Teck Responds to Glencore
Teck Resources Limited CEO, Jonathan Price, issued a letter to shareholders reaffirming the strong rationale for its pending separation and responding to Glencore’s latest attempt to frustrate value creation for Teck shareholders.
• Glencore’s opportunistic proposal hasn’t changed – same low value, same flawed structure, same material execution risks
• Teck has previously engaged extensively with Glencore – for six months on essentially the same proposal – and repeatedly determined it is not in the best interest of Teck shareholders
• The choice for shareholders is clear: vote FOR Teck’s separation plan to create the world’s pre-eminent, pure-play base metals company with a greater array of value creating opportunities
The full text of the letter is as follows:
April 19, 2023
A vote for the separation is a vote to create two world-class, pure play mining companies, providing both unparalleled exposure to a premier base metals platform and an attractive opportunity to remain invested in a high-quality, high-margin steelmaking coal business. Voting FOR the pending separation opens the door to value maximizing opportunities and provides certainty with no execution risk. In fact, separation can be completed in as little as six weeks from today and the separation – and the further path to value – has the clear support of our class A shareholders.
Glencore’s proposal is not a realistic or viable option. Its latest presentation and open letter include no changes from its previous offers, which we have carefully reviewed and rejected. This is a distraction – a transparent and opportunistic attempt to disrupt our separation plan with an ill-defined and highly uncertain proposal. Importantly, Glencore admits that they are uniquely positioned to make an offer for Teck in its current form; the pending separation will correct that by opening up a wider range of opportunities for value enhancement.
Nothing has changed – same low value, same flawed structure, same material execution risks
Glencore’s motivation is plain – they are seeking to opportunistically frustrate the vote and pre-empt a competitive future landscape, which is good for Glencore, and bad for Teck’s shareholders. Glencore’s proposal is complex, ill-defined, with the risk of substantial tax impacts, and value loss for our shareholders if it were to proceed. It also carries significant execution risk, requiring extensive regulatory approvals, and would not close for up to two years, if ever. In contrast, Teck’s pending separation will be completed in as little as six weeks.
The premium in Glencore’s proposal continues to undervalue Teck, is based on a highly volatile share-based consideration, and does not reflect the value of the base metals portfolio that will be unlocked by the creation of Teck Metals. Underpinned by a favourable long-term copper price trend and copper growth pipeline, Teck Metals will be unique in the industry as a pure-play, high-growth copper vehicle, with significant value upside, which shareholders would realize in addition to ownership of EVR. In comparison, the Glencore proposal seeks to acquire that value pre-emptively for pennies on the dollar. It is a transparent attempt to transfer value from Teck’s shareholders to Glencore’s.
Glencore’s proposal also fails to address material risks that we have repeatedly identified, including exposure to significant oil trading in the base metals business, severe execution risk and regulatory uncertainty, and unacceptable jurisdictional and ESG risk. Under Glencore’s proposal, the base metals business would be permanently contaminated by one of the world’s largest oil trading businesses which would contribute tens of billions of dollars in revenue to the combined company. This significant oil exposure would destroy value in the base metals portfolio.
Teck has extensively engaged with Glencore
Glencore complains that Teck has refused to engage, which is simply not true. Teck’s Board has now carefully reviewed the two recent and substantially similar proposals from Glencore, both of which it rejected. We clearly communicated our concerns and rationale for rejecting the proposals in letters to the Chairman of Glencore’s Board.
These proposed transactions were only slightly modified from Glencore’s proposal from 2020, which we engaged on with Glencore for over six months before determining it – like Glencore’s subsequent proposals – was not in the best interests of our shareholders. Further discussions in late 2022 and early 2023 confirmed their proposal remained essentially unchanged, with the same flaws, risks and uncertainties.
Teck’s separation creates options for further value enhancement
Glencore recognizes the strategic optionality that will be created by our separation, which is why they are acting now. Glencore says in its letter: “We believe there are a limited number of parties that are willing or able to acquire both material metals and coal cash flows – Glencore’s proposal is unique in this regard…”. That is the situation today, pre-separation, which is exactly why transacting with Glencore now is inadvisable.
One of the biggest challenges in the industry today is the effective separation of base metal assets from carbon-intensive assets. This is exactly what our separation will achieve, tax effectively, and in less than six weeks’ time. Further, the royalty and preferred shares in our transition capital structure are attractive and liquid instruments. There are lots of avenues post-separation for Teck Metals to monetize the transition capital structure, in the context of a corporate transaction or otherwise, to create further value.
Dr Keevil’s position is clear
Dr. Keevil’s formal statement was clear:
“I would support a transaction – whether it be an operating partnership, merger, acquisition, or sale – with the right partner, on the right terms for Teck Metals after separation. Based on my decades of experience building a successful mining company, I believe that pursuing a sale or merger transaction now would rob our shareholders of significant post-separation value.
I fully agree with Teck’s Board that there is no deal to be done pre-separation with Glencore or any other party.”
Now is not the right time to pursue a transaction with Glencore. We fully believe that Glencore’s proposals are nothing more than an opportunistic attempt to interfere with the vote at Teck’s annual and special meeting of shareholders on April 26th to their benefit and to the detriment of our shareholders.
The choice for shareholders is clear: vote FOR Teck’s separation plan to create the world’s pre-eminent, pure-play base metals company with a greater array of value creating opportunities.
For information on how to vote, go to www.teckagsm.com.