Anglo-Teck's merger with Glencore will unlock Chile mine synergies if Glencore approves

Analysts say that the proposed Anglo American and Teck merger could be hampered by Glencore, a Swiss miner-trader.

Glencore and London-listed Anglo are equal partners at Collahuasi. This is one of the largest copper deposits in the world, located about 10 kilometers from Teck's flagship Quebrada Blanca Mine.

Investors view the merging of operations at both sites as the key to the AngloTeck merger. This is one of the largest deals in the history of mining and would propel two medium-sized companies into the top tier global copper producers, just in time for an anticipated boom in demand.

The companies are still unsure how a fusion will work in reality, due to issues that are important to Glencore, such as valuations, supply agreements and profit sharing, governance structures, and how to deal with mining waste at Quebrada Blanca, and how to find cost savings by combining two different sets of infrastructure.

The potential for synergies are enormous, but they are not easy to achieve. Different operating styles and management approaches are different animals, said Jorge Cantallopts of Chile's Center for Copper and Mining Studies.

A source familiar with this matter has said that Glencore's support of a merger between two Chilean mining companies depends on the valuation for Quebrada Blanca. The Keevil family, which controls Teck's class A shares, backed the merger, believing Teck lacked the resources to invest further in the costlier-than-expected project, the source added.

The Keevils did not respond immediately to our request for comment. Teck told us that it was working on operational problems at Quebrada Blanca.

Quebrada Blanca's QB2 expansion project, launched in 2023, has experienced serious mining waste problems and cost overruns. This forced the company to reduce its production guidance and postpone decisions about growth plans. Analysts warned that output could be affected until 2026.

Glencore declined comment. Collahuasi said that it would not make any comments because the announcement of a merger came from a shareholder. NEW COLLABORATIONS Anglo-Teck intend to build a conveyor belt to transport high-quality ore from Collahuasi to Quebrada Blanca for processing. However, they have not revealed if the mines will be merged into a separate business unit.

Anglo CEO Duncan Wanblad noted that Glencore had previously called for a sharing of operations between Quebrada Blanca ad Collahuasi.

He told journalists that Glencore had been interested in obtaining the benefits of proximity from Quebrada Blanca for some time. The company has not yet discussed a merger with Glencore, but he expects the plan to appeal to all its shareholders.

Anglo and Teck announced the partnership by stating that "synergies", from Quebrada Blanca and Collahuasi, would save $800,000,000 a year and increase annual production of 175,000 metric tonnes.

Glencore, Anglo and a Japanese consortium led by Mitsui each own 44% in Collahuasi.

Teck's minor partners in Quebrada Blanca include the Chilean state copper producer Codelco, and a joint venture between Sumitomo Metal Mining of Japan and Sumitomo Corp of Chile.

Codelco declined to respond immediately to a comment request, while Mitsui refused to make one. Both Sumitomo firms said that they are watching the potential merger.

Former Collahuasi chief executive officer said that a mine sharing scheme had never been implemented because each company wanted its autonomy to be maintained and the timing wasn't right.

The executive said that "Anglo Teck and Glencore are trying to present this as a part of the deal. But they cannot do that without Glencore and Mitsui's agreement."

Copper miners are exploring the possibility of collaborating to offset declining ore grades, avoid lengthy permits and large investments for new mines and compensate for declining grade. Anglo announced on Tuesday that it had finalized an agreement to share its Los Bronces Mine in central Chile with Codelco’s neighboring Andina. The companies claim this will increase output by 120,000 tons of copper per year and reduce costs about 15%.

(source: Reuters)