Matt Oliver
Tue, November 14, 2023
Gary Nagle, chief executive of Glencore, believes its new business will get a better valuation in the US - Jose Cendon/Bloomberg
Glencore has become the latest company to snub the London Stock Exchange after confirming proposals to spin off and list its coal business in New York.
The FTSE 100 mining giant has announced it will acquire a majority stake in the steelmaking coal business of Canada-based Teck Resources for $6.9bn (£5.5bn), bringing to a close months of tense negotiations.
It sets the stage for a break-up of Glencore, which is proposing to split off the newly combined coal businesses into a standalone entity.
The demerger is expected to happen within 24 months of the Teck deal closing, assuming it is approved by shareholders.
But in a blow to the City, bosses on Tuesday reiterated plans to list the combined coal business in New York rather than London – with secondary listings also going elsewhere, to Toronto and Johannesburg.
The remaining Glencore group, which will focus on the “transition metals” used in electric cars and other green technologies, will remain listed in London.
Glencore proposed a New York listing for the coal business because of the large pools of capital available and a “pragmatism” among American investors who are more willing to invest in fossil fuels, a source close to the company said.
Gary Nagle, Glencore’s boss, has previously complained that European investors are overly focused on environmental, social and governance (ESG) measures as opposed to profits.
On Tuesday, he said there was a strong appetite in North American markets for a coal business, adding: “We believe we would get a better valuation for this business in New York than we would in London.”
Glencore expects the Teck deal to close in the third quarter of 2024, paving the way for a listing of the coal business by the second half of 2026.
The proposal to list in New York comes amid concerns in London about an exodus of companies going abroad or being taken private.
Earlier this year, Cambridge-based chip designer Arm also snubbed the London Stock Exchange when it decided to list its shares in New York, despite heavy lobbying by the UK Government.
It came after Aveva, the industrial software business, was delisted by French parent Schneider, of France and cyber security company Avast was bought by US-based NortonLifeLock.
Australian mining giant BHP was also among those to delist from London in 2022, with the company choosing to centralise in Australia instead.
This year, research by City broker Peel Hunt has found the London market is expected to lose up to 30 businesses worth more than £100m, amid yet more takeovers and delistings.
Glencore Wins Teck Coal Unit, Paving Way for Its Own Split
Thomas Biesheuvel and Jacob Lorinc
Tue, November 14, 2023
(Bloomberg) -- Glencore Plc will buy a majority stake in Teck Resources Ltd.’s coal business, ending a months-long saga that transfixed the mining industry and setting the stage for the commodity giant to exit the coal business itself.
The two companies have spent much of the year in a bitter public fight after Teck rejected an unsolicited $23 billion offer from Glencore, which proposed creating two new metals- and coal-focused companies. The Glencore offer, while unsuccessful, was enough to disrupt an earlier plan by Teck to spin off its coal business.
For Glencore and its relatively new chief executive officer, Gary Nagle, the deal represents a company defining moment that will pave the way for an exit from its hugely profitable but polluting thermal coal business and leave it focused on metals needed for the energy transition. Glencore intends to put the combined coal operations into a new company listed on the New York Stock Exchange within two years of the acquisition closing, Nagle said.
“I don’t think this is a second prize,” Nagle said on a conference call. “We’ve done very well acquiring an excellent asset.”
For Teck, the deal finally ends its struggle to find a solution for its mines that produce steelmaking coal after years of studying various options, while securing the cash it needs to fund its metals business.
Teck shares rose 2.7% as of 9:37 a.m. in Toronto, while Glencore rose 4% in London.
In the deal announced Tuesday, Glencore will pay $6.93 billion for a 77% stake in Teck’s business, while steelmakers Nippon Steel Corp. and Posco, which currently own minority stakes in Teck coal mines, will hold the rest. Glencore said it also expects to pay $250 million to $300 million to acquire a shareholder loan made by Teck to the coal business. The Glencore deal, which requires Canadian government approval, implies an enterprise value of $9 billion for Teck’s coal business.
