Glencore to acquire Teck's steelmaking coal business for $6.93 billion
Glencore announced on Nov. 14 that is has entered into a binding agreement with Teck Resources to acquire 77 percent of Teck’s steelmaking coal business, Elk Valley Resources, for US$6.93 billion.
The announcement brings to a close a year-long battle that included Teck’s rejection of an unsolicited $23 billion from Glencore that would have created two new metals- and coal-focused companies.
Bloomberg reported that while the offer from Glencore in April was unsuccessful it was enough to disrupt an earlier plan by Teck to spin off its coal business.
“We are pleased to have reached agreement to acquire Teck’s steelmaking coal operations in the Elk Valley. These world-class assets and the experienced people that operate them are expected to meaningfully complement our existing thermal and steelmaking coal production located in Australia, Colombia and South Africa,” Glencore’s recently appointed chief executive officer said in a statement. “Glencore has high regard for the business that has been developed over many decades in British Columbia and looks forward to maintaining and enhancing its operational performance, environmental stewardship and social contribution.”
Teck’s president and CEO Jonathan Price said the deal 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. 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. 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.”
Glencore will pay $6.93 billion for a 77 percent stake in Teck’s business, while steelmakers Nippon Steel Corp. and Posco, which currently own minority stakes in Teck coal mines, will hold the rest. Glencore said it also expects to pay $250 million to $300 million to acquire a shareholder loan made by Teck to the coal business. The Glencore deal, which requires Canadian government approval, implies an enterprise value of $9 billion for Teck’s coal business.
The fight over Teck has highlighted the challenges facing miners with large coal operations — the businesses are big profit drivers for both companies, but many investors are increasingly reluctant to hold exposure to coal.
Before the Teck proposal became public, Glencore had previously said it would continue running its mines until they were depleted, even as many of its rivals pulled out of the thermal coal business. Assuming Glencore’s plans to split out the business proceed, its remaining operations — like Teck’s — will be focused on metals such as copper and zinc.
The separation of the coal business may also make Teck a target for some of the industry’s biggest names, who are keen to add more exposure to copper. Teck said Tuesday that Glencore had agreed to a two-year standstill from the time of closing, which would prevent it making a further unsolicited takeover bid.
The deal will need to be approved by the Canadian government, which has been increasingly focused on protecting the country’s natural resources. The fight over Glencore’s initial takeover offer drew the attention of federal and regional government officials.
Photo Credit: Teck’s Elk View Mine.