Teck Resources to Exit Elk Valley in Landmark $6.93 Billion Deal with Glencore, Reshaping Canadian Mining

Teck Resources to Exit Elk Valley in Landmark $6.93 Billion Deal with Glencore, Reshaping Canadian Mining

(IN BRIEF) Glencore is set to purchase a 77% effective interest in Teck Resources Limited’s steelmaking coal business, Elk Valley Resources (EVR), for $6.93 billion in cash. The deal includes NSC’s and POSCO’s interests in EVR. Upon completion, EVR will have full ownership of several mines in Southeast British Columbia and a 46% stake in Neptune Terminals in North Vancouver. Glencore has committed to several agreements with the Canadian government to maintain and enhance employment levels, capital expenditures, research and development, community support, and environmental efforts. Additionally, Glencore plans to demerge its combined coal and carbon steel materials business, including its stake in EVR, once sufficiently deleveraged, with a focus on responsible operations and a climate transition strategy.

(PRESS RELEASE) BAAR, 14-Nov-2023 — /EuropaWire/ — Glencore (LON: GLEN), a Swiss multinational commodity trading and mining company, has taken a significant step in its strategic expansion by entering into a definitive agreement with Teck Resources Limited (Teck) for the acquisition of a 77% effective interest in Teck’s steelmaking coal business, known as Elk Valley Resources (EVR). This acquisition, valued at a substantial US$6.93 billion in cash, is structured as a cash transaction on a cash-free, debt-free basis, with adjustments based on a normalized level of working capital.

Concurrently, Teck has forged agreements with Nippon Steel Corporation (NSC) and POSCO to restructure their interests in EVR. Teck will roll its current 2.5% stake in Elkview Operations into equity in EVR, and NSC will acquire additional equity in EVR from Teck, resulting in NSC holding a 20% equity interest in EVR. In a separate agreement, POSCO has expressed its intention to swap its existing 2.5% interest in Elkview Operations and its 20% stake in the Greenhills joint venture for a 3% interest in EVR.

Upon the completion of the transaction, Glencore will also acquire NSC and POSCO’s attributable share of a shareholder loan from Teck to EVR. This loan, repayable from EVR’s cash flows, is expected to amount to approximately US$250 million to US$300 million at the time of closing.

It’s important to note that this transaction is subject to mandatory regulatory approvals, including the Investment Canada Act (ICA) and competition approvals, and is anticipated to conclude in the third quarter of 2024.

Commenting on the transaction, Gary Nagle, CEO of Glencore, said:

“We are pleased to have reached agreement to acquire Teck’s steelmaking coal operations in the Elk Valley. These world-class assets and the experienced people that operate them are expected to meaningfully complement our existing thermal and steelmaking coal production located in Australia, Colombia and South Africa.

“Glencore has high regard for the business that has been developed over many decades in British Columbia and looks forward to maintaining and enhancing its operational performance, environmental stewardship and social contribution.

“We are dedicated to working with all governing bodies and stakeholders to ensure that the transaction is of benefit to Canada, which includes a commitment from Glencore regarding employment, engaging in further reclamation efforts and to engage constructively and meaningfully with the Indigenous Nations in the Elk Valley.

“This transaction also deepens our longstanding commitment to Canada, supporting our position as one of the largest diversified miners and suppliers of critical minerals in Canada, in one of the world’s leading mining jurisdictions.

We have a longstanding relationship with NSC and POSCO and we look forward to working closely with them as our future partners in EVR.”

Upon closing, assuming the POSCO roll-up proceeds as planned, EVR will have complete ownership of entities holding vital mining assets, including the Elkview, Fording River, Greenhills, and Line Creek mines in Southeast British Columbia. Additionally, EVR will hold a 46% stake in Neptune Terminals located in North Vancouver.

EVR’s historical performance, as reported by Teck, underscores its significance in the steelmaking coal industry. In 2022, EVR produced 21.5 million metric tons of steelmaking coal, and year-to-date figures as of September 30, 2023, indicate production of 17.3 million metric tons. The financials are equally impressive, with an EBITDA of C$7.4 billion in 2022 and C$3.7 billion year-to-date as of September 30, 2023. Profit before tax stood at C$6.0 billion in 2022 and C$3.1 billion year-to-date as of September 30, 2023. EVR also boasted gross assets of C$18.5 billion as of September 30, 2023.

This strategic acquisition aligns with the anticipation of continued long-term global demand for steel and the high-quality steelmaking coal necessary for its production. Steel is an essential building block for various sectors, from transportation and infrastructure (including ocean-going vessels, rail systems, bridges, and buildings) to emerging energy transition infrastructure like wind turbines. These products are vital for our present and future way of life.

Furthermore, Glencore is committed to delivering significant benefits to Canada through its expertise in acquiring, developing, operating, and rehabilitating coal mines. This commitment extends to stakeholders, including employees, local communities, and host governments. Glencore’s operations in Canada are a substantial part of its global business, with approximately 9,000 employees, including contractors. The company has a rich history in Canada, spanning over a century, and is one of the largest diversified miners and suppliers of critical minerals in the country. Its current operations encompass seven industrial assets, primarily focused on nickel, copper, zinc, and cobalt production and recycling.

