Multiple mining firms have reportedly approached Teck Resources Limited (NYSE: TECK) to seek agreements for its base metals division if the Canadian copper miner goes forward with its planned split.
The approaches come from more than six mining companies interested in transactions – including Brazilian miner Vale, British Anglo American, and Arizona-based Freeport-McMoRan – if Teck spins off its coal business. The discussions come as the Vancouver-based miner is defending itself against an unwanted acquisition offer from Glencore.
Teck’s shares soared 4% at the opening bell following the news, hitting an 11-year high.
Glencore extended an unsolicited proposal to acquire Teck in an ambitious $23 billion bid, which the latter rejected, calling the offer “opportunistically timed.”
The Swiss miner revised its $23 billion all-share buyout bid for Teck last week to include up to $8.2 billion in cash, but Teck’s board described it as “largely unchanged.”
Instead of the rejected proposal, the Teck board is recommending shareholders vote in favor of its own separation plan, dividing the firm into Teck Metals and Elk Valley Resources. The vote is scheduled for April 26.
Teck’s metallurgical coal assets in British Columbia would be held by Elk Valley, leaving Teck as a base metals firm focused on copper and zinc. Teck’s Elk Valley spin out is worth $11.5 billion. The stock will be listed on the Toronto Stock Exchange and will begin trading on June 6.
Former chairman Norman Keevil, whose family controls Teck through its controlling ownership of the company’s ‘A’ class of shares, said on Sunday that Glencore’s bid was “the wrong one, as well as at the wrong time” and that the separation plan should proceed.
“There are numerous mining industry parties who have their eyes on Teck and would be interested in partnering or investing in Teck Metals after it separates its base metals and steelmaking coal businesses,” Keevil said in a statement.
He stated that he would support any type of deal, such as an operating partnership, merger, acquisition, or sale, but only with the appropriate partner and on the right terms for Teck Metals following separation.
“I believe that pursuing a sale or merger transaction now would rob our shareholders of significant post-separation value,” Keevil said in the statement.
Pierre Lassonde, the wealthy gold mogul turned ally of Keevil, said he has plans to purchase a blocking position in Teck’s spin-off coal business to ensure it remains in Canadian hands.
In an interview, Lassonde, co-founder of Canada’s Franco-Nevada gold royalty corporation, said he had a dual reason for investing heavily in Elk Valley Resources, the coal company that Teck plans to spin off later this month, subject to shareholder approval.
“I believe Elk Valley is fantastic, long-term value and I want this world-class asset to remain Canadian,” he said.
Teck’s board also recently made changes to the separation plan “following extensive consultation with shareholders.” The amendments include “reducing the minimum term of the royalty paid by EVR [Elk Valley Resources] to Teck Metals from approximately 5.5 years to 3 years.” Elk Valley, which would begin with a debt-free financial sheet, would pay Teck at least $14 billion in royalties and dividends for up to 11 years after the spin-off.
The plan would also cap annual capital spending by Elk Valley at $1.3 billion, with exceptions for social and regulatory requirements.
“Teck management and the Board have had extensive shareholder engagement and based on this feedback, we have decided to make these changes to allow for an earlier full separation and enhance alignment between EVR and Teck Metals,” said CEO Jonathan Price. “We believe these amendments will enhance certainty and further protect the interests of Teck Metals shareholders.”
Nevertheless, the influential proxy advisory firm Institutional Shareholder Services urged shareholders on Thursday to oppose Teck’s restructuring plan due to uncertainties and structural difficulties. Another advisory firm Glass Lewis also advised Teck shareholders to vote “no” on April 26, stating that Glencore’s offer is a reasonably attractive alternative and that there is no need for Teck to pursue its separation now.
In Glencore’s rejected proposal, they want to merge its base metals segment with Teck, resulting in the formation of a new firm called GlenTeck. Glencore and Teck Resources would form a new company to house its thermal and metallurgical coal assets, according to the second half of Glencore’s proposal.
Teck is the owner of four copper mines in South America and Canada, which produced 270,000 tons of copper last year. After the second phase of its Quebrada Blanca project in Chile reaches full capacity by the end of this year, the business plans to increase copper output. It also has coking coal mines, which are regarded as its crown gem.
Information for this briefing was found via The Globe And Mail, Reuters, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.