Anglo-Teck merger proposal could end mining consolidation deadlock

Anglo American's and Teck Resources' planned $53 billion merger announced on Tuesday is a major breakthrough following years of failed consolidation efforts in the mining sector. It could also spur rivals into action.

There is broad support for the second-largest merger in copper history, which would create the fifth largest copper company in the world. Anglo shares jumped 9% while Teck stocks rose 14% following the announcement.

The rivals Glencore, BHP and Rio Tinto could gain scale by acquiring a metal that is critical to industries from electric cars to data centres.

Ian Woodley is a fund manager for Old Mutual which owns shares in Anglo and BHP.

Anglo turned down BHP's bid of PS39 billion ($53billion) last year. In 2023, Teck rejected an offer of $22,5 billion from Glencore. Rio Tinto's early-stage negotiations with Glencore fell through as well late last year. Anglo and Teck are in talks for several months now, according to a source familiar with the deal.

An investor in London said that these companies could buy Anglo or Teck. He argued that the control of metals for the future will determine the winners in the industry over the next decade.

George Cheveley is the portfolio manager of Ninety One. Ninety One is one of Anglo's top 20 shareholders. George Cheveley supports this deal.

He said that it was not impossible for others to try and interlop. "At the very least, this could lead to further consolidation of companies looking to gain a larger position in the copper markets."

Other investors have echoed this sentiment, including Iain Pyle at Aberdeen and Nick Stansbury of Legal & General.

Another top-20 Anglo investor said that a share-based Anglo offer would be costly. Anglo's shares have risen more than 25% in value since January 2024.

The investor said that while the shareholder structure is difficult, it's not impossible.

Teck has a dual class structure. The majority of the class "A shares" are owned by the influential Keevil family in Canada, who have more voting power than many class "B shares" held by institutions.

The investor stated that it is more likely than not that someone will want to use the finished product. The investor expects the deal to be complete within 12-18 month.

Anglo will pay a special dividend of $4.5 billion to its investors. The management expects cost savings by combining adjacent mines in Chile. This should create a premium over time. Some investors will be disappointed by the lack of premium.

"Assuming that someone can afford a large premium... It should be a good deal for the shareholders. You must decide whether to invest in the combined entity or crystallize value by paying a premium. A source familiar with the transaction said that both parties will benefit from this deal.

Analysts say the deal may encourage other major companies to explore mergers or acquisitions in order to remain competitive.

Tony White, an analyst at MKP Advisors, said that although Teck and Anglo have taken the lead, the battle for control over these copper assets is not yet over. (Reporting and editing by Veronica Brown, Rod Nickel, and Veronica Brown, with additional reporting from Tommy Reggiori Wilkes and Andres Gonzalez Estbaran.

(source: Reuters)