Trucks haul coal at the Cardinal River Coal mine approximately 42 kilometres south of Hinton, Alta.Supplied
Deputy Prime Minister Chrystia Freeland says that Vancouver-based Teck Resources Ltd.’s TECK-B-T agreement to sell its coal business to a consortium led by Swiss mining and trading house Glencore PLC GLNCY will be closely scrutinized by the federal government.
“This is a serious transaction,” Ms. Freeland told reporters in Toronto on Tuesday. “We are going to follow our regulatory processes carefully. The key issues that we will take into account are Canadian jobs, a Canadian headquarters, environmental concerns and the rights of Indigenous people.”
Teck on Tuesday announced its plans to sell its 77 per cent of its core metallurgical coal business to Glencore, and the balance to Japan’s Nippon Steel NPSCY and South Korea’s POSCO PKX-N, in a transaction worth US$8.9-billion.
Teck has been fielding offers for the unit called Elk Valley Resources Ltd. since the spring, when an earlier plan to spin it off was cancelled at the 11th hour because of insufficient shareholder support.
Glencore originally proposed buying all of Teck in April, including the company’s copper and zinc mines, but Teck repeatedly rejected Glencore’s advances.
Back then, Ms. Freeland, alongside two other federal ministers, expressed reservations about Glencore buying Teck. “We need companies like Teck here in Canada,” she said an April letter to the Greater Vancouver Board of Trade.
Ottawa will review the now-friendly deal between Glencore and Teck around whether it is a net benefit to Canada, and whether it passes a national security test. The federal government has the power to reject the transaction based on either factor.
Ottawa in the past has rejected foreign takeovers of Canadian mining companies on net benefit grounds, including BHP Group Ltd.’s BHPLF attempted takeover of Potash Corp. of Saskatchewan in 2010.
Glencore might just be forced to phase out the coal operations it’s buying from Teck
In 2021, the federal government rejected the proposed acquisition of Canadian gold company TMAC Resources Inc. by Chinese state-controlled Shandong Gold Mining Co. Ltd. because of national security concerns. In that instance, TMAC’s mine was located close to strategic defence assets in the Canadian Arctic.
Teck, which is confident of obtaining approval for the Glencore deal, doesn’t expect the transaction to close until the third quarter of next year. The long timeline is in part to accommodate the lengthy period Ottawa is expected to spend reviewing the takeover.
The net benefit test will mainly consider the economic impact of the deal. Glencore says it will maintain employment levels at the B.C. coal operations it would acquire. It is also committing to spend more than $2-billion on capital expenditures, and at least $150-million on research and development over three years.
Gary Nagle, chief executive officer of Glencore in an interview said the company hasn’t discussed the deal with government yet, but he’s optimistic of getting approval based on Glencore’s legacy operations in Canada and what it plans to do here in the future.
The bulk of Glencore’s Canadian operations stem from its 2013 acquisition of fellow Swiss miner Xstrata PLC, which bought former Canadian mining giant Falconbridge Ltd. in 2006. Glencore currently employs around 9,000 people in Canada.
“When people become more aware of what we currently do, and historically have done in Canada, and when one looks at the suite of commitments that we’re making, we’re confident and hopeful that the government will look at it favourably,” Mr. Nagle said.
The federal government is in the process of tightening the Investment Canada Act to make it more difficult for foreign takeovers to obtain approval with Bill C-34, which was introduced late last year. In fact, an amendment in the bill potentially has implications for Glencore around national security.
The amendment reads that any foreign buyer of a Canadian company that has been convicted of a corruption offence may automatically progress to a Section 25.2 national security review. Such a review goes deeper and lasts longer than an initial security screening, which usually only lasts 45 days. It is unclear if the bill will apply to Glencore’s proposed acquisition of Elk Valley, as the bill has not received royal assent yet and the Senate may still nix the amendment.
Significant concerns however, have been raised on national security grounds around Glencore’s past regulatory convictions in jurisdictions in which it operates.
In fact, Teck itself has been one of the biggest critics of Glencore. Teck CEO Jonathan Price, in a presentation to investors in April, flagged Glencore’s operations in the Democratic Republic of the Congo, Equatorial Guinea and Kazakhstan as “among the most challenging and corrupt countries in which to operate.”
Mr. Price also pointed to the US$1.75-billion that Glencore had paid in 2022 to settle bribery and market manipulation cases with U.S., British and Brazilian regulators, and said that Glencore is “in the news for the wrong reasons.”
When Mr. Price was asked in an e-mail why he is confident the Glencore deal will be approved on a national security basis, Dale Steeves, a spokesperson for Teck, wrote that the company looks forward to participating in a “positive and constructive regulatory review process.” He added that Teck is “confident that the strong commitments made by Glencore will support a positive outcome for this important transaction.”
Charles Watenphul, a spokesperson with Glencore, wrote in an e-mail to The Globe and Mail that Glencore is “a different company today” and that it is committed to “operating transparently under a well-defined set of values, with openness and integrity at the forefront.”
He also pointed to initiatives over the past few years, including the rollout of a rigorous ethics and compliance program.
The government in 2021 added that the impact of any deal on Canada’s critical minerals supply chain would be considered as part of any national security review.
Ward Elcock, a former director of the Canadian Security Intelligence Service, said he doesn’t expect much pushback from the government on the Glencore deal on national security grounds, in large part because coal is not a critical mineral.
“I can’t see a national security issue really for the government to get involved,” he said.
Also working in Glencore’s favour is that by buying the coal unit, Glencore is helping Teck transition to become a pure-play critical minerals miner in Canada, something the government appears to welcome.
If the Elk Valley takeover fails to close, Glencore has agreed to pay Teck a US$400-million break fee, under certain circumstances. The fee is equal to 4 per cent of value of the total transaction, which Mr. Price said is standard for takeovers of this magnitude.