Diversified miner Teck Resources on Tuesday announced that it would sell its entire interest in its steelmaking coal business, Elk Valley Resources (EVR), as it refocused as a critical minerals champion with a portfolio of copper projects.
The miner will sell a 77% interest in EVR to Swiss-headquartered Glencore for $6.93-billion in cash, while Japan’s Nippon Steel (NSC) has agreed to acquire a 20% interest in exchange for its current 2.5% interest in Elkview operations plus $1.3-billion in cash and $0.4-billion paid out of cashflows from EVR.
Korea’s Posco will exchange its current 2.5% interest in Elkview operations and its 20% interest in the Greenhills joint venture, for a 3% interest in EVR.
Assuming the Posco roll-up proceeds, EVR will own 100% interests in the entities holding the Elkview, Fording River, Greenhills and Line Creek mines in south-east British Columbia, and 46% of Neptune Terminals in North Vancouver.
Teck president and CEO Jonathan Price said that Glencore had made strong commitments that would create new benefits for Canada and the Elk Valley, ensuring responsible stewardship of the steelmaking coal operation for the long term.
Teck, which has been considering splitting its coal and copper business since early this year, has been on the radar of Glencore’s Gary Nagle for several months. Glencore in April made an unsolicited offer for Teck, which was rebuffed.
“We are pleased to have reached agreement to acquire Teck’s steelmaking coal operations in the Elk Valley. 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.
“Glencore has high regard for the business that has been developed over many decades in British Columbia and looks forward to maintaining and enhancing its operational performance, environmental stewardship and social contribution,” said Nagle.
He also stressed that Glencore would ensure that the transaction was of benefit to Canada.
Some of these include that EVR will continue to operating in Canada through both a Vancouver head office and regional offices in Calgary, Alberta, and Sparwood, British Columbia, including completing the construction of a new Sparwood office.
EVR will also maintain significant employment levels in Canada with no net reduction in the number of employees in the business in Canada as a result of the transaction, while increasing capital expenditures in Canada such that they will amount to more than C$2-billion over three years.
EVR will increase research and development activities in Canada to at least C$150-million over three years, including on innovation in relation to water quality treatment technologies – a 50% increase over current levels.
Meanwhile, Glencore said it continued to believe that a standalone company containing its combined coal and carbon steel materials business, including its stake in EVR, would be well positioned as a leading, highly cash-generative bulk commodity company, likely attracting strong investor demand given such yield potential.
As before, Glencore will demerge the combined business, once it has sufficiently delevered, which should occur within 24 months from close.
Glencore will manage its post-demerger balance sheet, post servicing its formulaic base cash distribution, to a revised $5-billion net debt cap, down from the current level of $10-billion, alongside its continued commitment to minimum strong BBB/Baa ratings.
