Glencore’s bid for Teck Resources revives animal spirits in race for copper

After a long period of relatively small deals, mining M&A is back. Glencore’s unsolicited offer for Teck Resources, announced on Monday, has revived the animal spirits of the resources sector.

The burst of activity goes beyond Glencore’s eye-catching bid for Teck, an all-share offer that values the latter at about $23bn. The spree extends to BHP’s $6.5bn bid for Oz Minerals, Rio Tinto’s recent takeover of Turquoise Hill, and Newmont’s unsolicited $17bn offer for Newcrest.

All these deals have something in common: copper. The world’s need for copper is driving a surge of interest from miners that anticipate a shortfall later this decade, and have plenty of cash to spend after years of high profits.

Copper’s essential role in electrical wiring, grid infrastructure, wind turbines and even electric vehicles makes it indispensable for the energy transition. Demand for copper is forecast to rise to 40mn tonnes a year by 2030, up from 25mn tonnes a year in 2021, according to estimates from S&P Global. Given that it takes up to a decade to open a copper mine, that shortfall might as well be tomorrow, on the mining timescale.

However, much of the world’s most accessible, high-grade copper deposits have already been mined, leaving relatively few high-quality copper resources still available. Among miners, competition for these dwindling resources is growing more fierce.

For Glencore and Teck, the copper behemoth created from their union would be the world’s third-largest copper miner, producing 1.4mn tonnes of the metal a year.

The two companies also share some adjacent copper assets — Teck’s flagship copper mine Quebrada Blanca is located just 40km from the Collahuasi mine, in which Glencore holds a 44 per cent stake — and Glencore envisions the mines sharing processing facilities, if the deal goes forward. Glencore and Teck both have stakes in the Antamina copper mine in Peru as well.

Underscoring the value of this copper business, Glencore proposed that after acquiring Teck it would spin out “MetalsCo”, headquartered in Canada and listed in London. MetalsCo, also dubbed “GlenTeck”, would run the combined metals mining and trading operations of the two companies — and derive 60 per cent of its earnings from copper and its byproduct, cobalt. Meanwhile both companies’ coal assets would move a new “CoalCo”, listed in New York.

The drive for copper lies behind the biggest mining deals of recent months. Rio Tinto’s takeover of Turquoise Hill will extend its control over the Oyu Tolgoi copper mine in Mongolia, set to be the world’s fourth-largest copper mine when completed.

BHP’S bid for Oz, which has been recommended by the latter’s board and goes to vote by Oz shareholders on April 13, will give it access to the West Musgrave copper deposit. And Newmont’s bid for Newcrest would have boosted its copper exposure significantly. That bid was rejected by Newcrest, though some analysts expect Newmont may yet raise its offer.

Teck, recognising the value of its metals business, was already planning to separate itself into two: a metals company producing copper and zinc, and a coal company. This division, announced earlier this year, will go to a shareholder vote on April 26. Before Glencore’s offer, that looked certain to pass. But now the Teck vote is set to become an unofficial referendum on whether shareholders might prefer Glencore’s offer.

One shareholder who has made his view very clear is Teck’s former chair, Norman Keevil, who controls 55 per cent of Teck’s supervoting class A shares, which carry 100 votes each. He immediately rejected Glencore’s bid, subsequently telling Canada’s The Globe and Mail that “we are not about to be swallowed up by them”, and that “it’s not a matter of price”.

It is not the first time that Keevil has dismissed an offer from Glencore — the two sides held inconclusive talks three years ago. But such is the value of the copper assets Teck holds that it is unlikely to be the last.

Keevil’s supervoting shares will sunset in six years, under the proposals that Teck shareholders vote on at the end of this month. Given the world’s need for copper, the mining majors may not wait that long, until they swoop on Teck again.