Teck: The market can hold Glencore to a tighter coal deadline even if the bid fails

The planet is safe in my hands – I am a Swiss based commodities trader. This seems to be the message from Glencore boss Gary Nagle. His plan to expand the polluting coal division he has promised to divest only adds to cognitive dissonance.

Glencore has been trying for months to get Canadian Teck Resources to agree to a takeover. On Monday, the Swiss mining and trading giant proposed an alternative: a cash takeover of Teck’s coking coal unit, Elk Valley. This would increase Glencore’s coal EBITDA by about half. It would be the group’s second purchase of coal assets in two years.

This news is not well received by all shareholders. Witness investors’ restlessness with Nagle on Glencore’s climate change targets. This year, about 30 percent of the votes at the annual meeting were against, 6 percentage points more than in 2022. That is a significantly negative minority report.

That could explain why Nagle is promising to spin off all of Glencore’s coal assets within two years, much sooner than expected. Coal still generates about half of Glencore’s EBITDA. Adding Teck’s coal increases that dominance. The paraphrase of Saint Augustine’s group is, “Make me good, Lord, but not until 2025.”

Investors will enjoy the temporary increase in cash flow. But coal remains a drag on the valuation of diversified miners. Shareholders said no to Teck’s independent restructuring plan because the black stuff would have funded the copper and zinc divisions.

The split from Glencore Coal would have the core metals business valued at about 6-7 times EBITDA, UBS believes. That is well above the estimated four times for the entire group.

In February, Nippon Steel agreed to buy one-tenth of Teck’s coal unit, valuing the company at $8.2 billion, Glencore had placed the same value on it, while Teck’s own fairness opinion valued the EVR at $9 billion, about three times as much as expected in 2024. ebitda.

Norman Keevil, hard-nosed Teck emeritus, can no doubt patiently wait for suitors. Mining investor Pierre Lassonde is one of the potential rival bidders

Keevil gave Glencore a run for its money when it tried to put pressure on him publicly earlier this year. The alternate bid for Elk alone can fail in the same way. What it does indicate is growing desperation within Glencore to make a deal. Investors and campaigners can now expect the company to dump coal within two years, regardless of the outcome at Teck.