The fight over Teck has highlighted the challenges facing miners with large coal operations — the businesses are big profit drivers for both companies, but many investors are increasingly reluctant to hold exposure to the polluting fossil fuel.
Before the Teck proposal became public, Glencore had previously said it would continue running its mines until they were depleted, even as many of its rivals pulled out of the thermal coal business. Assuming Glencore’s plans to split out the business proceed, its remaining operations — like Teck’s — will be focused on metals such as copper and zinc.
Glencore’s successful coal bid is an ironic end to the acrimonious saga, after Teck and its controlling shareholder, Norman Keevil, pointedly attacked the Swiss company’s track record in rejecting its earlier takeover proposal. The deal will ensure “continued socially and environmentally responsible steelmaking coal operations and enhanced benefits for Canada,” Teck said on Tuesday.
Nippon Steel, which currently owns 2.5% in some of Teck’s coal assets, will convert the ownership and put in additional cash to take a 20% stake in the business, while Posco will convert its ownership stake in Teck mines to a 3% holding in the business.
Teck, which will now have no exposure to the coal business, said it will use the proceeds to pay off debts, build new metal mines and return some to shareholders.
Best Value
“We were able to achieve what we saw as the best value for this transaction as well as a clean separation,” said Teck CEO Jonathan Price. “The valuation for this transaction was clearly superior.”
The deal caps a difficult year for the Canadian miner. Alongside the bruising takeover battle with Glencore, it has also faced a cost blowout at its flagship new copper mine in Chile which was originally the main lure for Glencore. The company must now reassure shareholders that it can use the coal sale proceeds to build new copper mines on time and on budget.
The Glencore deal won’t require a vote by Teck’s shareholders, unlike the earlier spinoff plan that was abandoned after it failed to win enough support.
The separation of the coal business may also make Teck a target for some of the industry’s biggest names, who are keen to add more exposure to copper. Teck said Tuesday that Glencore had agreed to a two-year standstill from the time of closing, which would prevent it making a further unsolicited takeover bid.
The deal will need to be approved by the Canadian government, which has been increasingly focused on protecting the country’s natural resources. The fight over Glencore’s initial takeover offer drew the attention of federal and regional government officials.
Tue, November 14, 2023
By Clara Denina and Pratima Desai
LONDON (Reuters) -Glencore's deal to buy Teck Resources' steelmaking coal unit shows how cheap fossil fuels can be a lucrative option for companies - for a decade or two at least - even as they are phased out in favour of renewable energy.
Western companies may be loathe to search for new sources of coal or build new mines, but investors say coal still has a powerful role to play in the coming years since it can be used to feed the needs of the global shift to cleaner energy. Demand for coal - driven by Asia - remains strong, lifting prices.
Coking coal is emerging as a top option for companies to make a foray into, as it is used to make steel, an important component in large infrastructure and renewable projects.
The world's largest miner BHP, for example, also decided this year to hold on to its higher-quality coking coal assets, after a 2020 review of its wider coal portfolio prompted the sale of some mines.
By buying Teck's coking coal business, Glencore will create a coal powerhouse that analysts say should generate between $5 billion and $6 billion a year in free cash flow. The company is already one of the world's biggest listed producers of thermal coal, with an output of around 110 million tonnes a year, and also has its own coking coal assets.
Among the most polluting fossil fuels, thermal coal is used to produce electricity and is being phased out as part of a global transition to clean energy sources.
Glencore CEO Gary Nagle reiterated the company's commitment to phasing out its thermal coal assets over time, but said he believes demand for both thermal and coking coal will continue to be strong for years to come.
Mining investors agree.
"The world economy benefits from cheap energy. However you are going to get that energy: coal, natural gas...that cheap carbon energy helps to build economically viable renewable energy, otherwise renewable energy starts to look expensive," said Ian Woodley, portfolio manager at Old Mutual.
