Explainer: Glencore’s vision to be “biggest, best” copper producer through bid for Teck

Global multi-metal miner and trader Glencore intended to build an “unrivaled” copper business through a proposed takeover of Canadian miner Teck Resources

Glencore planned to turn Teck’s major copper pipeline into a serious growth engine, the company CEO said in today’s call with investors.

The takeover proposal, already turned down by Teck on Monday April 3, has painted a vision for its ambition to build the “best and biggest copper company bar none,” Glencore ceo Gary Nagle said.

Fastmarkets has gathered the contexts, figures and prospects to better understand the metal sector’s biggest takeover attempt in years – regardless of its final outcome.

Why Teck? Why now?

Teck Resources is in the process of separating its coal and metals businesses since its spin-off announcement in late February.

Steelmaking coal accounted for 62% of Teck’s revenue in 2022 and will be spun off as Elk Valley Resources. Its zinc and copper businesses, each comprising about a fifth of the turnover, will belong under a separate entity called Teck Metals.

Immediately after the announcement, market talks emerged – with the energy-transition-focused Teck Metals becoming an attractive acquisition target for corporates wanting to tap this potentially lucrative investment theme, industry participants said.

This spinoff made Teck a unique and attractive acquisition target for Glencore, which has been struggling to balance its exposure to thermal coal and investors’ demand to meet climate goals.

While Glencore’s 2022 profit benefited greatly from record coal prices, more shareholders are pressuring the public-listed company to accelerate its “responsibly managed coal decline strategy.”

During the proposal, Glencore specified dividing the line between metals and coal by parking both companies’ coal assets and its own ferroalloy assets under an entity called “CoalCo.”

As for metals assets, an entity called “MetalCo” will be created to amass a “Tier-1 portfolio of copper assets,” as well as “a leading supplier of cobalt, zinc and nickel, well positioned to meet the demand required for the energy transition,” according to Glencore’s takeover proposal.

An “unrivalled” copper portfolio

Copper is used in the manufacturing of electric vehicle, wind turbines and electricity cables. The European Union recently hailed it a critical metal for meeting decarbonization goals.

With copper’s fundamental long-term importance and the need for increased supply, it naturally became the common element for both Glencore and Teck’s growth plans.

Not only did Gary Nagle want an “unrivalled” copper business through the proposed merger with Teck, Jonathan Price, Teck’s ceo, also described “unrivaled copper growth” as the company’s strategy focus one month ago.

Traditionally a zinc-lead heavyweight, Teck Metals’ future regarding “low-carbon metals” hinges largely on copper expansion, eyeing a potential growth of 1.5 million tonnes of annual copper production.

Teck is on a transformation path, from being a middle-sized copper producer to becoming one of the world’s top 10. Last Friday’s development marked a major milestone.

Within Teck’s portfolio of assets, the crown jewel is Quebrada Blanca Phase 2 Project (QB2), and it just announced its long-awaited commencement on Friday.

QB2’s commencement is set to double Teck’s copper production by the end of 2023. The QB project is targeted to achieve 285,000-315,000 tonnes of annual copper production in 2024-2026. Last year, Teck produced 270,000 tonnes of copper.

Indeed, Glencore’s timing to raise the takeover bid right after QB2’s commencement has been described by Teck as an “opportunistically timed attempt to transfer value to Glencore shareholders at the expense of Teck shareholders” in its public rejection notice on Monday.

MetalsCo — what Glencore wishes to create with Teck

Diving into Glencore’s existing copper portfolio, in terms of volume, Glencore’s copper output is much more significant; it produced 994,000 tonnes of the red metal in 2022.

Glencore owns the Katanga and Mutanda copper-cobalt operations in the Democratic Republic of Congo (DRC,) Mount Isa and CSA mines in Australia, Antapaccay mine and partial stake in the Peruvian Antamina mine, as well as Lomas Bayas mine and a 44% stake in the Chilean Collahuasi mine.

At Glencore’s proposed merger with Teck, the new entity MetalsCo will produce 1,436,000 tonnes of attributable contained copper per year.

To put 1.4 million tonnes of copper output in perspective, here are some figures as a base for comparison, cited from their respective company websites:

Freeport, owner of Indonesia’s Grasberg mine and one of the benchmark setters for global mined copper trade flow, is expected to sell 4.2 billion pounds – or 1,905,088 tonnes of copper – in 2023.

BHP, the owner of the world’s biggest copper mine Escondida, is expected to produce 1,635,000-1,825,000 tonnes of copper in 2023, according to its 2022 annual operational review.

Codelco, Chile’s state-owned copper producer and operator of Chuquicamata, El Teniente and Andina mines, is expected to produce 1,450,000 tonnes of copper in 2023.

Grupo Mexico, parent of Southern Peru Mining, which owns major mines in Peru and Mexico, reported copper production of 1,006,934 tonnes in 2022.

China’s Zijin Mining, a Kamoa-Kakula mine investor, forecasted 950,000 tonnes of copper output in 2023, while Anglo American, which runs Quellaveco and Los Bronces, forecasted a 840-930,00 tonnes of copper output this year. Private Chilean copper miner Antofagasta, another benchmark setter of mined copper trade flow, put its annual guidance at 670,000 and 710,000 tonnes copper this year.

However, with Teck’s rejection, it is unlikely to see a new member to the one-million-tonne copper producers’ club through Glencore’s proposed bid in a short time.

“The Glencore proposal would expose Teck shareholders to a large thermal coal business, an oil trading business and significant jurisdictional risk, all of which would negatively impact the value potential of Teck’s business, is contrary to our ESG commitments and would transfer significant value to Glencore at the expense of Teck shareholders,” Jonathan Price, ceo of Teck said.

Teck said it is “not contemplating a sale of the company at this time” and would encourage shareholders to pass the original reorganization plan, according to a board announcement on Monday.

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