Glencore bids for Teck Resources’ coal unit

Fording River is one of Teck’s four steelmaking coal operations located in the Elk Valley of British Columbia. (Image courtesy of Teck Resources.)

Glencore (LON: GLEN) confirmed on Monday it had approached Teck Resources (TSX: TECK.A, TECK.B)(NYSE:TECK) with a proposal to buy the Canadian miner’s steelmaking coal business, in the latest twist in one of the mining industry’s biggest takeover battles in a decade.

The Swiss giant, which does not typically take “no” for an answer, originally wanted to buy Teck entirely. While it succeeded to thwart the Vancouver-based miner’s plan to split into two companies, Glencore did not give up on the idea.  

After being rejected several times, the miner and commodities firm has approached Teck with a proposal to buy its steelmaking coal business for an undisclosed valuation, as an alternative to the $23 billion takeover bid

Glencore said that, if successful, it would create a new company combining its own coal assets and Teck’s in one to two years after after paying down debt. The move would create a coal mammoth with few rivals in scale anywhere in the world, producing over 100 million tonnes of thermal coal and 30 million tonnes of steelmaking coal a year.

The company said it also “remains willing to pursue” its original offer to buy the whole company.

One of many

Teck confirmed that Glencore was one of a number of proposals it was considering for its coal business. It noted that talks were preliminary, conditional and non-binding.

The discussions signal a potential dialling back of tensions after the two companies have been engaged for months in a public battle over Glencore’s unsolicited bid to buy Canada’s largest diversified miner.

Analysts say Glencore’s new plan gives it an opportunity to exit the hugely profitable but polluting thermal coal business. They noted that Teck’s steelmaking coal operations, however, represented a “disappointing” second prize to the Canadian company’s copper mines.

Teck has the Highland Valley Copper mine in British Columbia, Canada, the Quebrada Blanca and Carmen de Andacollo copper mines in Chile and an interest in the Antamina copper-zinc mine in Peru.

The company is also in the midst of expanding Quebrada Blanca. The project, dubbed QB2, is one of the world’s largest undeveloped copper resources.

“We would view the sale of the coking coal assets to Glencore as an attractive ‘middle ground’ for both companies,” Deutsche Bank analyst Liam Fitzpatrick said. “It would provide Teck with a cleaner exit from coal and allow Glencore to split its own business into CoalCo and MetalsCo.”

The experts echoes Glencore chief executive Gary Nagle’s position. He said in May that buying Teck’s coal business only would be a “distant second” in terms of benefits that could be achieved by merging.