"With a reasonable lifespan, up to 30 years, (these companies) are saying they are not going to go through a major exploration drive or build new mines, but will be investing for safe and productive production, and then harvesting these assets for cash with everything going back to shareholders, it is going to be a big capital return story," he added.
COKING COAL PRICES SURGE
As Western banks and insurers stand by pledges to restrict lending and insurance coverage to the sector over climate change concerns, expansion of coal mines is unlikely.
Still, global demand for coal reached an all-time high of 8.3 billion tonnes in 2022, half of which came from China, the International Energy Agency (IEA) said.
Coking coal prices rose this year to above $300 a tonne due to tight supply and optimism that the global economy will avoid a deep recession.
Thermal coal prices stand at around $120 a tonne, after surging to a record high above $400 last year as countries desperately sought alternatives to Russian gas after the start of the war in Ukraine.
"Asia is not going to stop burning coal any time," said an investor at a natural resources fund, adding that the company will find a way to make money off the assets even after they are spun off.
Glencore said it would spin off the combined coking coal and thermal coal assets within two years of the deal's closing and eventually list those assets in New York, with secondary listings in Toronto and Johannesburg.
"Coking coal is unique so it won't go away... Teck has been one of our most profitable investments," said Peter Letko, co-founder of investment firm Letko Brosseau, calling Teck's steelmaking business a "prized asset".
(Reporting by Clara Denina and Pratima Desai, additional reporting by Divya Rajagopal; Editing by Veronica Brown and Deepa Babington)
Tue, November 14, 2023
By Divya Rajagopal
TORONTO (Reuters) -As Glencore prepares for the long grind to convince Canada of the virtues of the Swiss trader-led consortium's $9 billion bid for Teck Resources' coal unit, investors and lawyers are optimistic about the deal approval despite the government's increased scrutiny of foreign investments.
In recent years, Canada has tightened the Investment Canada Act (ICA), the main tool the government uses to review inbound deals to ensure transactions are not harmful to national security.
Glencore CEO Gary Nagle's initial bid for the entire Teck Resources faced stiff opposition from Justin Trudeau's Liberal government and from the premier of British Columbia, where the company is based. Teck twice rebuffed Glencore's overtures.
On Tuesday, the federal innovation ministry declined to specifically comment on Glencore's bid, citing confidentiality provisions of the Act, but said any transaction involving a Canadian company and a foreign company would be subject to a review under the ICA.
"All regulatory processes will be followed regarding review of the proposal," Finance Minister Chrystia Freeland said during a conference. "The government concern remains to protect Canadian jobs, environmental issues, rights of indigenous people; Teck is important for Canada and they are a champion for Canada."Greg McNab, a partner with law firm Dentons who specializes in the energy and mining sector, said he expects the deal to be approved by the government.
"The Canadian government makes a lot of tax revenues from coal, but it does not want to be seen as blocking the sale of those assets to someone else, at least from the public policy perspective," McNab added.
After seven months of pitched battles, Glencore on Tuesday was finally able to persuade Teck to sell a 77% stake in the Canadian miner's steelmaking coal business for $6.9 billion in cash, with 20% going to Japan's Nippon Steel Corporation.
Anticipating an intense and a long review, Glencore has made a 28-point commitment to ICA, including a pledge to keep the company headquartered in Vancouver with a majority of the board of directors and senior leadership made up of Canadian nationals. Glencore expects the transaction to close in the third quarter of 2024.
United Steelworkers union (USW), representing over 4,000 Teck employees in British Columbia, said it would not support the proposed sale of Teck's steelmaking coal operations to Glencore without further commitments.
"While we see a number of good and broad commitments such as job retention, a Vancouver-based head office... underlying concerns persist regarding Glencore's role as a corporate entity," USW Western Canada Director Scott Lunny said, adding that there has been no communication from the company.
In the past five fiscal years starting in 2018/19, nearly 100 inbound deals were subject to Canada's extended national security review, of which 10 were forced to divest stakes, one was blocked and two reviews are ongoing.
