Last week, the government of Canada approved the acquisition of a steelmaking coal business by Glencore from Teck Resources, albeit with strict regulations to preserve jobs. This approval comes after a consortium led by Glencore entered into one of the biggest deals in the mining sector to acquire the steelmaking coal unit for $9 billion in November 2023.
Prior to sealing the deal, Glencore had offered to pay $8.2 billion for this unit. Jonathan Price, CEO of Teck Resources, stated that company management had spent time engaging with different counterparts and were focused on taking time to deliver the best outcomes.
To obtain approval, Glencore agreed to maintain Elk Valley Resources’ headquarters in Canada for at least a decade. This, the company said, would ensure that the majority of the directors of Elk Valley were Canadians. This shall also maintain levels of employment at the company for at least five years.
Teck Resources also revealed that it would use proceeds from the deal to fund near-term growth of copper, decrease its debt by about $2 billion and purchase up to $2 billion of its Class B subordinate voting shares. It also noted that it expects the deal to close by the end of the third quarter of the year.
In a statement, Francois-Philippe Champagne, Canada’s industry minister, added that going forward, the country would establish a higher bar on net-benefit reviews when evaluating M&As of large Canadian companies in the critical minerals space.
Gary Nagle, CEO of Glencore, noted in a statement that the company had made huge commitments to the government of Canada to ensure the transaction benefits British Columbia and Canada as a whole in the long-term. The mining company, based in Switzerland, will receive 77% of Teck’s business. It mines and trades thermal coal utilized in electricity production. The company also mines and trades coking coal used in the manufacture of steel.
The company plans to list its merged company in New York, with secondary listings in Johannesburg and Toronto, within two years of concluding the acquisition. In addition, Glencore’s head office for the steelmaking unit shall be established in Vancouver.
Nippon Steel, the largest steelmaker globally based in Japan, will receive 20% of the deal, because it holds a minor stake. POSCO, a South Korean steel manufacturer, also plans to exchange a stake in a pair of coal operations owned by Teck for a 3% stake in Elk Valley’s steelmaking coal business.
Other coal producers such as Alliance Resource Partners LP (NASDAQ: ARLP) are likely to watch how this new entity will impact the dynamics within the coal industry, which is under threat as the clean-energy revolution unfolds.
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