Glencore's Teck takeover bid sparked criticism over the Swiss group's commitment to coal

Zurich (AFP) - Swiss commodities giant Glencore will acquire a majority stake in the steelmaking coal business of Canadian miner Teck Resources, the companies said on Tuesday, ending fraught negotiations between the groups.

Glencore initially launched a $23 billion hostile takeover bid of Teck’s entire operation in April, disrupting the Canadian firm’s plans to spin off its coal business and raising concerns in the country about its potential impact on jobs.

After Teck balked, the Swiss group made an alternative offer to buy its steelmaking coal business, Elk Valley Resources (EVR).

In the deal announced Tuesday, Glencore will take a 77-percent effective interest in EVR for $6.93 billion in cash.

Japan’s Nippon Steel Corporation will acquire a 20-percent minority stake, while South Korea’s POSCO will grab three percent.

Vancouver-based Teck Resources put the value of its steelmaking coal business at $9.0 billion.

“We are pleased to have reached an agreement to acquire Teck’s steelmaking coal operations in the Elk Valley,” Glencore chief executive Gary Nagle said.

“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,” he said.

In a statement to AFP, a spokesperson for Canadian Industry Minister Francois-Philippe Champagne said the deal must still pass a national security review and be found to be a “likely net benefit to the Canadian economy” under the Investment Canada Act.

Glencore’s coal strategy has attracted fierce criticism, including from some shareholders at the commodity trading and mining group.

The latter want it to separate coal from the rest of its activities in order to concentrate on its other resources, such as copper and cobalt, which are in high demand for the energy transition.

“At a time when most mining businesses are turning away from coal due to its polluting nature Glencore is seemingly doubling down on the fossil fuel,” said Russ Mould, investment director at trading platform AJ Bell.

“The company has a reputation for ruthlessness and, while this deal will do little for its public reputation, it clearly feels the move makes business sense,” he said.

Mould noted, however, that Glencore plans to spin off its coal business, including its future EVR unit, into a separate company.

Glencore said Tuesday that it intends to demerge the combined business within 24 months after the Teck deal closes.

“If it is successful in executing its spin-off plans then the remaining Glencore businesses would be free of the stink of coal,” Mould said.

- Canadian jobs -

Glencore said the EVR transaction is expected to close in the third quarter of 2024, pending the approval of Canadian regulators.

Glencore shares rose more than five percent in afternoon deals in London’s FTSE 100 index.

In its initial takeover bid of Teck Resources, Glencore wanted to combine the coal and metals activities of the two groups and then spin them off.

The Canadian firm twice rejected the offer, with the support of chairman emeritus Normal Keevil, whose family owns the majority of “supervoting” shares.

Teck had warned that the proposed merger would bring Glencore’s thermal coal into its business.

Used to produce electricity and heat, thermal coal is attracting much more criticism because of its climate-heating carbon dioxide emissions.

Teck Resources, one of the top mining companies in Canada, wants to focus on metals such as copper that are key to the global energy transition.

Glencore’s takeover attempt also raised political hackles in Canada.

Prime Minister Justin Trudeau told Bloomberg in April that the bid would go through a “rigorous process”, while opposition Conservatives urged the government to block the deal over concerns about jobs.

In June, Glencore made the alternative offer to buy EVR.

In Tuesday’s statement, Glencore said it will enter into commitments with the Canadian government to ensure that EVR will continue to be based in Vancouver, with “no net reduction in the number of employees”.

Keevil said the sale “sets the stage for Teck for continued growth as a major Canadian-based producer of copper and other future-oriented metals, while preserving the jobs and operations of the coal mines in the Elk Valley.”