While the number of companies undergoing extended reviews has increased, outright rejections have been rare.
Glencore said it would demerge the coal units of both companies within 24 months of the deal's close.
The deal announced on Tuesday isn't subject to approval by Teck shareholders, who in April scuppered a planned split of the company.
While all investments are subject to national security review, only significant acquisitions of control of Canadian businesses by foreign investors are reviewed for net benefit.
"I will be surprised that the deal will be scuttled because the way the deal is structured with multiple parties," said Peter Letko, co-founder of Letko Brosseau, a Montreal-based asset management firm and a Teck investor.
"I think this is a fair deal, they have accomplished what they (Teck) wanted to do, remove the higher emission product from their portfolio. This was the strategy of the Keevil family too," Letko added, referring to Teck's Keevil family which owns 55% of Teck's Class A shares though Temagami Mining.
(Reporting by Divya Rajagopal;Additional reporting by Akanksha Khushi; Writing by Denny Thomas; Editing by Jonathan Oatis and Miral Fahmy)
Tue, November 14, 2023
(Bloomberg) -- Glencore Plc will buy a majority stake in Teck Resources Ltd.’s coal business, ending a months-long saga that transfixed the mining industry and setting the stage for the commodity giant to exit the coal business itself.
The two companies have spent much of the year in a bitter public fight after Teck rejected an unsolicited $23 billion offer from Glencore, which proposed creating two new metals- and coal-focused companies. The Glencore offer, while unsuccessful, was enough to disrupt an earlier plan by Teck to spin off its coal business.
For Glencore and its relatively new chief executive officer, Gary Nagle, the deal represents a company defining moment that will pave the way for an exit from its hugely profitable but polluting thermal coal business and leave it focused on metals needed for the energy transition. Glencore intends to put the combined coal operations into a new company listed on the New York Stock Exchange within two years of the acquisition closing, Nagle said.
“I don’t think this is a second prize,” Nagle said on a conference call. “We’ve done very well acquiring an excellent asset.”
For Teck, the deal finally ends its struggle to find a solution for its mines that produce steelmaking coal after years of studying various options, while securing the cash it needs to fund its metals business.
Teck shares rose 2.7% as of 9:37 a.m. in Toronto, while Glencore rose 4% in London.
In the deal announced Tuesday, Glencore will pay $6.93 billion for a 77% stake in Teck’s business, while steelmakers Nippon Steel Corp. and Posco, which currently own minority stakes in Teck coal mines, will hold the rest. Glencore said it also expects to pay $250 million to $300 million to acquire a shareholder loan made by Teck to the coal business. The Glencore deal, which requires Canadian government approval, implies an enterprise value of $9 billion for Teck’s coal business.
The fight over Teck has highlighted the challenges facing miners with large coal operations — the businesses are big profit drivers for both companies, but many investors are increasingly reluctant to hold exposure to the polluting fossil fuel.
Before the Teck proposal became public, Glencore had previously said it would continue running its mines until they were depleted, even as many of its rivals pulled out of the thermal coal business. Assuming Glencore’s plans to split out the business proceed, its remaining operations — like Teck’s — will be focused on metals such as copper and zinc.
Glencore’s successful coal bid is an ironic end to the acrimonious saga, after Teck and its controlling shareholder, Norman Keevil, pointedly attacked the Swiss company’s track record in rejecting its earlier takeover proposal. The deal will ensure “continued socially and environmentally responsible steelmaking coal operations and enhanced benefits for Canada,” Teck said on Tuesday.
Nippon Steel, which currently owns 2.5% in some of Teck’s coal assets, will convert the ownership and put in additional cash to take a 20% stake in the business, while Posco will convert its ownership stake in Teck mines to a 3% holding in the business.
Teck, which will now have no exposure to the coal business, said it will use the proceeds to pay off debts, build new metal mines and return some to shareholders.
