Teck Resources to Sell Coal Assets in Landmark Deal with Glencore
Teck Resources to sell coal assets to Glencore-led group, resulting in increased shares and potential industry impact. Japanese and South Korean steelmakers also hold stakes in the deal.
Troy D. Hanson
November 14, 2023
Shares in Teck Resources rise as the Canadian mining giant agrees to sell coal assets to Glencore-led group for $6.93 billion.
In a significant development, Teck Resources, the leading Canadian mining company, has announced its decision to sell its coal assets to a group led by Glencore, a prominent mining and trading giant. As a result of this landmark deal, Teck Resources' shares experienced a notable increase in early trading on Tuesday, rising by 2.4% to reach 51.51 Canadian dollars ($37.31).
Under the terms of this agreement, Glencore, based in Switzerland, will acquire a 77% stake in Teck Resources for an impressive $6.93 billion, effectively valuing the company at approximately $9 billion. Notably, Japanese steelmaker Nippon will also hold a 20% stake, with South Korean steelmaker Posco possessing a 3% position.
This deal marks the culmination of an extensive process embarked upon by Teck Resources to determine the optimal course of action for its coal business. In February, the company announced plans to divide itself into two entities, one focusing on base metals and the other on metallurgical coal, which is widely utilized in the steelmaking industry.
It comes as no surprise that Glencore has long expressed its keen interest in Teck Resources' business. The mining and trading firm initially proposed an ambitious all-out merger valued at $23 billion, which included the idea of establishing two separate companies for Glencore and Teck's combined metals and coal businesses. Additionally, they planned to subsequently spin off the consolidated coal business.
Emphasizing its commitment, Glencore has reasserted its intention to spin off the combined coal company once it succeeds in reducing its debt, aiming for a timeline of approximately two years following the conclusion of the transaction. Furthermore, Chief Executive Gary Nagle confirmed Glencore's plans to list the merged business in New York, with secondary listings in Toronto and Johannesburg.
Analyzing the proposed deal, Orest Wowkodaw, an analyst at Scotiabank, expressed his view that it offers fair value for the business. He stated in a note, "We view the proposed transaction as positive for the shares given the structure achieves full business separation at fair value. Moreover, given the prolonged uncertainty with respect to the future of the coal business, this transaction also serves to remove a meaningful overhang on the shares."
In conclusion, Teck Resources' decision to sell its coal assets to Glencore and its consortium of partners represents a momentous agreement that has the potential to shape the mining industry. With substantial financial gains expected and a well-defined strategic direction, both companies are positioned to thrive in their respective fields of expertise.