Years of dwindling capital expenditure have left miners flush with cash. Should they build or buy?
Glencore, a much bigger commodity firm based in Switzerland, has something much more radical in mind. It proposes a merger between it and Teck that would then create two giant versions of Teck’s proposed entities. The first would amalgamate Glencore’s and Teck’s metals and minerals businesses. It would be listed in London and have an enterprise value of perhaps $100bn.
Glencore publicly announced its unsolicited offer on April 3rd. Its boss, Gary Nagle, said that the deal, with an implied premium of 20% over Teck’s share price, would cut costs and unlock shareholder value. After swiftly rejecting the offer, his opposite number at Teck, Jonathan Price, called the transaction a “non-starter”, complaining that it would expose Teck’s shareholders to Glencore’s thermal-coal business, which may command less enthusiasm from investors than coking coal for steel mills.
Even then, securing a merger will be difficult. It would be the biggest acquisition of a Canadian miner since 2007. The Keevil family, which owns many of Teck’s super-voting shares, is a hard sell. Norman Keevil, the patriarch and Teck’s chairman emeritus, has made plain his desire to keep the firm in Canadian hands. Canada’s government shares his wariness: it is tightening foreign-investment rules in its critical-minerals sectors.
To placate the Keevils and the Canadian authorities, Glencore promises to keep GlenTeck’s industrial head office in Canada. In addition, it has pledged domestic employment guarantees and a secondary listing on Toronto’s stock exchange. If Glencore’s overtures to Teck fail despite all these sweeteners, the Swiss company may still want to put its coal business up for sale. Other mining bosses may be ready to start shaking hands, too. On April 10th Newmont, an American mining giant, raised its takeover offer for Newcrest, an Australian gold miner, to almost $20bn. Years of dwindling capital expenditure and a commodities boom have left miners flush with cash.
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