Glencore acquires a majority stake in the coal sector from the Canadian company Teck

With a little patience, Glencore eventually struck a deal with Canadian mining company Teck. Glencore may not have been able to get close to Teck’s metals business, but Glencore is now acquiring a majority of their coal business in a deal worth billions.

Glencore originally wanted to acquire Teck outright in a deal worth about $23 billion and spin off the combined coal operations. This is how the companies “MetalsCo” (metal activities) and “CoalCo” (coal activities) were created. However, the plans failed due to resistance from Teck and Canadian politicians.

Glencore now comes into the picture with a slimmed down version. Glencore is acquiring a majority stake in Teck’s subsidiary Elk Valley Resources (EVR), which also includes its steel-coal operations. Glencore will acquire a 77 percent stake in EVR for a purchase price of $6.93 billion.

$9 billion valuation appropriate

In a conference call, Glencore boss Gary Nagle described the $9 billion valuation for EVR as a whole as appropriate. It came about after an in-depth examination of the books and negotiations with Teck. In an initial offer, Glencore valued the EVR at 8.5 billion, which was rejected as insufficient by Teck.

Following the transaction, a minority 20 percent of EVR will be owned by Nippon Steel Corporation (NSC), the remaining 3 percent by South Korean steel producer Posco.

As a first step, Glencore will merge EVR with its existing coal operations and will later sell the merged entity. “It is our intention to take the steel-coal business public within two years of the completion of the transaction,” Nagle said. The transaction is expected to close in the third quarter of 2024, subject to customary regulatory obligations.

IPO planned in New York

As a standalone entity, the steel-coal sector has better prospects as a “leading and cash-generating” business, Nagle said. It will also attract many investors. The initial listing will therefore take place in New York on the NYSE, combined with secondary listings in Canada and South Africa.

He described the merger of the two coal units as a “great deal” for both Glencore and Teck. “We are creating a better coal company that generates value for everyone involved,” Nagle said. To do this, the focus must now first be on clean integration of EVR.

According to Nagle, Glencore can count on the support of the majority of shareholders for the proposed transaction. “I am confident that the transaction will be completed,” he said.

Glencore has long been a major player in Canadian mining. Including contractors and suppliers, the company employs around 9,000 people there and mainly produces nickel, copper, zinc and cobalt at seven locations. “We can grow our copper business even without Teck and invest in our own projects,” Nagle said. A new bid for Teck’s metal activities is not planned.

(jam/sda/awp)