Glencore, the Anglo-Swiss mining giant, has announced its acquisition of a 77% stake in Elk Valley Resources, the steelmaking coal business of Canadian miner Teck Resources. The deal, valued at $6.93 billion, is due to close in the third quarter of next year.
Simplifying the Deal
Initially, Glencore had proposed a merger with Teck Resources, offering around $23 billion for the entire company. However, as negotiations progressed, Glencore indicated its willingness to solely purchase Teck’s coal business for an estimated value of $8.2 billion. This change allowed Glencore to focus on its core business, resulting in a more simplified transaction.
Once the acquisition is finalized, Glencore plans to establish a separate coal company. This spin-off will occur once Glencore has sufficiently reduced its debt which could take up to two years after the transaction closes. By forming this standalone company, Glencore aims to consolidate its coal and carbon steel materials business, including its newly-acquired stake in Elk Valley Resources.
Strong Market Potential
Glencore believes that this standalone company will be well-positioned as a leading bulk commodity company with abundant cash generation potential. Given its yield potential, Glencore expects strong investor demand for this entity. The decision to focus solely on coal and carbon steel materials reflects Glencore’s confidence in the market’s prospects.