In line with its dedication to Canada and its commitment to EVR’s ongoing success as a top-tier Canadian steelmaking coal producer, Glencore plans to offer commitments to the Canadian government under the Investment Canada Act. These commitments include:

1. Ensuring EVR continues to operate in Canada, maintaining a Vancouver head office and regional offices in Calgary, Alberta, and Sparwood, British Columbia, with plans for a new Sparwood office.
2. Maintaining significant employment levels in Canada without a net reduction in the number of employees due to the transaction.
3. Increasing capital expenditures in Canada to exceed C$2 billion (excluding deferred stripping) over three years.
4. Boosting research and development activities in Canada to at least C$150 million over three years, with a focus on water quality treatment technologies, marking a 50% increase from current levels.
5. Enhancing contributions to Canadian sponsorship, community, and charitable programs.
6. Serving as a major funding partner with up to C$15 million for the proposed renal/oncology addition to the East Kootenay Regional Hospital in Cranbrook.
7. Striving to become a nature-positive business by conserving or rehabilitating a minimum of three hectares for every one hectare affected by mining activities.
8. Developing and implementing a climate transition strategy, including medium-term scope 1 and 2 emissions reduction targets, aiming for net-zero scope 1 and 2 emissions by 2050, and collaborating with partners to achieve net-zero scope 3 emissions by 2050.
9. Upholding existing agreements between EVR and Indigenous Nations while actively seeking opportunities to enhance Indigenous participation in the benefits arising from EVR’s activities.

In addition to the acquisition, Glencore plans to demerge the combined coal and carbon steel materials business, including its stake in EVR, into a standalone company. This move is aimed at creating a leading bulk commodity company with strong cash generation potential, likely attracting significant investor interest due to its yield potential. The demerger is expected to occur within 24 months of closing and will be managed with a revised net debt cap of approximately US$5 billion, down from the current level of approximately US$10 billion. Glencore remains committed to maintaining minimum strong BBB/Baa ratings and overseeing the responsible decline of its thermal coal operations in line with its current targets. Additionally, it aims to achieve net-zero emissions by 2050, actively collaborating with partners and fostering a supportive policy environment to achieve this ambitious goal.

For further information please contact:

Investors

Martin Fewings
t: +41 41 709 28 80
m: +41 79 737 56 42
martin.fewings@glencore.com

Media

Charles Watenphul
t: +41 41 709 24 62
m: +41 79 904 33 20
charles.watenphul@glencore.com

This announcement contains inside information.

Appendix 1 

Summary of Proposed ICA Commitments

Glencore will submit to the Director of Investments written undertakings to His Majesty the King in right of Canada that are consistent with all of the commitments set out below, each of which shall have a term of three years commencing from closing of the acquisition of EVR.

