Teck Resources Ltd.’s management withdrew its plan to divide the company into separate coal and copper operations amid increasing pressure from some shareholders to accept mining giant Glencore PLC‘s takeover offer.
Canada’s largest diversified miner cancelled an April 26 shareholder vote on the separation proposal mere hours before the vote was set to take place. Earlier this year, Teck’s leaders said they wanted to create Teck Metals, a standalone company that would focus on copper and other minerals that will be in high demand because of electrification, and Elk Valley Resources Ltd., a company that would control Teck’s coal assets.
The plan had the backing of Norman Keevil, whose family effectively controls Teck Resources through its large holding of class A shares. But some class B shareholders criticized chief executive Jonathan Price’s strategy as too complicated, as Elk Valley would effectively subsidize Teck Metals for several years.
Price pledged to rework his plan.
“There is no doubt in my mind … from our discussions with our shareholders that a substantial majority of shareholders support the strategy of separating Teck Metals and EVR (Elk Valley Resources),” Price said on a conference call on April 26.
“At the same time, we have also heard very clearly that some shareholders would prefer a more direct approach,” he added. “So, our plan going forward is to evaluate alternatives for a responsible separation of our businesses, taking into account the feedback we have received. Our goal will be to pursue a simpler and more direct separation.”
Price has been defending Teck from a takeover attempt from Switzerland’s Glencore for the past three weeks. The Canadian miner rejected two offers this month, but Glencore, one of the most powerful players in global mining and commodities trading, didn’t back down.
Glencore said it was prepared to bypass Teck’s management and go directly to the company’s shareholders. It said it would improve on its US$23.2-billion bid if Teck’s shareholders voted against the company’s separation proposal.
Teck’s decision to withdraw the vote is a sign the company isn’t confident its shareholders would vote for the separation in its current terms, giving Glencore an edge in the takeover battle. Indeed, Price said the company was on track to fall short of support for the plan, which was subject to the approval of at least 66 per cent and two-third per cent of the votes cast by holders of Teck’s class A and class B shares, respectively.
“We didn’t proceed with the vote so we won’t have final numbers on a voting result, but our tracking showed that we weren’t going to achieve the 66 and two-third per cent threshold that we needed for approval in this instance,” he said. “I won’t comment on the voting positions of individual shareholders through this process however, overwhelmingly the feedback that we have received is a separation was favoured.”
In February, Teck announced it was planning to separate its metals and coal businesses. The company said the move is aimed at unlocking more value for shareholders by creating a company that investors who want a clean break from fossil fuels could invest in.
Still, Teck Metals would have depended on cash flow from the coal unit for at least three years following the separation, keeping the coal and metals business intertwined and seemingly going against the proposal’s main selling point to investors. As it stands, Teck depends on steelmaking coal for about 60 per cent of its revenue, though it has been trying to rebalance its portfolio to produce more metals.
A month after Teck’s announcement, Glencore entered the picture. The Swiss mining giant said that it wants to take over Teck and undergo its own separation. Glencore, which posted a revenue of about US$250 billion last year compared to Teck’s US$13 billion, produces an array of commodities including, gold, copper, cobalt, zinc, nickel, oil and coal.
After merging with Teck, Glencore’s plan calls for creating two companies. One would control the combined metals portfolio, and could become the world’s third largest copper producer. The other would become a huge publicly traded company focused on coal. Glencore’s plan differs from Teck’s in that the two new companies would stand alone right from the start, not depending on the other for revenue.
Teck accused Glencore of being “opportunistic” by trying to scoop up the Canadian company right before it attempted to boost market value through its separation plan. Teck added the deal would expose shareholders to thermal coal and oil trading, going against the company’s objective of moving towards producing commodities that support the energy transition.
In response, Glencore said that it would shield any Teck shareholders wary of fossil fuels by buying out their exposure to coal. The miner said it was prepared to spend up to US$8.2 billion to buy the shares, or alternatively give investors shares in the new metals company the merger would create.
But Teck rejected the offer again. Teck’s CEO stressed the difference between its steelmaking coal and Glencore’s thermal coal as the driving force behind the refusal. He said steelmaking coal will remain a necessity going forward, compared to the diminishing outlook for thermal coal, which would “contaminate” the value of Teck’s shares.
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Price added that Glencore’s proposal could end up forcing Teck investors to sell their shares, depriving them of any potential upside from the company’s steelmaking coal business.