If Glencore PLC’s pursuit of Teck Resources Ltd. TECK-B-T was a Hollywood romantic comedy, we could all write the ending.
After a period of high-spirited sparring, this corporate rom-com would climax this week with two crazy kids realizing what the rest of us recognized from the start: that their copper and coal belong together. Harry marries Sally. Glencore merges with Teck. Cue rave reviews.
But mining isn’t the movies. Teck is not falling gracefully into Glencore’s GLNCY waiting arms, even if the Vancouver-based company’s shareholders turn down the proposed spin-out of Teck’s massive coal business in Wednesday’s vote.
The swift end to this drama anticipated by some investors, such as hedge funds that piled into Teck stock in recent weeks, simply isn’t in the cards. Among the many barriers to a deal: the Canadian government’s nascent strategy for building a homegrown critical minerals mining industry.
At Teck, the plot in any takeover drama is dictated by one player, chair emeritus Dr. Norman Keevil. As controlling shareholder for the foreseeable future – this week, Teck shareholders are expected to approve a six-year sunset provision on the dual-share structure that gives control to the founding family – Dr. Keevil can just say no to Glencore. To date, he has done so.
With the controlling shareholder taking a long-term approach, Teck’s board has time on their side. Failure of its plan to decarbonize by creating Elk Valley Resources as the owner of Teck’s steelmaking coal mines doesn’t automatically force the company to start talks with Switzerland’s Glencore. It simply means Teck goes back to the drawing board.
Even if Teck’s board did decide the company is up for sale – highly unlikely, but central to the hedge funds’ thesis that the miner is in play – Glencore doesn’t automatically claim the prize. The board would start a full-scale auction. Glencore will need to outbid a number of deep-pocketed rivals.
Finally, any foreign buyer will need the federal government to bless a Teck takeover. That approval seems increasingly unlikely. Industry Minister François-Philippe Champagne – who would have final say – is making it clear that domestic control of minerals critical to an electrified future is a central element of the country’s economic strategy. Last November, Mr. Champagne signalled a more activist approach by ordering Chinese state-owned companies to divest stakes in three Canadian-listed lithium producers with properties outside Canada.
As Teck faces overtures from Glencore, provincial and federal politicians are talking up the Vancouver company’s ESG credentials and Indigenous relationships. Last week, British Columbia Premier David Eby praised Teck’s environmental track record, while faulting Glencore over paying fines to settle bribery and corruption allegations.
On former prime minister Stephen Harper’s watch in 2010, the federal government blocked Australia mining giant BHP’s bid for Saskatchewan-based Potash Corp. That decision predates the current preoccupation with security of supply chains and decarbonizing the economy. There’s ample precedent for Ottawa taking sides in a mining takeover battle.
Glencore chief executive officer Gary Nagle and his predecessors have spent more than two years pursuing Teck. Mr. Nagle stepped up his campaign after long-time Teck CEO Don Lindsay stepped down last fall – sources on both sides say Mr. Lindsay opposed a merger – and chief financial officer Jonathan Price took the top job.
There’s logic to Glencore’s pitch. Coal is out of fashion with some investors, because of its greenhouse gas emissions, but the dynamics of the business are still compelling to income-seeking fund managers. There’s consistent demand for both steelmaking and thermal coal, and limited new supply coming to market – no one is opening new mines. As the one global mining company with even more exposure to coal, adding Teck’s B.C. coal mines to Glencore’s properties in South Africa and Australia creates a cash-spinning company that dwarfs Elk Valley.
In Hollywood, Teck and Glencore end up together. In business, the Vancouver miners controlling shareholder and increasingly interventionist federal government are likely to keep these two companies apart, no matter how Teck shareholders vote this week on the Elk Valley spin out.
Andrew Willis