Teck Resources Ltd (TSX:TECK.B) shares rose Tuesday on news it has agreed a deal to sell its steelmaking coal assets to a consortium led by commodity giant Glencore and including Japan’s Nippon Steel Corporation, as it focuses on critical minerals.
The transaction, which will also see South Korea’s POSCO consolidate its stake in Elk Valley Resources (EVR), values the business at US$9 billion.
“This transaction will be a catalyst to re-focus Teck as a Canadian-based critical minerals champion with an extensive portfolio of copper growth projects, unlocking the full value potential of the company,” Teck president and CEO Jonathan Price said in a statement.
“This sale will ensure Teck is well-capitalized and able to realize value from our base metals business and deliver strong returns to our shareholders while maintaining a robust balance sheet.”
The transaction follows Teck’s rejection of Glencore’s offer in April to buy Teck in its entirety and combine its coal and metals businesses with its own.
"This is a very different transaction...we've spent the months between then and now engaging with a whole range of counterparties and it's important that we took that time to deliver the best outcome," Price told Reuters on a call.
Glencore, which will pay US$6.93 billion for a 77% stake in EVR, plans to merge the combined coal and carbon steel materials business into a standalone company that it believes will attract strong investor demand.
“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,” Glencore CEO Gary Nagle commented in a statement.
Teck said proceeds from the transaction will ensure it has sufficient capital to maintain investment-grade credit metrics and to unlock the full potential of its base metals business.
Its board will also decide the appropriate amount and form of a “significant” return to shareholders following the transaction, it added.
“The Board undertook a comprehensive process to identify a separation transaction that is in the best interests of the company,” Teck chair Sheila Murray, added.
“This transaction unlocks significant value for Teck and its shareholders while also supporting continued responsible operation of the steelmaking coal assets for the long term.”
Teck’s shares traded 2.4% higher at C$51.56 by midday in Toronto, while its NYSE-listed shares were up 3% at US$37.56. In London, Glencore's share were up 4.5% at £450.
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