(Bloomberg) — Glencore Plc, Teck Resources Ltd . will buy a majority stake in its coal business, ending a months-long saga that has transformed the mining industry and setting the stage for the commodity giant’s exit from the coal business.
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The two companies spent the year in a bitter public spat after Teck rejected Glencore’s unsolicited $23 billion offer to create two new metals and coal-focused companies. Although the Glencore offer failed, it was enough to disrupt Teck’s earlier plan to spin off its coal business.
For Glencore and its relatively new CEO, Gary Nagle, the deal represents a defining moment for the company, paving the way for an exit from its hugely profitable but polluting thermal coal business and a focus on metals needed for the energy transition. Glencore intends to put the combined coal operations into a new company listed on the New York Stock Exchange within two years of the acquisition closing, Nagle said.
“I don’t think it’s a second prize,” Nagle said on a conference call. “We’ve done very well in acquiring a great asset.”
For Teck, the deal finally secures the cash it needs to finance its metallurgical business, ending its struggle to find a solution for its mines that produce steelmaking coal after years of studying various options.
Tech shares were up 2.7% as of 9:37 a.m. in Toronto, while Glencore rose 4% in London.
In the deal announced Tuesday, Glencore will pay $6.93 billion for a 77% stake in Teck’s business, while steelmakers Nippon Steel Corp. and Bosco currently hold minority stakes in Tech Coal Mines. Glencore also said it expected to pay between $250 million and $300 million to take on a shareholder loan that was tacked on to the coal business. The Glencore deal, which requires Canadian government approval, represents an enterprise value of $9 billion for Teck’s coal business.
The fight over tech highlights the challenges faced by miners with large coal operations — businesses that generate huge profits for both companies, but many investors are reluctant to expose themselves to the polluting fossil fuel.
Before the Tech proposal became public, Glencore had previously said it would continue to operate its mines until they were exhausted, even as many of its competitors exited the thermal coal business. Given Glencore’s plans to split the business, its remaining operations – like tech – will focus on metals such as copper and zinc.
Glencore’s successful coal bid is an ironic end to a rocky history after Teck and its controlling shareholder, Norman Keeville, flatly attacked the Swiss company’s track record in rejecting its previous takeover proposal. Tech said Tuesday that the deal “will ensure continued socially and environmentally responsible coal production and enhanced benefits for Canada.”
Nippon Steel, which currently owns 2.5% of some of Teck’s coal assets, will shift its ownership and add additional cash to take a 20% stake in the business, while Posco will change its ownership stake in Teck mines to 3%. Business.
Teck, which now has no exposure to the coal business, said it would use the proceeds to pay down debt, build new metal mines and return some to shareholders.
Excellent value
“We were able to achieve what we saw as excellent value and a clean separation for this transaction,” said Teck CEO Jonathan Price. “The valuation for this transaction is clearly elevated.”
The deal caps a tough year for the Canadian miner. Along with the abrasive takeover battle with Glencore, it also faces spending on its flagship new copper mine in Chile, which was originally a major draw for Glencore. The company must now assure shareholders that proceeds from coal sales can be used to build new copper mines on time and on budget.
The Glencore deal will not require a vote by Teck’s shareholders, after a previous spinoff plan was abandoned after failing to garner enough support.
Splitting off the coal business could make the deck a target for some of the industry’s biggest names interested in adding more exposure to copper. Tech said on Tuesday that Glencore had agreed to a two-year standstill from the time of the closing, which would prevent further unsolicited takeover attempts.
The deal needs to be ratified by the Canadian government, which is increasingly focused on protecting the country’s natural resources. The fight over Glencore’s initial takeover offer attracted the attention of central and regional government officials.
(The sixth column updates the stock. The previous version corrected the company name.)
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