Glencore has set the clock running on the break-up of its business after signing a multi-billion pound deal for the coal arm of Canadian rival Teck Resources.
The FTSE 100 miner and resource trading giant had been pursuing Teck for months, having tabled an initial £18.7billion bid for the entire group in April, which was rebuffed twice by the Vancouver-based firm.
But yesterday Glencore announced it had struck a deal with Teck to buy 77 per cent of the latter’s steelmaking coal business for £5.6billion in cash. The rest will be owned by Japanese corporation Nippon Steel and South Korean group Posco.
The offer came after the group was forced to pare back its ambitions to take over all of Teck amid opposition from major shareholders and Canadian politicians.
But the group’s hand was strengthened when Teck’s own plans to split its coal business off from its metal mining arm were opposed by its investors earlier this year.
FTSE 100 miner Glencore has struck a deal to buy 77% of Teck’s steelmaking coal business for £5.6bn in cash
The deal allows Glencore to take control of several prized assets, including four metallurgical coal mines in the Canadian province of British Colombia.
‘These world-class assets and the experienced people that operate them are expected to meaningfully complement our existing thermal and steelmaking coal production located in Australia, Colombia and South Africa,’ said Glencore boss Gary Nagle.
The shares rose 4.5 per cent, or 19.55p, to 450p in response. The company also said that following the merger, which is expected to be completed in the third quarter of next year, it still planned to split off the combined coal business into a separate entity within two years.
Glencore plans to list the separate coal arm on the New York stock market while its large metals business would remain on the London Stock Exchange. It is not yet known what will happen to its highly lucrative energy trading division.
The decision to relentlessly pursue Teck’s coal arm comes amid a conviction by Nagle that the heavily polluting fossil fuel will continue to play a major role in global energy and industrial production despite a drive to lower emissions.
But plans for a spin-out also come as the firm looks to move away from associations with the ‘dirty’ fuel and instead pivot more towards rising demand for metals such as copper as countries look to electrify and increase green energy usage.
The acquisition of the Teck business still faces hurdles as it requires approval from Canadian competition regulators.
‘At a time when most mining businesses are turning away from coal due to its polluting nature Glencore is seemingly doubling down on the fossil fuel,’ said AJ Bell investment director Russ Mould.
But he noted the deal was for steelmaking coal mines, rather than coal burned to produce energy, and as such the tie-up and demerger plans ‘makes business sense’.
He added: ‘If it is successful in executing its spin-off plans, the remaining Glencore businesses would be free of the stink of coal and would likely attract a higher valuation.’