Glencore makes Teck coal assets tilt amid industry "merry-go-round"

Mon, 12th Jun 2023 15:00

(Alliance News) - Glencore PLC has given Teck Resources Ltd's board something to think about, as it proposed a deal to take the Canadian miner's steel-making coal assets out of its hands.

Glencore shares rose 1.0% to 439.25 pence each in London on Monday afternoon.

If the deal were to be sealed, the Barr, Switzerland-based miner and commodity trader said it would eventually demerge the combined business. This would occur once it is "sufficiently" de-levered. This would take about 12 to 24 months from close, Glencore predicted.

Glencore's attempts to acquire all of Teck had fallen on deaf ears. In April, Glencore revised its offer for Teck, adding a cash element of USD8.2 billion plus a 24% stake in MetalsCo to the Vancouver-based miner's shareholders. MetalsCo would be a transition metals focused business. It would differ from CoalCo, which would be a standalone coal unit.

Glencore had originally offered 7.78 of its own shares for each Teck Class B subordinate voting share, and 12.73 shares for each Teck Class A common share. This represented a 20% premium for both on the date of the offer. If the deal succeeded, Glencore shareholders would have owned 76% of the merged entity, with Teck shareholders owning the remaining 24%.

Teck's board made it clear it would prefer to go on without Glencore involved, and the duo also engaged in a tit-for-tat. Glencore accused Teck of not properly engaging, something the latter denied.

"Glencore's purpose is not to win friends but to make money and it seems to have spotted an opportunity to do so at Teck Resources. Having attempted to buy the whole company, it is now offering to purchase the steelmaking coal part of the business which Teck has been attempting to spin off," AJ Bell analyst Russ Mould commented.

"There's a merry-go-round of coal assets in the industry as companies don't want to be left holding what is seen as a dirty fuel. Even for Glencore a plan to demerge Teck's coal operations with its own within a couple of years of any deal suggests it wants to quarantine the rest of its assets from coal."

Coal has fallen out of favour in some corners of the investor community and Glencore itself has faced pressure from Bluebell Capital Partners Ltd, which opposed the possible deal to acquire all of Teck.

Bluebell wants Glencore to separate its coal mines.

"We have already closed three coal mines since 2019, and plan to close three coal mines in the near term and at least six additional mines by the end of 2035 as they come to the end of their economic lives or lease expiry dates, reducing overall coal production and associated emissions across our portfolio. In addition, we may exit from other industrial assets should they become uneconomic due to high carbon and energy costs," Glencore said in its annual climate report published in March.

"We plan to continue to manage our portfolio and its emissions footprint in a manner consistent with our climate change strategy and in line with our ambition of achieving net zero emissions by 2050. We are not progressing thermal coal greenfield investments. However, we plan to continue to progress various brownfield coal extensions or expansions at existing mines, while continuing to be a responsible steward of these assets as we progress the phase down of our global coal portfolio."

Rio Tinto PLC set the tone back in 2018 when it became the first major miner to stop producing coal. Anglo American PLC in June 2021 completed the spin-off of Thungela Resources PLC.

BHP Group Ltd also plans to exit coal, though it said this time last year that it will retain New South Wales Energy Coal and will look to cease mining at the project by the end of 2030.

Broker Liberum believes Glencore is "serious" about exiting coal.

"Glencore has proposed to buy Teck's steelmaking coal business for cash, which it would then subsequently demerge the entire coal business. This further puts Teck management in the corner as so far have not entertained Glencore's propositions for the entire business and failed to come up with another strategy. Depending on the size of the cash offer, we expect that this offer will go down well with Glencore shareholders," Liberum analysts added.

Analysts at UBS in May said a merger and subsequent listing of Glencore and Teck's coal mining arms would be an "attractive" outcome for both.

"We still see potential for Teck and Glencore to agree to combine their coal assets and list the combined CoalCo on the New York Stock Exchange," analysts at UBS had commented, adding that what remains of Glencore and Teck would operate independently.

UBS sees scope for cost savings should Glencore and Teck combine their coal arms. The Swiss bank sees "meaningful marketing synergies from integrating Teck's metallurgical coal mines with Glencore's coal trading platform".

By Eric Cunha, Alliance News news editor

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