On Friday, Sept. 12, mining reporter Niall McGee and business columnists Andrew Willis and Eric Reguly answered reader questions about the massive deal between Vancouver-based Teck Resources Ltd. TECK-B-T and London-based Anglo American PLC NGLOY. The deal could result in one of the last remaining Canadian major critical minerals miners being swallowed up by a foreign buyer.
Readers asked about how the merger could work, stock ramifications and the future of Canada’s mining industry. Here’s an edited transcript.
The Anglo Teck Deal
Why is the deal structured this way? It seems so complex.
McGee: I’d argue it’s structured fairly simply. Believe me I’ve seen deals that have been far more complex and confusing. Do you remember the Teck plan to split itself in two from a few years ago? The one that Teck ultimately didn’t move forward with. Now that was a really complex and hard-to-understand deal.
Willis: The funky part of the deal is a big dividend from Anglo American. That’s a sweetener for their investors. The other complex part of the deal is Anglo and Teck need to please the Canadian government. The promises on locating the head office in Vancouver and guaranteeing Teck – the Canadian player – has an equal number of directors on the combined board is meant to win approval from the Industry Minister, Mélanie Joly, and the Prime Minister.
I wonder what is the downside if the federal government simply blocks this deal?
Reguly: If the merger is blocked because Ottawa decides it does not provide a “net benefit” to Canada, I truly believe another bidder will emerge. Teck is a copper specialist in a world where demand for copper exceeds supply. Remember 2006, when Inco and Falconbridge, the two top producers of nickel in Canada, went into play? That triggered a global feeding frenzy that attracted multiple bids for the companies. The price went through the roof and investors got rich (Inco ultimately went to Vale of Brazil; Falconbridge to Xstrata of London, now owned by Glencore of Switzerland). Teck has put itself up for sale, in effect. It will get bought or merged one way or the other.
Teck Resources’ Highland Valley Copper Mine near Logan Lake, B.C., on Thursday.DARRYL DYCK/The Canadian Press
Why did chairman Norman Keevil accept this? Why did he not endorse Glencore but he’s fine with Anglo American?
McGee: I think that only Mr. Keevil himself can answer that question. But there are some clues so to speak. The initial Glencore-attempted takeover of Teck came at a time when Teck had a different vision for its long-term future – i.e. a split of its business into a coal business and a separate critical minerals company. Glencore at the time completely disrupted this plan.
Fast forward to today and Teck is in a much weaker position. Its most important asset, the big copper mine in Chile called QB2, has been on the struggle bus for years, and no amount of capital seems to be fixing the situation. Teck arguably needs to be “bailed out” by a bigger company and that is what Anglo can offer. Teck has also persuaded Anglo to move its HQ to Canada, and made a whole bunch of capital commitments to invest in Canada, and maintain employment levels. That would give Mr. Keevil some comfort about this deal. I still would like to hear directly from Mr. Keevil himself and I hope he talks to me to explain more.
From bad blood and public bashing to an $8.9-billion deal: How Teck made nice with Glencore
Reguly: Norm Keevil is the controlling shareholder of Teck, through his super-voting A shares. I imagine in 2023 he feared that Teck, under Glencore control, would lose its head office, its Canadian identity, its heritage and possibly some of its Canadian projects – his legacy and that of his father’s, in other words. The irony is that, although Glencore is a foreign company (Swiss-based, London-listed), it, in terms of assets and employees, is an enormous mining player in Canada, as is Rio Tinto, which owns the former Alcan. Anglo American has almost no assets or employees in Canada. In that sense, Anglo is far less “Canadian” than Glencore.
Will Investment Canada approve this?
Reguly: This proposed merger is going to go under the Investment Canada Act microscope, for sure. Teck is the last big diversified mining company standing in a country whose resources industry has been utterly hollowed out by foreign buyers. Inco, Falconbridge, Alcan, among others, lost their head offices and became branch plants. Canada will have no tolerance to see that happen again. My gut says that the deal will be approved, but only if Anglo’s pledge to make Vancouver the head office, not a broom closet in disguise as a head office, is real; that high-quality jobs, including engineering and R&D, do not disappear from Canada, and that Toronto nails a stock market listing for the new Anglo Teck. But Investment Canada will not want its patience tested.
McGee: I hate to make predictions because I am often proven wrong, but I would wager that Investment Canada will approve this deal. Anglo has made big promises that the government likes to see in these kinds of deals. It is planning on moving its HQ to Canada, it is reaffirming investment decisions already taken by Teck to invest in Canada, some Anglo management and board members will live in Canada. They are even going to change the name of the company to “Anglo Teck”. Unlike the Glencore-attempted acquisition a few years ago, which was not welcomed by many Canadian politicians, this deal is “friendly.” With Teck’s board and management lobbying strongly for the deal, and arguing that this deal is of net economic benefit to Canada, that will be a big trump card.
Teck Resources justified its takeover to shareholders – but not to Canadians
In your view, what is the likelihood of an alternative competing bid for Teck from one of the major mining companies? Also, do you foresee Anglo raising their bid?
McGee: This is the billion-dollar question. Or should I say 20-billion-dollar question (the approximate value of the Teck takeover). There are so many possible outcomes here. Does BHP get involved? And does BHP buy Anglo, or does BHP buy Teck? Or does BHP do nothing and just sit it out and buy “Anglo Teck” a few years down the road? Does Glencore, the great white shark of the mining industry, go after Teck again? Those gents in Zug have big egos so I wouldn’t put it past them. Or will Glencore simply hold up the deal from the Anglo end of things? It is a partner in one of the key assets in play here.
