s coal assets.

Teck in April tried to win shareholder approval to spin-off its coal business. When it realized that it could not convince two-thirds of them to support the deal, it withdrew the proposal. Shareholders considered the spin-off proposal messy and complicated, noting that the coal company, to be called Elk Valley Resources, would have paid most of its cash flow to Teck for a decade.

After the spin-off proposal was killed off, Teck CEO Jonathan Price said Teck’s new plan “is to pursue a simple and more direct separation.”

Glencore is one of the few big mining companies that would take on more coal. Most of its rivals are selling or spinning off their coal businesses to make themselves more appealing to investors who follow environmental principles. Coal in all forms is one of the top emitters of planet-warming carbon dioxide emissions

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2023-06-12 09:10:56Z
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