Multinational commodity trader and mining group Glencore recently announced the acquisition of a majority stake in Canadian mining group Teck Resources’ steelmaking coal business. On November 15, the London and Johannesburg-listed group announced they had previously paid $6.93 billion for a 77% stake in Elk Valley Resources (EVR). They added that the deal was based on a cash- and debt-free basis, subject to a normalized level of working capital.
Elk Valley Resources is in the Canadian province of British Columbia and consists of 10 sites with indicated and inferred mineral resources. Analysts estimate these resources to total 2 billion metric tons and 1.6 billion metric tons, respectively. Teck Resources’ 2022 annual report showed that, out of that volume, EVR has 14.1 million metric tons and 300,000 metric tons of inferred and indicated resources in PCI-grade coal for blast furnaces.
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Teck Resources Deal Comes with Significant Assets
The annual report also noted that Teck held a 95% stake in the Elkview operations, which had indicated and inferred resources of about 156 million metric tons and 250 million metric tons. Meanwhile, Japan’s Nippon Steel Corporation (NSC) and South Korean steelmaking group Posco held the remaining 5% in Elkview, each with 2.5% stakes.
“Concurrently, Teck has agreed with NSC that its current 2.5% interest in Elkview operations will be rolled up to equity in EVR, and that NSC will acquire additional equity in EVR from Teck, such that on closing NSC will hold a 20% equity interest in EVR,” Glencore stated. Posco also notified Glencore that it would exchange its current 2.5% interest in Elkview operations and 20% interest in the Greenhills joint venture for a 3% interest in EVR.
Besides providing a 100% stake in the Elkview, Fording River, Greenhills, and Line Creek mines, the transaction also gives Glencore a 46% share in Vancouver’s Neptune Terminals commodity port.
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Long-Awaited Purchase Set for Q3, 2024
Glencore specified that the expected completion of the transaction is Q3 2024, and that it remains subject to approval by relevant Canadian authorities. “Proceeds will be used to strengthen Teck’s balance sheet, return cash to shareholders, and ensure Teck is well positioned to realize value from its copper growth portfolio,” Teck Resources said in a separate statement on Nov 15.
Teck was previously the target of an unsolicited merger offer by Glencore, which the Swiss-headquartered company announced in April. However, the Canadian company immediately rejected the proposition on the grounds that it would expose the company to oil and thermal coal trading.
Teck Resources is a low-carbon metals producer with a charter that only allows investments in projects with lower-carbon levels. Glencore’s updated offer on August 8 stipulated that it would acquire Teck’s coal arm and then de-merge it for divestment. Part of the original proposal stipulated the creation of a standalone coal entity, combining Glencore’s thermal coal assets and coking coal from Teck.
The original offer also stipulated merging the two companies’ metals business into a single standalone called GlenTeck, with Glencore holding the majority at 76% and Teck Resources holding the remaining 24%.
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Glencore’s Purchase Could Prove Prudent
One industry watcher told MetalMiner that Glencore and Teck want to be seen as the company that concentrates on “transition metals.” Teck produces zinc and copper in concentrate as well as coking coal from assets in Canada, Chile, and the United States.
Teck Resources had 270,000 metric tons of copper produced in 2022 from its three operations in South America and Canada. The company further noted that its total contained copper in proven and probable reserves totals 33 million metric tons. The company can also produce 295,000 metric tons of refined zinc per year at its Trail lead and zinc smelter in British Columbia, using zinc in concentrate from its Red Dog mine in Alaska.
Still, it remains unclear what Glencore will likely do with its newly acquired asset. However, one industry watcher believes that the relatively low global volume of solar panels and the fact that many countries still use coal to fire their power stations could bring the company a profit. “No one’s investing in it [coal], so the short- to medium-term prospects are still rather good,” the specialist added.
A November 15 Reuters report revealed that Canadian tycoon Pierre Lassonde was reportedly “mystified” by Teck’s decision to sell the coal unit to Glencore rather than to his consortium, even though it had offered the same amount for the asset. “We put together an offer that was very, very competitive. It was in the best interest of Teck shareholders, Canada… the employees,” the news agency quoted Lassonde as saying. Besides Lassonde, the consortium consisted of Fairfax Financial founder Prem Watsa and Alan Kestenbaum, CEO of steel company Stelco Holdings.
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