In February TECK resources Finally announcing a slow march into the future. The Canadian miner plans to spin off its relatively dirty steelmaking-coal business. Under the plan, Teck would focus on mining copper and zinc while continuing to reap the bulk of Separation Coal’s profits. Holders of Teck’s supervoting “Class A” stock will retain control of the remaining company’s strategic initiatives for six years. Afterwards, its dual-class share structure will be abolished.
Glencore, a much larger commodities company based in Switzerland, has far more radical ideas. It proposed merging it with Teck Resources, which would then create two mega versions of Teck Resources’ proposed entity. The first will combine the metals and minerals businesses of Glencore and Teck. It will list in London and could have an enterprise value of $100 billion. With copper mining expected to account for roughly half of its profits, “GlenTeck” would be a red metals giant poised to take advantage of the green commodity supercycle. The second company will combine the parent company’s coal business and list in New York. This “CoalCo” will shovel all the cash it generates to shareholders as the world moves away from black stuff.
Glencore publicly announced the unsolicited offer on 3 April. Its boss, Gary Nagle, said the deal, which represents an implied premium of 20 percent to Teck’s share price, would cut costs and unlock shareholder value. After swiftly rejecting the proposal, his counterpart at Teck, Jonathan Price, called the deal “unstartable”, complaining that it would expose Teck shareholders to Glencore’s thermal coal business, which investors may not be as enthusiastic about as coking coal and steel mills . Mr Nagle fought back on April 11, offering Teck shareholders a quarter of their CoalCo stake in cash rather than shares. The company could be forced back to the negotiating table if shareholders later this month reject Teck’s original restructuring plan, which would require a supermajority in both classes of shares.
Even so, securing a merger is difficult. It would be the largest acquisition of a Canadian mining company since 2007. The Keevil family, which owns many supervoting shares of Teck, is a tough sell. Norman Keevil, the patriarch and chairman emeritus of Teck Resources, has made it clear that he wants to keep the company in Canadian hands. The Canadian government shares his caution: It is tightening foreign investment rules in the key minerals industry.
To appease Keevils and Canadian authorities, Glencore pledged to retain GlenTeck’s industrial headquarters in Canada. Additionally, it promises domestic job security and a secondary listing on the Toronto Stock Exchange.
If Glencore’s proposal to Teck fails under all these sweeteners, the Swiss company may still want to put its coal business up for sale. Other mining bosses may also be ready to start shaking hands. On April 10, US mining giant Newmont raised its takeover offer for Australian gold mining company Newcrest to nearly US$20 billion. Years of dwindling capital spending and a commodities boom have left miners flush with cash. Since their shares typically trade close to the replacement value of their assets, buying can look more attractive than building. ■
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