Shares in Teck Resources, the Teck Cominco of old, jumped by a chunky 19.6% on the New York Exchange on Monday, after an unsolicited bid from Glencore PLC (LSE:GLEN).
It was Teck’s biggest share price move in two years, and came even as it rebuffed the offer.
The market clearly now thinks Teck is in play, or at the very least has a renewed appreciation of its portfolio of operations, which is heavily skewed towards base metals and coal.
Teck, though, cited a desire to move away from coal, rather than be instrumental in the creation of a larger portfolio of coal assets, which would be the case if the Glencore transaction went through. Glencore’s acquisition plan involves the subsequent demerger of the combined coal operations into a new vehicle, while Teck had previously been planning to spin its own coal operations out into an independent company.
Teck owns several coal producing facilities in the Elk River Valley in Canada, which it brands as “steelmaking” coal, presumably in order to differentiate it from coal used in power stations.
Glencore is one of the world’s largest producers of both coking coal and thermal coal, operating 26 mines in various countries, including South Africa, Australia and Columbia. In 2022 it produced 110mln tonnes of coal.
Will the Glencore bid succeed?
Well, the market’s sudden re-rating of Teck has brought it to within shouting distance of the price offered by Glencore, albeit that this is a shares and not a cash deal.
Certainly, the mining industry has been alive to the possibility of bids, mergers and deals for some time now, partly because its overall structure is changing as more demand is driven by electric vehicles, and partly because major exploration success has been thin on the ground in recent years.
That lack of exploration success has meant that major growth opportunities can only come from acquisition.
From Glencore’s point of view, the deal looks neat, too.
Instead of being forced into retreat by the global trend to coal divestment, they are able to look as though they are taking the initiative, while still achieving divestment anyway.
Perhaps Glencore will sweeten the bid.
Under the proposed structure, Glencore’s shareholders will own 76% of each of the new entities, with Teck’s shareholders at 24%. Maybe there’s some wiggle room there, or maybe not.
Teck itself struck a largely uncompromising stance, arguing in fairly standard PR-speak that the Glencore bid was “opportunistic”.
So much for originality.
The defence seems to centre around the arrival onto the Teck scene of what Glencore euphemistically calls its “energy” portfolio, namely the coal and oil-trading assets.
But a 20% uplift in share price is hard to argue against, especially when, at the current US$43.65, the shares aren’t far off their five-year high. Glencore’s bid may be “opportunistic” in the sense that it was unexpected, but its hardly bottom-fishing here. And after all, the world is becoming an increasingly uncertain and volatile place.
Maybe locking in those recent gains wouldn’t be such a bad idea for Teck shareholders, especially since just in the last couple of months some of the momentum seems to have dropped away.
It’s also unarguable that the combination of Teck’s and Glencore’s metals businesses would create a world-class asset portfolio. Not much is made of that proposition in Teck’s rebuff, nor of Glencore’s concession statement that the enlarged entity would henceforth be headquartered in Canada.
So, the mining brain drain from London may be set to continue, especially since the primary listing would also cross the pond to New York.
But one spanner in the works could be the Keevil family, which retains a major holding of more powerful “A” shares in Teck. The Keevils are not in favour. Not at this price at least.