The Swiss commodities giant has long argued that its thermal-coal assets worked better as part of a diversified miner. But its new bid for Teck Resources calls that contention into question.
By guest author Megha Mandavia from The Wall Street Journal.
April 17, 2023
Glencore GLNCY 1.95%increase; green up pointing triangle, one of the world’s largest coal miners and traders, wants more coal—just not in its backyard. An emerging battle for fellow coal heavyweight Teck Resources TECK -1.13%decrease; red down pointing triangle’ assets says a lot about the curious position the black stuff finds itself occupying in the postpandemic, post-Ukraine-invasion world.
Glencore is pursuing Teck Resources in a USD from the Wall S23 billion deal that would create two new companies—one for Glencore and Teck’s merged base-metal and other assorted businesses, and another for their merged thermal, coking coal and ferroalloys businesses. The Swiss commodities giant’s initial proposal for an all-share deal, and a revised offer that sweetens the deal with USD 8.2 billion in cash as an alternative to shares in the combined coal company, were both rejected by the Canadian miner this month.
Glencore’s bid comes ahead of Teck’s own plan to spin off its coal business, which is up for a vote on April 26. Meanwhile, Reuters reported Monday that Teck has been approached by several other large miners interested in its base-metals business if it goes ahead with its planned split. Teck says that its plan would mean better opportunities to maximize value for its shareholders.
Glencore’s proposal has a certain obvious logic. Prices for coking coal, of which Teck is a major supplier, have fallen sharply this spring—as had Teck’s shares, before Glencore’s bid. Bidding for coal assets now, before China’s property-market rebound gets much stronger, potentially driving steel and coking-coal prices back up, makes good sense.
Spinning out Glencore’s own coal assets into a separate company also makes a certain amount of sense. Glencore had previously said it would gradually run down its coal mines in-house sometime before 2050—but activist investors like Bluebell Capital have long pushed it to spin off its coal business entirely. That would allow the company to focus squarely on green transition-friendly metals like copper, nickel and zinc—and welcome in many environmental, social and governance (ESG) focused investors currently leery of Glencore’s current dependence on coal profits.
Credit Suisse reckons that a coal spinoff could potentially accelerate an ESG improvement for Glencore. The bank currently doesn’t expect a material decrease in Glencore’s coal production until 2036.
A coal firm listed in the U.S. as Glencore proposes, meanwhile, might be less exposed to pressure from climate-focused investors if it needed to change strategies down the line—given the quite different climate politics in the U.S. and the U.K., where Glencore is currently listed. Glencore says that “we intend” for the new entity CoalCo to respect Teck’s existing net-zero strategy for its coking-coal business and to oversee a responsible rundown of its thermal-coal assets.
Still, not everyone thinks that spinning Glencore’s coal assets is the right approach at all.
Morningstar analyst Jon Mills thinks that thermal coal is going to continue to remain important for many years. He notes that it is virtually impossible for Western thermal-coal miners to obtain external financing to build new mines—which actually leaves existing thermal-coal producers in an enviable position.
Glencore itself, from a profit perspective at least, is a clear example of this. In a turbulent geopolitical period that has forced countries to focus on energy security and bid up scarce coal prices, Glencore posted blockbuster earnings last year.
Glencore’s change of heart shows, at the very least, that even one of coal’s biggest advocates sees the value in keeping a bit of distance. However this particular takeover battle ultimately unfolds, coal’s uneasy position in Western miners’ portfolio is likely to keep generating more drama in the years ahead.