Coal-fired deal boosts Glencore shares

The path to a potentially value-enhancing break-up of Glencore (LSE:GLEN) emerged today as the FTSE 100-listed commodities giant finally struck a major coal industry takeover deal.

The breakthrough boosts hopes that Glencore can deliver a separate New York listing for its thermal coal assets and those of today’s proposed $6.9 billion (£5.6 billion) acquisition of a 77% interest in the steelmaking focused business of Canada’s Teck Resources (TSE:TECK.A).

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The demerger of the combined coal business is expected 12 to 24 months after the close of the acquisition, which itself is not expected until the third quarter of next year. The timeline is also dependent on sufficient deleveraging of the Glencore balance sheet.

Investors welcomed the developments today as Glencore shares rose 13.85p to 444.3p, still 18% lower than where they started the year.

Shares have been under pressure despite Glencore being the only major blue-chip miner to increase shareholder distributions in the half-year results season. 

Glencore’s returns included a $1 billion (£790 million) special dividend of $0.08 a share, which was paid on 22 September alongside the base $0.22 announced in earlier results.

Shareholders would have received an additional $2 billion (£1.6 billion) in the event that Glencore failed with its efforts to land the steelmaking coal operations of Teck Resources.

The company originally hoped to persuade Teck to agree to a broader merger where the pair split their combined coal and metals operations into two standalone companies.

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This was rejected in April, prompting Glencore to pursue a deal that it hopes will ultimately lead to a New York listing for a cash-generative coal and carbon steel materials business. Such a move would leave Glencore with its marketing operations and industrial assets spanning copper, zinc, nickel among other metals.

Teck is the world's second-largest seaborne exporter of steelmaking coal, with four operations in Western Canada and significant high-quality steelmaking coal reserves.

In an earlier presentation document, Glencore said it held discussions with Teck about a potential combination in 2020 before various attempts were made from October last year in an effort to re-engage with the company.

Many of Glencore competitors have opted to exit thermal coal, whereas the FTSE 100–listed company chose to wind down assets through a plan for 12 mine closures by 2035. The decision has served to boost earnings given the recent spike in energy prices.

Chief executive Gary Nagle joined Glencore in 2000 as part of the coal business development team and led global coal operations prior to his appointment as overall boss in July 2021.

He said today that Teck’s “world-class” steelmaking coal operations in the Elk Valley will “meaningfully complement” his own company's existing thermal and steelmaking coal production located in Australia, Colombia and South Africa.

Glencore intends for the demerged company to continue the responsible decline of thermal coal operations in line with Glencore’s current ambition to achieve net zero by 2050.