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Glencore buys Teck’s steelmaking coal arm in US $9-billion deal

Japanese, Korean firms also included in complicated asset swap that still needs regulatory approval
A journalist is silhouetted before the Teck Resources special meeting of shareholders, in Vancouver, B.C., Wednesday, April 26, 2023.Teck Resources Ltd. has agreed to sell its steelmaking coal business in a series of deals that value the operations at US$9 billion. THE CANADIAN PRESS/Darryl Dyck

The CEO of Teck Resources Ltd. said its decision to sell a majority stake in its steelmaking coal business to Swiss commodities giant Glencore represents the best possible outcome after nearly a year of battling over the future of the Vancouver-based miner.

Jonathan Price said in an interview he “couldn’t be happier” about the deal his company announced Tuesday, in which Glencore has agreed to pay US$6.9 billion for a 77 per cent stake in the coal business, known as Elk Valley Resources.

In addition, Japanese company Nippon Steel Corp. will acquire a 20 per cent stake in exchange for its interest in one of Teck’s coal operations and US$1.7 billion in cash, while South Korean steelmaker POSCO will swap its interest in a pair of Teck’s coal operations for a three per cent stake in the overall steelmaking coal operations.

In total, the deals value Teck’s steelmaking coal operations at US$9 billion, and represent the culmination of months of negotiations with multiple interested buyers following an unsuccessful $25-billion hostile takeover bid by Glencore for all of Teck earlier this year.

Teck’s board rejected Glencore’s original offer, but the company continued its pursuit of the coal business.

“Throughout this process, we’ve been very focused on getting the best outcome for our shareholders and the best outcome for all stakeholders,” Price said in an interview.

“And I firmly believe the transaction we’ve announced today achieves that. It’s great for Teck, but it’s also very good for our shareholders and it’s very good for all of our stakeholders, particularly those in Canada.”

Teck has been weighing the future of its steelmaking coal business since it became apparent its plan to spin off the operations into a separate company did not have the required shareholder support.

Tuesday’s deal will mean Teck no longer has any exposure to coal, freeing the company up to focus instead on expanding its copper and zinc production to meet growing global demand for these metals, both of which are used in the production of electric vehicles and are considered to be key resources for the coming energy transition.

For its part, Glencore said Teck’s steelmaking coal business will meaningfully complement the company’s existing thermal and steelmaking coal production in Australia, Colombia and South Africa.

“This is very satisfying. I mean, look at what we’ve bought,” said Glencore CEO Gary Nagle in an interview.

“We’ve bought a best-in-class, long-life, low-cost, tier-one asset at a very attractive price. I think we’ve done very, very well here and we’re very happy with this transaction.”

The companies said Tuesday the deal is expected to close in the third quarter of 2024. But it remains subject to several conditions, including approvals under the Investment Canada Act and competition approvals in several jurisdictions.

Glencore’s initial pursuit for the entirety of Teck sparked sentiments of economic nationalism. B.C. Premier David Eby spoke out against the proposed deal and federal Conservative Leader Pierre Poilievre urged the government to block any acquisition of Teck by Glencore.

Ottawa said at the time that it was watching the situation closely, and that any takeover bid for Teck would go through a rigorous approvals process.

Nagle pointed out Glencore already has a track record in Canada, with 9,000 employees and contractors in the country currently and operations that span seven industrial assets producing and recycling mainly nickel, copper, zinc and cobalt.

He said as part of the deal with Teck, Glencore is making a number of commitments to Canada, including a pledge to maintain significant employment levels in Canada with no net reduction of employees as a result of the transaction.

Glencore is also committing to maintain a Vancouver head office for Elk Valley Resources as well as regional offices in Sparwood, B.C. and Calgary, Alta.

The company said it will also increase Elk Valley Resources’ capital expenditures in Canada to over $2 billion over three years.

“We look forward to engaging constructively and transparently and openly with the various stakeholders and federal and local governments to be able to demonstrate our commitment to Canada,” Nagle said.

“And therefore we are confident that we can get this transaction approved.”

Price said he also has a “very high” level of confidence that the transaction will be approved.

“We wouldn’t have proceeded with this transaction if that wasn’t the case,” Price said.

“When coupled with these really compelling commitments that they (Glencore) have made, we do believe that this is a good deal.”

Nagle said that as part of the deal, Glencore has signed a two-year “standstill” agreement, which will prohibit Glencore from making another takeover bid for the rest of Teck during that time.

Teck expects the proceeds from the sale of the steelmaking coal business will improve its net leverage through debt reduction, the retention of additional cash on the balance sheet and payment of transaction-related taxes, which are estimated to be about US$750 million.

The company also said its Board will determine an appropriate amount and form of a “significant cash return” to shareholders following closing of the transactions.

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