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A consortium led by Glencore has struck a $9bn deal for the coal business of Canada’s Teck Resources, paving the way for the break-up of the Swiss mining and trading giant as it doubles down on the fossil fuel.
Glencore has agreed to pay $6.9bn in cash for a 77 per cent stake in Teck’s coal business that supplies the steel industry. Japan’s Nippon Steel and South Korea’s Posco will own the rest.
The acquisition marks the end of Glencore’s long and fractious pursuit of the business, which began in April when it made an unsolicited $23bn bid for the whole of Teck.
The decision to return for Teck’s coal business underlines Glencore chief executive Gary Nagle’s conviction that the heavily polluting fossil fuel still has a significant role to play in meeting the world’s energy and infrastructure needs.
A resurgence in coal prices in recent years sent Glencore’s shares to a record high late last year and delivered bumper profits for the London-listed company.
During its pursuit of Teck, Glencore had set out plans to eventually spin off the Canadian group’s business and its own existing coal unit into a separate company.
On Tuesday, Glencore reiterated it “intends to demerge the combined business”, pointing to robust investor demand for a “highly cash-generative bulk commodity business”. Under the plan, Glencore’s industrial metals operations and oil trading will be a separate company.
The Teck acquisition hands Glencore some of the industry’s most coveted assets, including four metallurgical coal mines in British Columbia.
The mines will “meaningfully complement our existing thermal and steelmaking coal production located in Australia, Colombia and South Africa”, said Nagle.
However, Glencore’s initial pursuit of Teck raised political concerns in Canada and the deal will need to be approved by the government under the Investment Canada Act. It will also need sign off from competition regulators.
In an effort to allay fears of a foreign company taking control of some of the country’s key natural resources, Glencore has made a series of commitments, including a pledge not to cut jobs and to invest $2bn in the operations annually for the next three years.
For Teck, the sale will leave it with a set of zinc and copper mines in the Americas. “This transaction will be a catalyst to refocus Teck as a Canadian-based critical minerals champion with an extensive portfolio of copper growth projects, unlocking the full value potential of the company,” said Teck chief executive Jonathan Price.