Teck’s $9.5B coal sale to Glencore set to close July 11

The federal government has approved the $9.5-billion sale of Teck Resources’ (TSX: TECK.A, TECK.B; NYSE: TECK) coal business to Swiss-based resource giant Glencore (LSE: GLEN).

Teck agreed in November to sell the remaining 77% interest in its steelmaking coal business, Elk Valley Resources (EVR) in British Columbia, to Glencore, as it sought to refocus on its primary copper business in a pivot towards greener metals and critical minerals. Nippon Steel acquired a 20% stake and Posco Holdings acquired a 3% stake in EVR in November, the balance of interest not sold to Glencore.

Glencore CEO Gary Nagle said the deal consolidates Glencore’s position as one of the largest diversified miners. “We’ve done very well acquiring an excellent asset,” he said in a statement Friday.

The approval under the Investment Canada Act comes amid heightened scrutiny of foreign investments in critical minerals, including assets outside of the country. In a separate statement Thursday, the Minister of Innovation, Science and Economic Development, François-Philippe Champagne, signalled that future approvals under the Investment Canada Act involving significant Canadian companies with critical minerals assets would be rare.

“Such transactions will only be found of net benefit in the most exceptional of circumstances,” the minister said. “This high bar reflects the strategic importance of Canada’s critical minerals sector and the need to take decisive action to protect it.”

Metallurgical coal is not considered a critical mineral, but the statement could be a warning to future bidders for a pared-down Teck.

Glencore buy

This transaction, set to close on July 11, follows a prolonged negotiation period that started last April with a hostile bid for all of Canada’s largest diversified miner. Teck rejected Glencore’s initial US$23 billion bid, and instead, chose to sell its coal assets to focus on expanding its copper and zinc business.

Glencore plans to merge Teck’s steelmaking coal business with its own thermal and metallurgical coal assets. This combined entity is expected to be listed on the New York Stock Exchange within two years.

As part of the approval, Glencore had committed to ensure the transaction has a long-term positive impact on Canada and British Columbia, in employment, environmental stewardship, and Indigenous engagement. It’s also pledged EVR will remain headquartered in Canada for at least 10 years.

Nagle says Glencore will soon start a consultation process to gather shareholder opinions on potentially splitting off its combined coal and carbon steel business, as it first mentioned in its 2023 annual report.

‘New era’

Teck plans to use the sale proceeds to reduce debt, fund copper growth projects, and return cash to shareholders, president and CEO Jonathan Price said in a statement Friday.

“This transaction marks a new era for Teck as a company focused entirely on providing metals that are essential to global development and the energy transition,” he said.

Price also noted that the sale will provide capacity to fund its project pipeline, giving Teck a pathway to increase copper output by 30% as early as 2028.

s“We are pleased that we will achieve a complete separation of the metals and steelmaking coal businesses to position Teck for its next growth phase and responsible value creation,” board chair Sheila Murray said in the company’s statement.

Cash injection

The sale will enable Teck to repurchase up to $2.75 billion of Class B shares and distribute an additional 50¢ per share dividend, totalling $3.5 billion in shareholder returns. Teck also plans a $2.75 billion debt reduction program, including a cash tender offer to buy US $1.25 billion of the principal amount of Teck’s outstanding public notes.

Using an investment framework tool to help it unlock the value of its copper growth portfolio, the cash injection is set to grease Teck’s project development plans. It says the market can expect sanctioning decisions coming as early as next year for near-term copper projects such as the Highland Valley Copper mine life extension project in B.C., the Zafranal project in southern Peru, the San Nicolas project in Mexico, and the Quebranda Blanco Phase 2 debottlenecking in Chile.

Glencore shares closed 0.5% higher Friday in London at £4.83 per share, taking the 12-month trajectory up 5%. Shares have traded between £3.65 and £5.06 over the period, and Glencore has a market capitalization of £58.7 billion ($102 billion).

Teck’s Class B shares traded at $69.18 apiece Friday, near the top end of its $47.47-$74.37 range over the past year. It has a market capitalization of $35.8 billion.