Does Barrick surface and buy Teck? Wouldn’t that be something? Barrick has had a tough couple of years but its stock has taken off in past few months, gold price is at an all-time high, with a commitment just this week to continue to invest in Canada. Mark Bristow, please return my call and tell me what you’re up to? On Anglo raising their bid, no chance right now because nobody else is bidding and Teck is on board.
What are the chances that other bidders will come along for Teck? And who could they be?
Reguly: Good chance! Copper is a hot commodity; it is probably the hottest of the “critical metals,” a loosely defined term that means it is essential for the black-to-green transition (EVs, batteries, transmission lines, solar panels, among other products). Remember, BHP, the world’s biggest mining company, went after Anglo last year. The year before, Glencore went after Teck. Both deals went nowhere, but Glencore landed a consolation prize in the form of Teck’s coal division. The point to remember is that the biggest mining companies don’t actually like opening mines, known as “greenfield” developments. They like to buy existing operating mines and squeeze them for more profits. Guess what? Anglo and Teck have two huge operating, long-life copper mines in Chile – Collahuasi and QB2. The usual suspects – among them BHP, Glencore, Rio Tinto, maybe Barrick and the billionaire Luksic family in Chile – would be negligent if they weren’t examining their options on how to get a piece of the Anglo-Teck action. This story could run for a long time.
The state of Teck
What is the potential impact on Teck stock price before and after the merger？
Willis: Teck’s stock price will trade on the dynamics of the deal. There is a small chance another big global miner makes a premium offer for Teck. For reasons I will go into shortly, I think that’s unlikely. In that case, Teck stock will soar. Eric, Niall and I covered the sales of Alcan, Falconbridge and Inco a generation back. Investors made buckets of money on those takeovers. Conversely, if a global miner like BHP takes a successful run at Anglo American, and the Teck merger dies, then Teck stock drops. Once the two companies merge, as Anglo Teck, the stock will go back to trading on fundamentals like copper prices and mining costs, rather than takeover premiums.
A bidding war for Teck is unlikely, in my view, for two reasons: First, the Keevil family controls Teck through a dual share structure, and patriarch Norm Keevil is a patriot who isn’t selling to anyone who wants to move the head office out of Vancouver. Secondly, the federal government can block a bid for Teck, which they more or less did when Glencore came calling a few years ago. Ottawa is also going to insist control of the company remains in Vancouver, and that will be unacceptable to potential bidders.
Teck’s QB2 open pit mine in Chile.Marcos Zegers/The Globe and Mail
Is there any indication that the QB2 mine is in worse shape than we are led to believe and without this merger Teck could be looking at bankruptcy or a firesale? And is this the opening salvo to get the attention of the big guns in the industry to start a bidding war?
Reguly: No, I don’t believe Teck could go bankrupt if the company is not merged with Anglo. Why? Remember that, two years ago, Teck pocketed US$6.9-billion by selling its vast B.C. coal division to Glencore. I imagine that some or most of that loot is still lolling away in Teck’s treasury. Also QB2 does have value in a world gone mad for copper. The question is how much, given the mine’s engineering problems and relatively low grade. No doubt the best way to surface its value is to merge it with the nearby Collahuasi mine, which is controlled by Anglo (44 per cent) and Glencore (also 44 per cent), and combine the operations and infrastructure. That’s what Anglo and Teck want to do. But Glencore will have its say on that attempt, too.
McGee: This is a key question and the truth is we don’t know how bad things are at QB2. Teck, a week before this deal was announced, put out a statement in which it was pretty candid about the engineering problems at the mine, specifically at the tailings dams. They have a plan to address the situation but there is very little visibility on when things get fixed and how much this ultimately costs Teck. Undoubtedly the weakness in the share price made Teck vulnerable to an opportunistic takeover. I don’t disagree on your management point. If Teck had a different CEO with a stronger mining and technical background over the past few years, would things be different today?
Did Teck lose its way after failing to acquire Inco?
Willis: Teck spent a lot of capital and management resources on an oil sands project, which they subsequently sold. So that was a miss. Teck also struggled to get the massive QB2 property built in Chile, which is part of the reason they are now looking at combining forces with Anglo American and its mines in Chile. Teck also had a misfire on the spin out of its coal business. They tried to create a new met coal company with a complex system for continuing to send dividends back to Teck. The market didn’t like the structure, and that’s part of what led to the Glencore bid for Teck in 2023. Teck got through all this and made a ton of cash from eventually selling its B.C. coal mines to Glencore. But a lot of management time and attention got spent on projects that aren’t now part of Teck. Quick personal aside: My mother’s family is from the Elk Valley, where the Teck/Glencore coal mines are located. Those mines provided great jobs for most of my extended family.
Canada’s mining future
How can we build the Canadian mining industry? It seems the industry and technologies are being built and adopted elsewhere.
Willis: That’s a great question, and leads to an even bigger issue: Why does Canada struggle to build global champions? We try to focus on that at The Globe. On mining, Canada qualifies as one of the most takeover friendly jurisdictions in the world. Control of companies sits with asset managers who will sell their grandmothers for a 20-per-cent premium. Our government traditionally steers clear of blocking bids. That’s why we lost Inco, Falconbridge and Alcan. Larger foreign rivals, including Brazilian government-backed Vale, simply made offers we couldn’t refuse. Teck stayed independent because it is family-controlled. Personally, I think having an open market in Canada benefits our economy. Where we suffer is when management and investors focus on short-term results, rather than the long-term view needed to build global winners. We need more founders and CEOs who want to be billionaires, not just multi-millionaires.
This Q+A has been edited and condensed.