Glencore cashes in on Teck Resources’ coal division

The latest twist in the biggest mining takeover battle in the past decade is that Swiss mining and trading giant Glencore has offered to buy the coal business from Teck Resources in cash.

According to the new proposal Glencore would buy Teck’s steelmaking coal for an undisclosed value and then spin-off a new company that combined its own coal with Teck’s coal assets a year or two later.

This would result in a massive coal mine with very few competitors in terms of scale. It would produce just over 100mn tons of thermal coal each year and 30mn tons of steelmaking coal.

This proposal is the first time Glencore, the world’s largest coal mining company and the most profitable in the industry, has publicly explained how it intends to spin out its coal division even without a full takeover of Teck Resources . Teck Resources has previously rejected multiple takeover bids.

Glencore offered up to $8.2bn for Teck Resources’ coal business, as part of a larger proposal to purchase all of Teck Resources through a cash-and share deal worth $23bn.

Teck’s coal division, which includes four metallurgical mines in British Columbia in Canada, had a previous implied valuation of C$11.2bn ($8.2bn), as part of a deal struck with Nippon Steel earlier this year. Nippon Steel aims to acquire ten per cent of the company.

Glencore made a non-invited offer for the entire Canadian group in April, including the copper and zinc mines throughout the Americas. In that proposal, the company planned to divide the combined assets of the companies after the merger. It would create a metals trading and mining business, and a coal business listed separately.

Teck stated that it had engaged with Glencore in order to discuss a potential coal deal, but added that Glencore was “just one of many” proposals being considered.

After shareholders rejected its original complex proposal for separating the two companies, the Canadian mining group is working to find a simpler method to separate their coal business from their metals business.

Canadian mining investor Pierre Lassonde announced in May he had assembled a consortium to bid on Teck’s business. He did not disclose any further details.

Glencore also said that it “remains prepared to pursue” the original offer of buying the entire company, despite Teck’s rejections twice.

Glencore’s pursuit for Teck is complicated by Teck’s dual share class structure. Norman Keevil is a Canadian, who controls the company in essence through the supervoting of class A shares. He has been vehemently against the deal.

Gary Nagle, Glencore’s chief executive officer, said in May that combining Teck and Glencore would have a far greater impact on the economy than buying just Teck coal.