Teck sells coal assets to Glencore, steelmakers for US$8.9B to focus on copper

Teck Resources (TSX: TECK.A, TECK.B; NYSE: TECK) is selling its coal assets to Glencore (LSE: GLEN) and two Asian steelmakers for US$8.9 billion, Teck said on Nov. 14. 

Under the deal, which still must be approved by regulators in Ottawa, Glencore is to pay US$6.9 billion for 77% of Elk Valley Resources, Teck’s coal business, while Japan’s Nippon Steel will take 20% and Posco of South Korea gets 3%. 

The steelmakers are swapping their interests in specific coal producers for stakes in the wider company, it said. Nippon is also to pay US$1.7 billion to Teck. 

The deal caps negotiations that have been ongoing at least since April when Teck rejected an US$23-billion offer from Glencore to buy all of Canada’s largest diversified miner. It also would seal Teck’s plans to sell off its coal operations to focus on its copper and zinc business.  

Industry and political debate has swirled around the plans as some concerns mounted that Switzerland-based Glencore was buying up Canadian resources. Others noted Glencore actually employs more Canadians than Teck. 

“This transaction will be a catalyst to re-focus Teck as a Canadian-based critical minerals champion with an extensive portfolio of copper growth projects, unlocking the full value potential of the company,” Teck president and CEO Jonathan Price said in a release. 

“This sale will ensure Teck is well-capitalized and able to realize value from our base metals business and deliver strong returns to our shareholders while maintaining a robust balance sheet.” 

Third-quarter close

The deal is expected to close in the third quarter next year. Teck will keep operating the coal business until then and may earn as much as US$1 billion during that time, it said. The Vancouver-based company had rejected offer in June from Glencore to buy the coal unit. 

“I don’t think this is a second prize,” Glencore CEO Gary Nagle said on a conference call following the announcement. “We’ve done very well acquiring an excellent asset.” 

Regulators in Ottawa must approve the foreign takeover. They would consider issues of national security and the transaction’s economic impact to determine if there’s an overall benefit to Canada. 

“We are dedicated to working with all governing bodies and stakeholders to ensure that the transaction is of benefit to Canada, which includes a commitment from Glencore regarding employment,” Nagle said in a statement. 

Spin-off listing

The Swiss miner and commodities trader said it would merge Teck’s steelmaking coal business with its own thermal and metallurgical coal assets in Australia, Colombia and South Africa. They would form a separate company that would be listed on the NYSE within two years. Like Teck, Glencore also wants to focus on metals such as copper, nickel and zinc.  

Rory Kutisker-Jacobson, a portfolio manager of Johannesburg-based Allan Gray, a top-30 shareholder in Glencore, told The Financial Times of London he had reservations about the planned spin-off. The trader’s thermal coal business could act counter-cyclically to its future-facing commodities businesses, he said.  

Teck class B shares rose 2% to $51.39 each in Toronto when the deal was announced, valuing the company at $26.8 billion. They have traded in a range of $42.39 to $66.04 over the past 52 weeks. Shares in Glencore rose 5% to £4.51 ($7.72) apiece, valuing the company at £55.7 billion. They have a 52-week trading window of £4.10 to £5.84. 

The sale allows Teck to pivot to greener metals than coal. Teck’s major new development in Chile, the phase two expansion of the Quebranda Blanco copper mine, known as QB2, is ramping up production after capital cost estimates inflated in October to as much as US$8.8 billion compared with US$5.2 billion before the pandemic, Investment bank Canaccord Genuity wrote in a note just before the coal sale.  

QB2 is expected to hit its design of 143,000 tonnes throughput of ore per day by year-end, mining analyst Dalton Baretto wrote. The open pit mine is aiming for annual production of 300,000 tonnes of copper compared with 23,400 tonnes in 2017. 

Stewardship

The miner had expressed concerns about Glencore’s tarnished past with regulators that had disciplined it for alleged bribery and market manipulation. But Teck expressed confidence in Glencore when announcing the sale. 

“Glencore has made strong commitments that will create new benefits for Canada and the Elk Valley and ensure responsible stewardship of the steelmaking coal operations for the long term,” Price said. 

Nagle said Glencore “looks forward to maintaining and enhancing its operational performance, environmental stewardship and social contribution.” 

Norman B. Keevil, Teck’s chairman emeritus, had opposed Glencore’s plan to purchase Teck. But on the big day he said he backed the sale, noting it will keep jobs. 

“This company was built on a foundation of sound geoscience and engineering excellence, with a record of successful mine-building second to none,” Keevil said in the company’s statement. “That is the same foundation we see for Teck’s future. It’s time to get on with it.” 

With reporting from Cecilia Jamasmie.