Teck in play; major shareholder stands firm against Glencore | Hotter Commodities

If the chairman emeritus of Teck Resources had previously only hinted at his thoughts on the future of the company his family founded, then he spelled it out very plainly on Monday April 17

“There are numerous mining industry parties who have their eyes on Teck and would be interested in partnering or investing in Teck Metals after it separates its base metals and steelmaking coal businesses,” Norman Keevil said in a statement issued on Monday.

“I would support a transaction – whether it be an operating partnership, merger, acquisition, or sale – with the right partner, on the right terms for Teck Metals after separation,” he added.

In other words, Teck is open to discussions with prospective parties, but only after its shareholders vote on the proposed separation on April 26.

Keevil and Teck’s board, including its chief executive officer Jonathan Price, have unanimously rejected Glencore’s bid to merge with Teck and then demerge the metals and coal assets, calling it an unsolicited and opportunistic acquisition attempt which significantly undervalues the company.

Keevil went further, stating that Glencore’s proposal “is the wrong one, as well as at the wrong time.”

Clearly, Teck was already planning to consider its options after it had separated out its coal and metals operations.

In fact, the company has already admitted it had previously discussed a similar deal with Glencore but decided not to proceed in 2020 because the value wasn’t there for shareholders. It also said it hadn’t held talks with Glencore on that kind of transaction for over two years.

The subtext of the letter was that Teck is now on the front foot and exploring alternatives to the deal proposed by Glencore.

Synergies

Glencore says the combined company would bring synergies, including operationally as well as in marketing.

Those synergies include a joint approach to the operation of Collahuasi, in which Glencore has a 44% stake, and the Quebrada Blanca Phase 2 Project (QB2), in which Teck has a 60% stake.

For example, Glencore is proposing to use QB2s infrastructure to process Collahuasi’s higher grade ore, given that the operations are located near to each other in Chile’s northern Atacama Desert region.

Teck, however, says those synergies can be achieved without having a change of control; the companies can work together operationally without having to combine.

That’s a compelling argument for shareholders, and one that appears to be playing well.

Coal

The addition of Glencore’s thermal coal business to Teck’s steelmaking coal operations is clearly a major sticking point for the Canadian miner.

It’s not clear what Glencore would then do with the combined coal business; one possibility is taking it private, something that would potentially help with the issues it faces with its own investors around the environmental aspects of producing and marketing coal.

The company has said it plans to eventually exit coal but has in the interim continued to gobble up equity stakes in other coal assets, something that makes an increasingly vocal portion of its investor base somewhat uncomfortable given global net-zero targets.

Currently, Glencore makes a lot of money from its coal business. In 2022, coal provided Glencore with around two-thirds of its total industrial adjusted earnings before interest, taxes, depreciation and amortization (Ebitda).

While taking the new coal entity private would not abdicate it from good governance, such a move might ease some of the ongoing scrutinies – and shareholder pressure – that a public company faces.

Ivan Glasenberg

Interestingly, Keevil’s statement earlier today mentioned the former Glencore CEO Ivan Glasenberg, who officially stepped down from that role in June 2021.

Glasenberg does, however, remain the company’s largest shareholder, with 9.58% of total voting rights as of February 28, according to Glencore’s annual report.

“Ivan Glasenberg is an interesting guy and a smart man, and his timing is certainly good for them, but not for Teck or our shareholders,” Keevil said.

The comment suggests that Glasenberg remains ever-important behind the scenes of the company he joined in 1984 and ran for almost 20 years, starting in 2002. His achievements there include the acquisition of mining major Xstrata in 2013, creating the Glencore that exists today.

Glencore’s proposal provides for it to appoint the chairman of the new coal company and Teck to appoint its CEO. Chair of a coal company could be an interesting role for Glasenberg, who cut his teeth in the sector back in the 1980s.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.

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