After $8.2 billion cash offer for coal assets, Teck calls Glencore's merger bid a non-starter.

Despite an $8.2 billion cash sweetener, Teck Resources Ltd.'s board of directors is holding steadfast to its position that Glencore's aggressive bid to buy out the Canadian miner is a non-starter.

"Glencore has made two opportunistic and unrealistic proposals that would transfer significant value to Glencore at the expense of Teck shareholders," Teck Resources Chair Sheila Murray said in an April 13 statement.

Glencore's roughly $23 billion buyout bid for Teck comes at a time when the latter mining company is asking its shareholders to approve its plans to split into two separate businesses.

Under a strategy announced earlier this year, Teck intends to spin its steelmaking coal unit into Elk Valley Resources, which would be a world-leading steelmaking coal mining company that would export premium coal mined from Teck's current portfolio in Southern British Columbia.

A rebranded Teck Metals would continue to advance the Canadian company's portfolio of copper- and zinc-forward metals mining operations.

Teck says the coal and base metals businesses that emerge from the proposed decoupling of its current assets would remain committed to strong environmental, social, and governance performance.

The company believes that a merger with Glencore, which holds significant thermal coal assets and one of the world's largest oil trading businesses, would muddy the ESG waters for Teck shareholders.

"The fundamental flaws of Glencore's revised proposal continue to make it a non-starter," said Teck Resources CEO Jonathan Price. "It does not address major inherent risks including substantial regulatory hurdles, jurisdictional and ESG concerns, and diluting the base metals business with significant oil trading."

Not interested in thermal coal, oil

Glencore originally proposed a buyout of Teck and then carry forward the demerging strategy put in motion by the Canada-based miner. The metals and coal businesses proposed by the world's largest mining company would look much different than Teck originally had in mind.

Glencore proposes the formation of MetalsCo, the placeholder name for a world-class business that would be primarily focused on the metals needed for the energy transition. This company would hold a diversified portfolio comprising Glencore and Teck's metals and minerals assets, Glencore's metals and non-coal energy marketing division, recycling businesses, as well as Glencore's investment in Canadian grain handling business Viterra.

Glencore and Teck's steelmaking and thermal coal business would be moved into CoalCo, which would also be the landing place for Glencore's ferroalloys assets – which include chrome, vanadium, and silica mines, and two smelters – along with the Swiss mining giant's coal and ferroalloys marketing businesses.

After hearing Teck shareholder's concerns about owning a business that would include thermal coal for electrical generation, which is a carbon dioxide emitting power source some investors do not want in their portfolios, Glencore proposed to pay $8.2 billion in cash for Teck's steelmaking coal business. This would make it easier for Teck shareholders to get out of the thermal coal side while benefitting from owning a 24% stake in the much larger metals portfolio that would come with the proposed merger.

"We continue to believe that the proposed transaction, being a merger and not a takeover, provides a compelling value proposition to Teck shareholders who will fully/disproportionately participate in the value creation, synergies and upside, and is a superior transaction to the proposed Teck separation." Glencore CEO Gary Nagle penned in a proposal letter to Teck's board.

In an April 13 response, Murray made it clear that exposing Teck shareholders to Glencore's oil trading business, along with the jurisdictional and ESG risk that would come with the merger, is unacceptable to the Teck board.

"Teck has been clear in expressing that it is not in our shareholders' interest to be acquired by Glencore and to merge with your thermal coal or oil trading businesses," the Teck Chair penned in the letter. "As you have now publicly stated you are prepared to spin out your thermal coal business, we suggest you proceed with that, separate your oil business, and then engage with Teck Metals after our own separation has been completed."

Faster Teck decoupling

In the meantime, Teck is encouraging its shareholders to approve the steelmaking coal and metals business reorganization that is already set in motion.

This plan is centered on the creation of Elk Valley Resources, which would be a world-leading steelmaking coal mining company that would export premium coal mined from Teck's current portfolio in Southern British Columbia.

Nippon Steel Corp., a Japan-based company that already owns a minority interest in Teck's BC coal assets, has agreed to pay Teck C$1 billion (US$750 million) in cash for a 10% stake in Elk Valley.

One of the things that attracted Nippon Steel to invest in Elk Valley was the original vision of being a leading pure-play steelmaking coal company in Canada that produces high-quality steelmaking coal essential for the Japanese steelmaker's zero-carbon goals.

"Nippon Steel has clear and strong concern that combining with thermal coal asset outside Canada may deteriorate the value of EVR's world class steelmaking coal asset," the company penned in an April 13 statement.

On April 13, Teck announced that it has decided to shorten the minimum time that Elk Valley would pay royalties to Teck Metals and limit the capital invested in the coal business in order to provide a shorter path to full separation of Teck Metals and Elk Valley.

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Teck Resources' High-quality steelmaking mined by Teck Resources is shipped out of this terminal in North Vancouver, British Columbia, to Japan and other countries.

"Teck management and the Board have had extensive shareholder engagement and based on this feedback, we have decided to make these changes to allow for an earlier full separation and enhance alignment between EVR and Teck Metals," said Teck Resources CEO Jonathan Price. "We believe these amendments will enhance certainty and further protect the interests of Teck Metals shareholders."

Teck has thus far ignored Glencore's request to postpone a meeting slated for April 26 that would have shareholders vote on the Canadian mining company's planned reorganization that decouples its coal and metals assets.

Nippon Steel, on the other hand, is looking forward to Teck's shareholder approval of the reorganization that would create Elk Valley Resources.

"Nippon Steel hopes that the current spin-off proposal by Teck will be approved at Teck's shareholder meeting on April 26th, and our investment in EVR can be realized as planned," it wrote.

Author Bio

Shane Lasley, Publisher

Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.

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