Glencore strikes $9 billion deal to buy 77% stake in Teck Resources' coal business

By Louis Goss

Glencore on Tuesday said it had struck a $9 billion deal to buy Canadian mining company Teck Resources' steelmaking coal business, as the Swiss commodities giant pushes forward with plans to spin off its own bulked up coal mining operations into a separate U.S.-listed firm.

Glencore's deal will see it buy a 77% stake in Teck's Elk Valley Resources (EVR) business, which supplies coal to the steel industry, for $6.93 billion in cash. Japan's Nippon Steel Corporation (JP:5401) will then take a 20% stake in EVR while South Korea's POSCO (KR:005490) will control the remaining 3%.

Glencore's agreement marks an end to a months-long saga after the FTSE-100 company put forward a $23 billion offer to fully acquire Teck in an all-shares transaction, that was rejected by the Canadian company.

Shares in Glencore (UK:GLEN) increased 3% on Tuesday having fallen 18% in 2023 so far.

Teck Resources' (TECK) (CA:TECK.B) U.S.-listed shares rose 4% in premarket trade.

The agreement paves the way for Glencore's own plans to separate out its combined coal and carbon steel business, which will now include its majority stake in EVR , into a separate New York-listed company, within the next two years.

Glencore's plans would see the FTSE 100 company split its more environmentally friendly metals mining operations from its newly expanded coal business, as ESG investors increasingly turn away from companies with links to the most heavily polluting fossil fuel.

The plans also reflect Glencore CEO Gary Nagle's belief that coal will continue to play a key part in the global energy mix.

The South African CEO took up his position as head of the commodities giant in July 2021, just months before surging coal prices, in the wake of the Ukraine war, bolstered the Swiss firm's profits and caused its share price to surge.

Nagle, who previously headed Glencore's coal unit, has previously said European investors are more focused on companies' ESG credentials than returns they generate while claiming U.S. investors are more "pragmatic" in their focus on yields, according to the Financial Times.

In a statement outlining its plans, Glencore said: "A standalone company containing its combined coal and carbon steel materials business... would be well positioned as a leading, highly cash-generative bulk commodity company, likely attracting strong investor demand given such yield potential."

Glencore said it intends for the demerged company to continue winding down its thermal coal assets, in line with ambitions to become a net zero company by 2050. The Swiss firm is currently aiming to cut its emissions by 15% by 2026 and 50% by 2035, compared to 2019 levels.

Teck's EVR business consists of four separate coal mines in British Columbia, alongside a 46% stake in Vancouver's Neptune Terminals bulk shipping port, which is used to export Canadian steelmaking coal and potash worldwide.

In order to progress, Glencore's acquisition plans now require the approval of Canadian regulators. Glencore said it expects the deal to close in the third quarter of 2024.

-Louis Goss

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11-14-23 0623ET

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