Best Value
“We were able to achieve what we saw as the best value for this transaction as well as a clean separation,” said Teck CEO Jonathan Price. “The valuation for this transaction was clearly superior.”
The deal caps a difficult year for the Canadian miner. Alongside the bruising takeover battle with Glencore, it has also faced a cost blowout at its flagship new copper mine in Chile which was originally the main lure for Glencore. The company must now reassure shareholders that it can use the coal sale proceeds to build new copper mines on time and on budget.
The Glencore deal won’t require a vote by Teck’s shareholders, unlike the earlier spinoff plan that was abandoned after it failed to win enough support.
The separation of the coal business may also make Teck a target for some of the industry’s biggest names, who are keen to add more exposure to copper. Teck said Tuesday that Glencore had agreed to a two-year standstill from the time of closing, which would prevent it making a further unsolicited takeover bid.
The deal will need to be approved by the Canadian government, which has been increasingly focused on protecting the country’s natural resources. The fight over Glencore’s initial takeover offer drew the attention of federal and regional government officials.
Bloomberg Businessweek
Glencore coal deal shows power of fossil fuels - even on their way out
Tue, November 14, 2023
By Clara Denina and Pratima Desai
LONDON (Reuters) -Glencore's deal to buy Teck Resources' steelmaking coal unit shows how cheap fossil fuels can be a lucrative option for companies - for a decade or two at least - even as they are phased out in favour of renewable energy.
Western companies may be loathe to search for new sources of coal or build new mines, but investors say coal still has a powerful role to play in the coming years since it can be used to feed the needs of the global shift to cleaner energy. Demand for coal - driven by Asia - remains strong, lifting prices.
Coking coal is emerging as a top option for companies to make a foray into, as it is used to make steel, an important component in large infrastructure and renewable projects.
The world's largest miner BHP, for example, also decided this year to hold on to its higher-quality coking coal assets, after a 2020 review of its wider coal portfolio prompted the sale of some mines.
By buying Teck's coking coal business, Glencore will create a coal powerhouse that analysts say should generate between $5 billion and $6 billion a year in free cash flow. The company is already one of the world's biggest listed producers of thermal coal, with an output of around 110 million tonnes a year, and also has its own coking coal assets.
Among the most polluting fossil fuels, thermal coal is used to produce electricity and is being phased out as part of a global transition to clean energy sources.
Glencore CEO Gary Nagle reiterated the company's commitment to phasing out its thermal coal assets over time, but said he believes demand for both thermal and coking coal will continue to be strong for years to come.
Mining investors agree.
"The world economy benefits from cheap energy. However you are going to get that energy: coal, natural gas...that cheap carbon energy helps to build economically viable renewable energy, otherwise renewable energy starts to look expensive," said Ian Woodley, portfolio manager at Old Mutual.
"With a reasonable lifespan, up to 30 years, (these companies) are saying they are not going to go through a major exploration drive or build new mines, but will be investing for safe and productive production, and then harvesting these assets for cash with everything going back to shareholders, it is going to be a big capital return story," he added.
COKING COAL PRICES SURGE
As Western banks and insurers stand by pledges to restrict lending and insurance coverage to the sector over climate change concerns, expansion of coal mines is unlikely.
Still, global demand for coal reached an all-time high of 8.3 billion tonnes in 2022, half of which came from China, the International Energy Agency (IEA) said.
Coking coal prices rose this year to above $300 a tonne due to tight supply and optimism that the global economy will avoid a deep recession.
Thermal coal prices stand at around $120 a tonne, after surging to a record high above $400 last year as countries desperately sought alternatives to Russian gas after the start of the war in Ukraine.
"Asia is not going to stop burning coal any time," said an investor at a natural resources fund, adding that the company will find a way to make money off the assets even after they are spun off.
Glencore said it would spin off the combined coking coal and thermal coal assets within two years of the deal's closing and eventually list those assets in New York, with secondary listings in Toronto and Johannesburg.