1. EVR will continue to be operated through an entity incorporated under the laws of Canada or of a province or territory thereof.
2. EVR will maintain its Canadian head office in Vancouver, British Columbia, and will have regional offices in Calgary, Alberta, and Sparwood, British Columbia, that will oversee and support EVR’s operations. EVR’s offices will perform a wide range of functions in Canada including finance (management reporting and budgeting, internal controls and assurance, financial reporting and accounting), logistics, research and innovation, technical services, community and government affairs, legal, ESG engagement, stakeholder relations, human resources, compliance, regulatory and public affairs.
3. EVR will complete construction of the new office facility in Sparwood, British Columbia.
4. At least a majority of the directors of EVR, and at least a majority of executive and senior management level roles of EVR, will be comprised of Canadians.
5. In the event of a public listing of a company that, directly or indirectly, owns EVR following a demerger, during the term of these undertakings, the company whose shares are listed will have a listing on the Toronto Stock Exchange (TSX) and Canadians will participate on the board of directors of any such listed company.
6. EVR will continue to have significant employment levels in Canada.
7. EVR will maintain the terms of its current collective bargaining agreements and when they expire negotiate in good faith the terms of the new agreements.
8. EVR will maintain and, where appropriate, enhance health and other benefits provided to its employees.
9. Canadians will be given a full and fair opportunity to apply and compete for employment opportunities that arise at EVR in Canada; separately, opportunities will be created for Canadians to obtain international experience in Glencore’s global operations.
10.  EVR will increase capital expenditures such that they will amount to over C$2 billion over the term of the undertakings, not including deferred stripping.
11. EVR will undertake significant research and development activities in Canada, totalling at least C$150 million over the term of the undertakings, including on innovation to develop water quality treatment technologies.
12. EVR will continue to use Canadian and Indigenous suppliers of goods and services in a manner consistent with its past practice.
13. EVR will spend at least C$30 million on sponsorship, community and charitable programs in local communities over the term of the undertakings which will include honoring EVR’s existing commitments in respect of specific projects and ongoing participation in local community events and charities  investing in improvements to housing and daycare access.
14. EVR will participate as a major funding partner for the proposed renal/oncology addition to the East Kootenay Regional Hospital in Cranbrook should it proceed, with a funding commitment of up to C$15 million.
15. EVR will continue to maintain in Canada all of its registered Canadian IP (namely patents, trademark registrations, and copyright registrations).
16. EVR will maintain or, where appropriate, enhance its training and development programs.
17. EVR will maintain a Graduate program that provides at least 40 Engineer-in-Training/Professional-in-Training graduate positions per year to people with mining and mining industry related technical qualifications from universities in Canada.
18. EVR will maintain a co-op training program for university students to help build a pipeline of Canadian mining professionals in a range of disciplines which could include mining engineering, geotechnical engineering, geology, mechanical engineering, electrical engineering, process engineering, environmental science, organizational development, health & safety, business and information technology. This training program will support a cohort of at least 220 students annually.
19. EVR will maintain its participation in relevant Canadian industry associations.
20.  EVR will spend at least C$200 million on rehabilitation and closure activities over the term of the undertakings and will implement Glencore’s Policies and Standards in relation to rehabilitation and closure which includes:
    a.    closure practices that are aligned to international good practice including those of the ICMM;
    b.    progressive rehabilitation being undertaken wherever possible;
    c.    having a credible closure plan in place that could be initiated at any time;
    d.    external financial provisioning, as required by the relevant regulatory authority in the jurisdiction, e.g., bonds, payments or other, based on the rehabilitation liability for the current disturbance footprint;
    e.    internal provisioning for post-closure costs that matches the asset’s specified closure objective; and
    f.    ensuring that consideration has been given to all options for post operational land use.
21. EVR will have a goal to becoming a nature positive business by conserving or rehabilitating at least three hectares for every one hectare affected by its mining activities going forward.
22.  EVR will continue to implement the Elk Valley Water Quality Plan, including by continuing ongoing research and development aimed at developing and implementing innovations to manage and improve water quality in relation to its operations.
23.  EVR will develop and implement a climate transition strategy for its business that will include:
    a.    medium term targets in respect of Scope 1 and Scope 2 emissions at EVR’s operations which will seek to achieve or enhance the existing goals or targets set by EVR having regard to what is practical and feasible given existing technologies;
    b.    a long-term goal to net zero in respect of Scope 1 and 2 emissions by 2050; and
    c.    a commitment to work with partners towards an ambition to achieve net-zero Scope 3 emissions by 2050, recognising that achievement is uncertain and we cannot ensure the outcome alone;
24.  EVR will implement Glencore’s ethics and compliance programme and will appoint a Regional Compliance Officer for its business.
25.  EVR will maintain and, where appropriate, enhance its corporate policies regarding diversity and inclusion and health and safety.
26.  EVR will implement Glencore’s Group Sustainability Framework with the following specific goals:
    a.    Protecting its people and communities’ health and promoting well being;
    b.    Protecting its people by creating workplaces free from fatalities and injuries;
    c.    Being a responsible operator who minimises and mitigates its impacts on the environment and seeks opportunities to protect and restore ecosystems where we operate;
    d.    Ensuring the safe, responsible and sustainable management of its Tailings Storage Facilities; and
    e.    Being a trusted community partner and supporter of socio-economic opportunity.
27.  EVR will honour the existing agreements between Teck Coal Limited and Indigenous Nations in a manner commensurate with its past practice, and will work with local Indigenous Nations to identify opportunities to increase participation in benefits from the activities of EVR.
28.  Glencore or EVR, as appropriate, will notify the Director of Investments at least five days prior to the implementation of any decision that would materially affect the performance of these undertakings.

Notes for Editors

Glencore is one of the world’s largest global diversified natural resource companies and a major producer and marketer of more than 60 commodities that advance everyday life. Through a network of assets, customers and suppliers that spans the globe, we produce, process, recycle, source, market and distribute the commodities that support decarbonisation while meeting the energy needs of today.

With around 140,000 employees and contractors and a strong footprint in over 35 countries in both established and emerging regions for natural resources, our marketing and industrial activities are supported by a global network of more than 40 offices.

Glencore’s customers are industrial consumers, such as those in the automotive, steel, power generation, battery manufacturing and oil sectors. We also provide financing, logistics and other services to producers and consumers of commodities.

Glencore is proud to be a member of the Voluntary Principles on Security and Human Rights and the International Council on Mining and Metals. We are an active participant in the Extractive Industries Transparency Initiative.

We recognise our responsibility to contribute to the global effort to achieve the goals of the Paris Agreement by decarbonising our own operational footprint. We believe that we should take a holistic approach and have considered our commitment through the lens of our global industrial emissions. Against a 2019 baseline, we are committed to reducing our Scope 1, 2 and 3 industrial emissions by 15% by the end of 2026, 50% by the end of 2035 and we have an ambition to achieve net zero industrial emissions by the end of 2050. For more detail see our 2022 Climate Report on the publication page of our website at glencore.com/publications.

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SOURCE: Glencore