Yahoo Finance Teck wants to sell its coal mines to Swiss giant Glencore. Will Canada allow it?
After a gruelling nine-month battle that included everything from a last-minute suspension of a shareholder vote to talk of a potential hostile takeover, Teck Resources Ltd. has finally found a way to separate its coal and metals operations and hopefully keep the Investment Canada Act happy.
Glencore PLC first expressed its interest to buy Teck earlier this year, and it is the one taking over most of Teck’s steelmaking coal operations. The Swiss mining giant will acquire 77 per cent of Teck’s coal assets for US$6.9 billion, while Tokyo-based Nippon Steel Corp. will acquire 20 per cent for US$1.3 billion and Posco Holdings Inc. will acquire three per cent.
The deal, however, will be reviewed under the Investment Canada Act (ICA), which monitors investments made by non-Canadians to assess the net benefit to this country’s economy.
Finance Minister Chrystia Freeland told reporters on Tuesday that Ottawa will “carefully” follow Canada’s regulatory process in reviewing the takeover.
“Our priorities will be, as they always are, protecting Canadian jobs, and protecting Canadian headquarters,” Freeland said. “Of course, environmental issues are very, very important for us, as are the rights of Indigenous people.”
British Columbia — home to Teck’s steelmaking coal operations — will also be consulted during the regulatory review of what Freeland called “a serious transaction.”
Last year, Ottawa utilized the ICA to prevent three Chinese miners from investing in Canadian lithium companies, and increase Canada’s foothold in critical minerals such as lithium, copper and nickel, which are expected to be in high demand during the energy transition away from fossil fuels.
Teck is only selling its coal assets that are near the towns of Sparwood and Elkford in British Columbia’s scenic Kootenay region. Coal isn’t a top priority for the federal government, but the deal seems to be keeping an ICA review in mind.
For example, if the deal goes through, Glencore will be legally bound to maintain “significant employment levels in Canada” and not have a net reduction in the number of employees, spend 50 per cent more than what Teck has currently allotted on water quality treatment technologies, implement a climate transition strategy and honour existing relationships with Indigenous communities.
It will also have to continue to operate through the Vancouver head office and regional offices in Calgary and Sparwood, which seems to send the message that although a foreign company is taking over mines that have been Canada’s key coal supplier for many decades, it will keep locals in mind.
Aside from the financial benefits, the ICA commitment played a key role in the transaction, according to Teck’s chief executive Jonathan Price.
“Everything that Teck does today in terms of employment, investment and social and environmental practices will be maintained, but in many cases enhanced by Glencore,” he said. “That’s why we are satisfied that Glencore will be a good owner.”
Glencore’s chief executive Gary Nagle echoed a similar sentiment and said the commitments the company is making will only help boost their business.
“It’s something that we want to do anyway, because you don’t just buy an asset, you are buying into a history, a legacy, territorial land, First Nations, employees,” he said. “It’s very important that … we have a proper social licence to operate so that the right work is done for our stakeholders.”
But not everyone agrees Glencore can meet these commitments.
In April, when Glencore was attempting to buy Teck outright, B.C. Premier David Eby said the company would struggle to meet his province’s high environmental, social and governance (ESG) standards. He said companies working in B.C. need to tackle sensitive topics and have a sophisticated ability to work with First Nations to bring new projects online.
Some mayors of the towns that host Teck’s steelmaking coal mines said a deal with the Swiss mining giant would hurt the region’s image since it would connect Teck to Glencore’s heavy reliance on thermal coal, which is a major carbon emitter.
Thermal coal is responsible for about 70 per cent of Glencore’s coal business. In the long run, the company hopes to run down its coal assets, but believes the commodity is still required as a transition fuel.
Glencore has committed to cut its emissions in half by the end of 2035 compared to its 2019 numbers. It aims to stop mining activity at a minimum of 12 coal mines by the end of 2035 to support its target. Its long-term goal is to achieve net-zero emissions by the end of 2050.
But shareholders increasingly don’t like the plan: 30.25 per cent voted against it during the 2023 annual general meeting, up from 23.7 per cent in 2022 and 5.6 per cent in 2021.
Nagle said the company has been engaging with its major shareholders to understand their concerns and find a path forward. He added that the company has an excellent operational track record and follows the world’s best practices — especially in the coal sector — and these will be transferred to the mines in B.C.
Laurie Bouchard, a spokesperson for Industry Minister François-Philippe Champagne said Teck’s attempt to sell its coal assets to Glencore would be reviewed under the ICA, but would not comment further due to the act’s “confidentiality provisions.”
Selling the coal assets is part of Teck’s plan to solely focus on the metals needed for the energy transition as opposed to coal and the oilsands. Price said he believes the move will help boost its market value.
But Teck depends on coal for about 60 per cent of its revenue, so it will need to rely on alternative projects to fill that gap. The solution to that, Price said, is Teck’s largest copper project, the Quebrada Blanca 2 project in Chile, which he called a “very, very strong replacement.”
That project has faced its own share of troubles. Teck has already increased the project’s estimated construction costs twice this year due to unforeseen issues.
Price acknowledged the capital-cost increases and referred to the project as “large and complicated,” but said it would be worth it in the long run.
“They are somewhat commensurate with a project of this scale and complexity,” he said. “However, what we have built here is a really high-quality, world-class facility that will run for many decades.”
The QB2 project includes a port, a desalination plant, and 160 kilometres of pipelines and powerlines to connect infrastructure to a mine that’s located at an altitude of 4,400 metres.
For the next 12 months, Price said Teck would not sanction a new project, but focus on QB2 and the other copper projects it is developing in Peru and Mexico.
• Email: nkarim@postmedia.com
Additional reporting by Bloomberg
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