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Teck: market may hold Glencore to tighter coal deadline even if bid fails

The planet is safe in my hands — I’m a Swiss-based commodities trader. This would appear to be the message of Glencore boss, Gary Nagle. His plan to expand the polluting coal division he has promised to divest merely adds to cognitive dissonance.

For months, Glencore has been trying to nudge Teck Resources of Canada into agreeing to a takeover. On Monday, the Swiss mining and trading giant proposed an alternative: a cash acquisition of Teck’s coking coal unit, Elk Valley. This would expand Glencore’s coal ebitda by about half. It would be the second purchase of coal assets by the group in two years.

This news cannot sit well with all shareholders. Witness investor restlessness with Nagle over Glencore’s climate change goals. This year about 30 per cent of votes at the annual meeting were against this, 6 percentage points more than in 2022. That is a substantial negative minority report.

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

Investors will enjoy the temporary surge 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 copper and zinc divisions.

The demerger of Glencore Coal would leave the core metals business with a valuation of about 6-7 times ebitda, thinks UBS. That is well above the estimated four times for the whole group.

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

Teck’s hard-nosed chair emeritus, Norman Keevil, can no doubt patiently await suitors. Mining investor Pierre Lassonde is among potential rival bidders

Keevil gave Glencore the brush off when it attempted to put public pressure on him earlier this year. The alternative bid for Elk alone may founder in the same way. What it does indicate is increasing urgency within Glencore to do a deal. Investors and campaigners may now expect the company to ditch coal in two years, whatever the outcome at Teck.

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