Tech Resources CEO Jonathan Price paused to answer questions from reporters after the company’s special shareholder meeting in Vancouver on April 26.Darryl Dyck/Canadian Press
TECK-BT has agreed to sell its coal business to Swiss commodity trading giant Glencore and two Asian steelmakers in a US$8.9 billion deal that requires federal approval. It will be subject to intense scrutiny by Ottawa before proceeding.
Vancouver-based Teck has been making offers for its core metallurgical coal business since this spring, when an initial spin-off plan was scrapped at 11 p.m. due to lack of shareholder support.
Founded in 1913, Teck is Canada’s largest diversified mining company, a major employer in British Columbia, and one of the oldest mining companies in the country.
Glencore GLNCY had originally proposed to buy Teck’s entire stake, including its copper and zinc mines, in a US$23.1 billion cash and stock deal in April. Teck has repeatedly rejected Glencore’s proposals, some related to jurisdiction, some related to the execution of the deal, and some over concerns about Glencore’s past bribery and market manipulation settlements with international regulators. They cited a number of risks, including those related to
Teck CEO Jonathan Price said in an interview with the Globe and Mail that the deal to sell its coal business was “a completely different deal.”
He pointed to a long list of commitments Glencore has made, including keeping jobs in Canada, making billions of dollars in capital investment over the next few years and increasing spending on research and development.
Glencore has agreed to pay US$6.9 billion for 77% of Teck’s coal business, known as Elk Valley Resources, according to the terms of the deal, which are expected to be announced on Tuesday. Japan’s Nippon Steel NPSCY will pay him US$1.7 billion and exchange his interest in one of Teck’s coal operations for his 20% of the coal business. South Korea’s POSCO PKX-N will exchange interests in two of Teck’s coal projects for 3%.
The proposed sale price for the coal business is slightly lower than the sale price for parts of Bay Street. I thought the unit was worth it. Jefferies analyst Christopher Lafemina said in a note to clients last month that the business is worth at least $11 billion.
Unlike previous restructuring efforts, in which Teck sold its coal division to shareholders while continuing to collect operating royalties for about a decade, the new proposed deal would be a complete breakup.
“Shareholders have made it very clear that they want to separate steelmaking coal from base metals,” Price said, citing investor concerns about risks related to coal’s environmental impact. “They want it done in a simple and direct way, and that is exactly what we achieved through this transaction.”
Glencore’s deal with the steelmaker does not require a shareholder vote, so whether the deal goes through is likely to depend on the outcome of a federal review. Ottawa has the power to block a foreign takeover of Teck on national security or net profit grounds, the latter relating to the economic impact of the deal.
Teck said in a statement that the deal with Glencore is not expected to close until the third quarter of next year, mainly because of the expected lengthy government review period.
Earlier this year, several federal ministers expressed concern about foreign mining company Glencore’s acquisition of Teck’s entire stake. “We need companies like Tech here in Canada,” said an April letter from Industry Minister François-Philippe Champagne, Natural Resources Minister Jonathan Wilkinson and Deputy Prime Minister Chrystia Freeland to the Greater Vancouver Board of Trade. It is written as follows.
British Columbia Premier David Eby said in June that he had concerns about Glencore buying Teck’s coal business. glencore’s Past regulatory violations related to bribery and corruption. Mr. Eby does not have the power to block Glencore’s bid for Teck, but he has indicated he will petition Ottawa to do so.
“No one has given us any guarantee that a deal will be reached,” Glencore CEO Gary Nagle said in an interview.
But he said he was confident the agreement would be approved. He noted Glencore’s already large footprint in Canadian mining and the new initiatives Glencore has undertaken. Glencore employs approximately 9,000 people in Canada. Much of the business here is the result of the 2013 acquisition of Swiss mining company Xstrata, which acquired former Canadian mining giant Falconbridge in the mid-2000s.
If the deal is approved, Teck will be a much smaller company in terms of revenue and market value, and will focus on copper and zinc, both important minerals. Last year, coal accounted for 60% of Teck’s revenue and 75% of its profit. Earlier this year, the company began production at a large-scale copper mine in Chile called QB2. The business is plagued by cost overruns.
Even though Teck’s coal business generates billions of dollars in free cash flow each year, few investors want to hold coal stocks in their portfolios due to concerns about the negative impact of fossil fuels on the environment. , ratings are under pressure. By selling the coal business, Teck expects its market valuation to increase over time.
If Glencore were to buy Teck’s coal business, it would ultimately split itself into two, with a large coal company holding thermal coal assets and Teck’s metallurgical coal assets, and a large coal company holding Teck’s metallurgical coal assets, and a metal mining and energy trading asset. The plan is to establish a separate company that will own the
Mr Price said Glencore had signed a two-year “standstill” agreement that would come into effect after the coal deal was completed. The agreement means that Glencore cannot make a new takeover offer for Teck until the suspension period ends.
Teck’s controlling shareholder, Norman B. Keevil, said earlier this year that he was opposed to Glencore acquiring all of Teck’s stock. “Canada is not for sale,” he told the Globe at the time. Keevil later softened his stance, saying he would not veto a deal with Glencore if Teck’s management, board and shareholders supported it.
Keevil said in a statement that the new transaction positions Teck for continued growth as a leading Canadian-based producer of copper and future-oriented metals, while preserving jobs and operations at the mine in B.C.’s Elk Valley. He said he could.
Report from Eric Reguly and Andrew Willis
