A Glencore-led (GLEN.L) consortium sealed one of the mining sector's biggest deals in years on Tuesday, agreeing to buy Canadian miner Teck Resources' (TECKb.TO) steelmaking coal unit for $9 billion.
The move paves the way for an eventual spin-off of the commodity giant's own coal business, highlighting its belief in coking coal's use as the green energy transition moves ahead.
Glencore will get 77% of the business in a $6.9 billion cash deal, while 20% will go to Japan's Nippon Steel Corporation (5401.T), which already holds a 2.5% stake. South Korea's POSCO (005490.KS) will swap a stake in two of Teck's coal operations for 3% in the steelmaking coal business Elk Valley Resources (EVR).
In the months-long saga that led to the deal, Glencore had offered to pay up to $8.2 billion for the coal business.
Its share price were up 3% by 1030 GMT as investors welcomed the final deal.
The transaction is expected to close in the third quarter of 2024.
Teck Resources had to rework a plan to split coal from its copper and zinc unit which failed to secure sufficient shareholder support in April after Glencore unsuccessfully offered to buy the whole company.
"This is a very different transaction...we've spent the months between then and now engaging with a whole range of counterparties and it's important that we took that time to deliver the best outcome," Teck CEO Jonathan Price told Reuters on a call, adding that the base metals company will use the proceeds to pay off debt, fund future projects and offer "a significant cash return to our shareholders".
Glencore, which mines and trades thermal coal used to produce electricity as well as smaller amounts of coking coal to make steel, said it would demerge the coal units of both companies within 24 months of the deal's close.
The merged coal company will be listed in New York, with secondary listings in Toronto and Johannesburg, within two years of completing the acquisition, Glencore CEO Gary Nagle told reporters.
The head office for the steelmaking coal business will be set up in Vancouver.
"There's a potential value creation uplift for our shareholders to demerging coal, including EVR, as opposed to a less certain value creation that would be just demerging our existing coking coal business," Nagle said.
Unlike thermal coal, one of the most polluting fossil fuels which is being phased out over time, coking coal used to make steel will be needed long term to cater to demand from green energy infrastructure.
Coking coal prices have increased this year as supply remains tight and on some optimism that the global economy will avoid a deep recession.
"The 24-month deadline for demerger maximises the flexibility for Glencore to demerge CoalCo into a robust equity market," said UBS analyst Myles Allsop.
"We estimate the potential synergies from the Teck deal (mainly marketing, procurement) at $5-10 a ton or $125-250 million, which should largely offset the dis-synergies from the breakup," he added.