"Coking coal is unique so it won't go away... Teck has been one of our most profitable investments," said Peter Letko, co-founder of investment firm Letko Brosseau, calling Teck's steelmaking business a "prized asset".
(Reporting by Clara Denina and Pratima Desai, additional reporting by Divya Rajagopal; Editing by Veronica Brown and Deepa Babington)
Canada likely to approve Glencore-Teck deal despite foreign investment scrutiny
Tue, November 14, 2023
By Divya Rajagopal
TORONTO (Reuters) -As Glencore prepares for the long grind to convince Canada of the virtues of the Swiss trader-led consortium's $9 billion bid for Teck Resources' coal unit, investors and lawyers are optimistic about the deal approval despite the government's increased scrutiny of foreign investments.
In recent years, Canada has tightened the Investment Canada Act (ICA), the main tool the government uses to review inbound deals to ensure transactions are not harmful to national security.
Glencore CEO Gary Nagle's initial bid for the entire Teck Resources faced stiff opposition from Justin Trudeau's Liberal government and from the premier of British Columbia, where the company is based. Teck twice rebuffed Glencore's overtures.
On Tuesday, the federal innovation ministry declined to specifically comment on Glencore's bid, citing confidentiality provisions of the Act, but said any transaction involving a Canadian company and a foreign company would be subject to a review under the ICA.
"All regulatory processes will be followed regarding review of the proposal," Finance Minister Chrystia Freeland said during a conference. "The government concern remains to protect Canadian jobs, environmental issues, rights of indigenous people; Teck is important for Canada and they are a champion for Canada."Greg McNab, a partner with law firm Dentons who specializes in the energy and mining sector, said he expects the deal to be approved by the government.
"The Canadian government makes a lot of tax revenues from coal, but it does not want to be seen as blocking the sale of those assets to someone else, at least from the public policy perspective," McNab added.
After seven months of pitched battles, Glencore on Tuesday was finally able to persuade Teck to sell a 77% stake in the Canadian miner's steelmaking coal business for $6.9 billion in cash, with 20% going to Japan's Nippon Steel Corporation.
Anticipating an intense and a long review, Glencore has made a 28-point commitment to ICA, including a pledge to keep the company headquartered in Vancouver with a majority of the board of directors and senior leadership made up of Canadian nationals. Glencore expects the transaction to close in the third quarter of 2024.
United Steelworkers union (USW), representing over 4,000 Teck employees in British Columbia, said it would not support the proposed sale of Teck's steelmaking coal operations to Glencore without further commitments.
"While we see a number of good and broad commitments such as job retention, a Vancouver-based head office... underlying concerns persist regarding Glencore's role as a corporate entity," USW Western Canada Director Scott Lunny said, adding that there has been no communication from the company.
In the past five fiscal years starting in 2018/19, nearly 100 inbound deals were subject to Canada's extended national security review, of which 10 were forced to divest stakes, one was blocked and two reviews are ongoing.
While the number of companies undergoing extended reviews has increased, outright rejections have been rare.
Glencore said it would demerge the coal units of both companies within 24 months of the deal's close.
The deal announced on Tuesday isn't subject to approval by Teck shareholders, who in April scuppered a planned split of the company.
While all investments are subject to national security review, only significant acquisitions of control of Canadian businesses by foreign investors are reviewed for net benefit.
"I will be surprised that the deal will be scuttled because the way the deal is structured with multiple parties," said Peter Letko, co-founder of Letko Brosseau, a Montreal-based asset management firm and a Teck investor.
"I think this is a fair deal, they have accomplished what they (Teck) wanted to do, remove the higher emission product from their portfolio. This was the strategy of the Keevil family too," Letko added, referring to Teck's Keevil family which owns 55% of Teck's Class A shares though Temagami Mining.
(Reporting by Divya Rajagopal;Additional reporting by Akanksha Khushi; Writing by Denny Thomas; Editing by Jonathan Oatis and Miral Fahmy)
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