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Glencore acquires Teck's coal assets for $8.9 billion

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2023-11-15

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Glencore has finally acquired the coal assets of Teck Resources, comprising high metallurgical coal mines in western Canada. The company intends to create a separate entity by merging these businesses.

As the world's largest thermal coal miner and exporter, Glencore had pursued Teck for months, considering various options, including a full bid and spin-off or purchasing the coal operations and subsequently spinning off the combined business.

In their recent announcement, the two companies revealed that Glencore secured a $8.9 billion deal for Teck's coking coal mines in Western Canada. As part of this agreement, Glencore will pay $6.93 billion for a 77% stake in Teck's coal assets, with Japan's Nippon Steel Corp (20%) and South Korea's Posco Holdings (3%) owning the remainder. Additionally, Glencore will repay Teck a shareholder loan of $250 - $300 million related to the coal mining business.

For years, Glencore has been seeking high-quality, long-life metallurgical coal businesses and had explored various producers, including BHP and Mitsubishi, the world's largest met coal miner and exporter. Glencore's interest in steelmaking coal (coking coal) stems from its superior quality and price premium compared to thermal coal produced in its mines in NSW and Queensland.

Teck's coking coal mines yield approximately 21 million tonnes of coal annually and generated earnings of $C7.4 billion ($US8.4 billion) in 2022, when prices were 30% higher than current levels. Glencore believes that integrating Teck's steelmaking coal business with its own assets will make the combined business more appealing to global investors, particularly when compared to its declining thermal coal business.

Following the acquisition, Glencore plans to merge Teck's steelmaking coal business with its own coal assets and subsequently demerge the combined unit. CEO Gary Nagle aims to list the integrated coal unit on the New York Stock Exchange within two years.

This strategic move will enable Glencore to focus on metals such as copper, nickel, and zinc, while the newly created company manages coal operations. Nagle believes this strategy will create additional value for shareholders of both businesses and allow Glencore to distance itself from the unpopular and polluting thermal coal sector, which has negatively impacted investor sentiment.

Teck Resources, with the sale of its coal assets, will no longer have exposure to coal-related activities. The company intends to utilise the proceeds to retire debts, establish new metal mines, and provide value to shareholders. Teck also has copper and zinc mining operations in Canada and South America, which Glencore had initially sought to acquire with its $23 billion all-share offer. However, this plan faced challenges as it failed to secure sufficient shareholder support in April, leading to the revised approach.

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