Strong and growing demand for copper from traditional markets as well as demand from energy transition away from fossil fuels is at the heart of a $50 billion merger of two big mining companies and could be the spark for even bigger copper-driven deals.
Canada’s Teck Resources and London-listed but South African born Anglo American agreed on a merger of equals after years of circling each other.
Copper cable is at the heart of the merger of Teck and Anglo American. Photo by Denis Charlet AFP via Getty Images.
AFP via Getty Images
The merger will see current shareholders in Teck emerge with 37.6% of the new business while Anglo shareholders will have a 62.4% interest as well as receiving a special dividend of $4.5 billion ($4.19 per share).
Key to the deal is a pair of adjacent copper mines, Collahuasi and Quebrada Blanca, high in the Andes mountains of Chile which, when operated in tandem, should generate an annual $1.4 billion in additional pre-tax earnings.
A new business to be called Anglo Teck will emerge from the deal which is expected to take 12-to-18 months to complete. It will be headquartered in the Canadian city of Vancouver.
70% Of Earnings From Copper
An estimated 70% of future earnings will come from existing copper assets with growth options available, Teck and Anglo said in a joint statement.
The two companies said their merged business will have a strong balance sheet “underpinned by a large, more diversified asset and cash flow base, including premium iron ore and zinc”.
Over the last three years both Teck and Anglo have been takeover targets for their mining rivals, Australia’s BHP and Swiss-based Glencore. Also circling, but more interested in a deal with Glencore, is London-based Rio Tinto.
The creation of Anglo Teck could be the spark for Glencore and Rio Tinto to restart their negotiations and for BHP to step up its hunt for copper expansion deals.
Ore trucks in the Atacama Desert of northern Chile.
getty
Anglo Teck’s combined copper output is forecast to be around 1.2 million metric tons a year, approximately the same as U.S. miner Freeport-McMoRan, slightly less than Chile’s state-owned Codelco and trailing BHP’s 2m/t a year.
The rush to merge is all about copper which has risen by 35% over the last three years to last trade at $4.49 a pound on the international market and higher in the U.S. earlier this year when the threat of tariffs caused a rush by U.S. consumers of the metal.
Used extensively in electricity generation, construction and transport, copper has also emerged as a critical metal in energy transition and battery storage of electricity.
The copper rush has seen all major producers of the metal streamline their operations, exiting coal, nickel, and other commodities to enhance their appeal to investors as a copper stock.
Merging with Teck will almost certainly be the master stroke in removing it from any plans by BHP to return with a fresh offer for Anglo American.
More Assets To Sell
It also buys Anglo American more time to complete asset restructuring started as a defense against BHP but now bogged down with the sale of coal mines hitting a wall and attempts to sell a major stake in the De Beers diamond business attracting few bids thanks to mined diamonds losing market share to laboratory-grown gems.
Complex regulatory and legal requirements mean it is unlikely that another bidder will enter the ring for either Teck or Anglo, leaving them to complete the creation of a major new mining business.
Duncan Wanblad, chief executive of Anglo, will take the top job and Anglo Teck while Teck’s chief executive Jonathan Price, will be his deputy.