Glencore wins Teck coal unit, paving way for its own split

(Bloomberg) — Glencore Plc will buy a majority stake in Teck Resources Ltd.’s coal business, ending a months-long saga that has stunned the mining industry and paved the way for the commodities giant to exit the coal business itself.

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The two companies spent much of the year in a bitter public battle after Tech rejected an unsolicited $23 billion offer from Glencore, which proposed creating two new companies focused on metals and coal. Glencore’s bid, while unsuccessful, was enough to derail an earlier plan by Teck to spin off its coal business.

For Glencore and its relatively new chief executive, Gary Nagel, the deal represents a defining moment for the company that would pave the way out of its highly profitable but polluting thermal coal business, leaving it to focus on minerals needed for the energy transition. Glencore intends to put the combined coal operations into a new company listed on the New York Stock Exchange within two years of closing the acquisition, Nagel said.

“I don’t think this is the second award,” Nagel said on a conference call. “We’ve done a very good job of acquiring excellent assets.”

For Teck, the deal finally ends its struggle to find a solution for its mines that produce coal for the steel industry after years of considering various options, while securing the cash it needs to finance its metals business.

Teck shares were up 2.7% as of 9:37 a.m. in Toronto, while Glencore shares were up 4% in London.

In the deal announced Tuesday, Glencore will pay $6.93 billion for a 77% stake in Teck’s business, while steelmakers Nippon Steel Corp and Posco, which currently hold minority stakes in Teck coal mines, will retain the rest. Glencore said it also expects to pay between $250 million to $300 million for a shareholder loan made by Teck to the coal business. The Glencore deal, which requires Canadian government approval, includes an enterprise value of US$9 billion for Teck’s coal business.

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The fight over TEC has highlighted the challenges facing miners with large coal operations — the companies are big profit drivers for both companies, but many investors are increasingly reluctant to continue exposure to polluting fossil fuels.

Before Teck’s proposal became public, Glencore had previously said it would continue to operate its mines until they were exhausted, even as many of its competitors pulled out of the thermal coal business. Assuming Glencore’s plans to split the business go ahead, its remaining operations – like TEC’s – will focus on metals such as copper and zinc.

Glencore’s successful coal bid marked an ironic end to the acrimonious saga, after Teck and its controlling shareholder, Norman Kiefel, attacked the Swiss company’s record of rejecting a previous takeover proposal. The deal will ensure “continued socially and environmentally responsible coal industry operations and enhanced benefits for Canada,” Teck said Tuesday.

Nippon Steel, which currently owns 2.5% in some of Teck’s coal assets, will convert ownership and provide additional funds to acquire a 20% stake in the company, while Posco will convert its ownership interest in Teck’s mines into a 3% stake in the company . the job.

Teck, which will now have no exposure to the coal business, said it would use the proceeds to pay down debt, build new mineral mines and return some to shareholders.

Best value

“We were able to achieve what we saw as the best value for this transaction as well as a clean separation,” said Teck CEO Jonathan Price. “The valuation on this deal was clearly superior.”

The deal caps a difficult year for the Canadian mining company. As well as the bruising takeover battle with Glencore, it also faced a major cost hike at a major new copper mine in Chile, which was originally Glencore’s main attraction. The company must now reassure shareholders that it can use proceeds from the coal sale to build new copper mines on time and on budget.

The Glencore deal will not require a vote by Teck’s shareholders, unlike a previous bid plan that was abandoned after failing to gain sufficient support.

Spinning off its coal business could also make Teck a target for some of the biggest names in the industry, who are keen to add more copper exposure. Glencore has agreed to take a two-year pause from closing, which will prevent it from making another unsolicited takeover bid, Tick said on Tuesday.

The deal would need approval from the Canadian government, which has increasingly focused on protecting the country’s natural resources. The conflict over Glencore’s initial takeover bid has caught the attention of federal and provincial government officials.

(Updates stock in sixth paragraph. An earlier version of company name has been corrected.)

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