- Glencore will buy 77 per cent of Teck’s metallurgical coal division for $6.93bn
- Coal output will jump as company talks up long-term steel demand
Glencore (GLEN) will significantly boost its steelmaking coal output through a $6.9bn (£5.6bn) cash buyout of Teck Resources’ (US:TECK) Elk Valley business, which includes four mines and a stake in a port terminal. The deal, done alongside Nippon Steel and Posco from South Korea, comes months after the mining and trading company pushed for a reshuffle of its and Teck’s assets that would have seen the coal assets coupled and the base metals and trading divisions come together. Glencore will still split its business, the deal announcement said, but with a two-year pause to pay down debt.
Coal earnings surged in 2022 as prices soared because of the energy crisis in Europe. Thermal coal prices have since come down from over $300 a tonne to around $100 a tonne but metallurgical coal remains above $300 a tonne.
Teck’s Elk Valley mines produced 21.5mn tonnes of coal last year. The top UK-listed producer is BHP (BHP), with 29mn tonnes a year.
“These world-class assets and the experienced people that operate them are expected to meaningfully complement our existing thermal and steelmaking coal production located in Australia, Colombia and South Africa,” said Glencore chief executive Gary Nagle.
Teck is a major Canadian miner and had rebuffed Glencore’s earlier deal offers. Its interest scuppered a plan by Teck to split its coal and base metals division into two separate listed entities, however. Glencore’s first offer came in April as a $23bn takeover bid, before June’s $8bn cash play for the coal business. Earlier in the year, Liberum analyst Ben Davis said Glencore had "painted Teck into a corner by successfully sinking Teck’s own proposed coal restructuring", predicting a deal would be done eventually given Teck's preference to sell off the coal assets.
The Canadian company’s boss Jonathan Price said the deal would “refocus” Teck on its “extensive portfolio of copper growth projects”. Keeping the coal mines Canadian-run is also a key plank of the deal, and Glencore has agreed to a raft of commitments around employee numbers and Canadians remaining in charge of operations for at least three years.
Glencore said the demerged coal company would be “well positioned as a leading, highly cash-generative bulk commodity company”. Nagle said in June the new coal business would be listed in New York as “we don’t believe the ESG criteria needed from investors in the London Stock Exchange would be met by a coal company”.
The buyout is expected to close in the third quarter of 2024. Glencore’s share price was up 4 per cent on the news.
