Teck to sell coal business to Glencore, Nippon Steel and POSCO in $8.9-billion deal - The Globe and Mail

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Teck Resources CEO Jonathan Price responds to questions from reporters after he company's special meeting of shareholders, in Vancouver, B.C., Wednesday, April 26, 2023.DARRYL DYCK/The Canadian Press

Teck Resources Ltd. is planning on selling the majority of its coal business to Swiss commodities trading giant Glencore PLC, and two Asian steelmakers will buy the balance in a US$8.9-billion transaction that could be announced as early as Tuesday morning, two sources familiar with the matter said.

Vancouver-based Teck has been fielding offers for its core metallurgical coal business since the spring, when an earlier plan to spin it off was cancelled at the eleventh hour because of insufficient shareholder support.

Glencore is poised to pay US$6.9-billion for 77 per cent of Teck’s coal business. Japan’s Nippon Steel will pay US$1.7-billion and swap its interest in one of Teck’s coal operations for 20 per cent of the coal business, while South Korea’s POSCO will swap its interests in two of Teck’s coal operations for 3 per cent of the business, the sources said.

The Wall Street Journal first reported that Teck and Glencore were close to announcing a deal.

Teck and Glencore declined to comment.

The transactions with Glencore and the steelmakers don’t require a shareholder vote, the sources said, meaning whether the deal closes will likely depend on the outcome of a review by the federal government. Ottawa has the power to block a foreign takeover of Teck on either national security or net benefit grounds, the latter of which relate to the economic impact of the transaction.

Earlier in the year, several federal ministers expressed reservations about Glencore, a foreign miner, buying all of Teck. “We need companies like Teck here in Canada,” said an April letter to the Greater Vancouver Board of Trade from Industry Minister François-Philippe Champagne, Natural Resources Minister Jonathan Wilkinson and Deputy Prime Minister Chrystia Freeland.

Glencore GLNCY originally proposed buying all of Teck in April, including the company’s copper and zinc mines, in what would have been a US$23.1-billion cash and stock deal but Teck rejected Glencore’s advances.

Unlike Teck’s earlier attempt at restructuring, under which it would have sold its coal unit to shareholders but continued collecting royalties on the business for about a decade, the new proposed transaction would be a clean split.

Glencore already has a large footprint in Canadian mining. It employs roughly 9,000 people in Canada. The bulk of its operations here are a result of its 2013 acquisition of fellow Swiss miner Xstrata PLC, which bought former Canadian mining giant Falconbridge Ltd. in the mid-2000s.

If the deal is approved, Teck will become a much smaller company in terms of revenue and market value, with a narrower focus on copper and zinc, both of which are critical minerals. Last year, coal accounted for 60 per cent of Teck’s revenue and 75 per cent of its profit. Earlier this year, the company put a large copper mine, called QB2, into production in Chile. The operation has been plagued by cost overruns.

Despite generating billions in free cash flow every year, Teck’s coal business has weighed down its valuation, because few investors are now willing to hold coal stocks in their portfolios, owing to concerns about the detrimental impact the fossil fuel has on the environment. By selling its coal business, Teck hopes to gain a higher valuation in the market over time.

If Glencore ends up acquiring Teck’s coal business, it plans to eventually split itself in two, creating a giant coal company that holds its thermal coal assets and Teck’s metallurgical coal assets, and another company to hold its metals mines and energy trading assets.

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2023-11-14 03:30:52Z
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