MERGER talks between Anglo American with Teck Corporation got serious only two months ago, according to the UK miner’s CEO Duncan Wanblad. Speaking to Miningmx shortly after the ‘merger of equals’ was announced on September 9, Wanblad said the two companies had been discussing how might neighbouring mines in Chile – Collahuasi in which Anglo has a 44% stake and Quebrada Blanc (QB) – realise savings.
The industrial logic of putting two mines together quickly advanced to the strategic benefits of a merger. “The rationale of doing something like this is quite phenomenal,” said Wanblad who added that there is a kind of cultural simpatico between the companies as well as technical synergies. For instance, Anglo and Teck have both in the last two years fended off unsolicited takeover attempts (Glencore for Teck and BHP for Anglo); and both companies are restructuring that could leave them vulnerable to renewed takeovers.
Large cap mining companies across the spectrum are seeking scale and quality. While projects are one option, they can be very long dated just as demand is rising. “In this new world of electrification, decarbonisation, data centres, AI buildout, you are going to need a helluva lot of copper, steel, and aluminum,” said Dawid Heyl, portfolio manager for Ninety-One in Johannesburg in an interview. “To be relevant, you’ve got to be over a certain size and I think that weighs on the minds of these boards and the management teams.”
As a shareholder in Teck and Anglo, Ninety-One would support the merger, said Heyl. “I think the synergy number ($800m) compared to the combined market capitalisation of these entities is very significant.”
Elsewhere, the merger proposal, expected to complete in 12 to 18 months, has drawn plaudits. “In our opinion, the merger makes strategic sense,” said Myles Allsop, an analyst for UBS, a bank. “The two companies are complementary from a commodity perspective and we believe a merger would improve the quality and resilience of earnings and potentially reduce the business risk,” he added.
The mechanics of the deal are relatively uncomplicated, nothing like the highly conditional nature of BHP’s tilt at Anglo. Anglo will offer 1.33 shares for each Teck share, effectively a nil-premium deal given the relative share prices at the time. Anglo Teck, as the new company is to be named, will be headquartered in Vancouver with Wanblad occupying the CEO’s seat. Jonathan Price, Teck’s CEO, will be deputy.
“It’s unprecedented to see a company the size of Anglo relocating to Canada; it’s a real endorsement for the Canadian mining industry,” Price told Miningmx. This, as well as an undertaking by Anglo Teck that it will invest in Canada, are critical elements in protecting the proposed merger from interloper risk.
Teck’s previous suitor Glencore failed to convince the Canadian firm’s largest shareholder, the Keevil family (led by Norm Keevil). In this regard, Glencore has been criticised for failing to recognise how interwoven Teck was in Canadian business culture, much as BHP had failed to do of Anglo in South Africa. In this way, Anglo may also have reduced the risk of regulatory failure. Canada’s authorities, which Teck is thought to have already courted on the deal, generally don’t favour offshore takeovers.
So much for strategic sense. At the asset level, the key feature of the proposed merger is putting QB and Quellaveco together. According to Heyl, this could create a copper complex to rival even Escondida, the world’s largest copper mine owned jointly by BHP (57.5%) and Rio Tinto (30%). “Escondida is the prize copper asset in the world and I think this one [Collahuasi/QB2] could be bigger,” Heyl said. Glencore, which is also a shareholder in Collahuasi with Anglo, would need to agree, which raises the question as to whether the Swiss group sees an opportunity in bidding a premium for either Anglo or Teck?
“In our opinion, the risk of an interloper is potentially reasonably low as this is an agreed deal … with a compelling rationale and significant potential synergies,” said Allsop. While Teck would be hard to buy for regulatory and shareholder support reasons, there are also obstacles in bidding for Anglo, especially as Wanblad has engineering a $3.5bn special dividend pre-merger, effectively passing through some of the proceeds of some $7bn in restructuring that’s still to be completed.
For Wanblad, the proposed merger is another signpost of how far he has taken Anglo since taking the reins. There are still headwinds to overcome in Anglo’s restructuring. Botswana is desirous of buying Anglo’s 85% stake in De Beers which is a potentially troublesome development, while the group’s $3.8bn sale of metallurgical coal mines in Australia is heading for arbitration after buyer, Peabody Energy, pulled the deal. But the prospect of Anglo Teck helps the market put shape to Wanblad’s strategy once the restructuring is finally complete.
“You’ve got to give credit to Wanblad and the management team of Anglo,” said Heyl. “If you go back 18 months that team was under a lot of pressure. When the BHP approach came, they had to run very hard to give the market some confidence they were the right team to steer the ship.”
A version of this article appeared in the Financial Mail.
