The $53bn planned “merger of equals” between Anglo American and Teck Resources will be the largest mining merger this decade and the second-largest in the sector. It will create one of the world’s largest copper producers. And the contrast between the apparently seamless way the all-share merger was agreed and the hostility and political point-scoring that surrounded BHP’s unsolicited bid for Anglo last year could hardly have been more striking.
Friendly mergers tend to have a better chance of succeeding and delivering the promised value add than hostile ones. Anglo and Teck have also reportedly been careful to get on top of the politics astutely, reaching out ahead of time to the two sets of regulators — Canada’s and SA’s. That should avoid the nationalist pushback that last year greeted BHP’s ultimately failed bid for Anglo and Glencore’s failed bid for Teck, which drove Canadian regulators to tighten up laws on foreign mining acquisitions.
The merger also has support from key shareholders, with Teck’s controlling shareholder Norman Keevil having said yes already and, on Anglo’s side, the Public Investment Corporation making positive noises. And so far the market loves it with Anglo’s share price up 9% and Teck’s up 14% on news of the plan.
It all bodes well for the future of Anglo Teck, which will be 62% owned by Anglo shareholders with Teck’s holding the rest. In an important sense it reflects the upside of the “portfolio simplification” that Anglo CEO Duncan Wanblad launched amid BHP’s bid.
It is a process that has seen Anglo take itself apart and radically slim down its structure to focus on essentially two commodities — copper and iron ore. But it’s one that has prompted the long-hoped for rerating of the Anglo share.
Wanblad pointed out at the release of the London-listed group’s annual results at end-July that before the restructuring the share traded at three to four times enterprise value to earnings before interest, taxes, depreciation, and amortisation (ebitda); now it’s trading at more than 6.5 times enterprise value to ebitda.
More valuable paper has naturally meant that Anglo is in a much better position to bid for smaller rivals using its shares, as it has done with Teck, which itself has done some restructuring.
Wanblad told Mining MX the deal was hatched about two months ago — suggesting Anglo’s rerating clearly has opened the way. So too that the giant Collahuasi copper mine in the Chilean Andes which Anglo runs is adjacent to the Quebrada Blanca mine that Teck runs, with both mining the same ore body. That’s a big part of the $800m in synergies that the deal promises. And with 1.2-million ounces of copper output a year the merged group will be in the top five globally in a commodity that everyone wants.
It all looks rosy. But there are some question marks. One is whether it will happen as planned. A good few analysts suggest that the deal has the effect of putting both companies in play. It could well trigger a rival bid by a major such as Glencore, BHP or Rio Tinto. They all want copper. And some may be willing to provide a cash sweetener that could be hard to turn down.
The world needs huge supplies of copper to power electric vehicles, data centres, electrical grids and other industrial applications. The metal is now the core focus of all the majors, including Anglo Teck, which will derive 70% of its earnings from copper. It’s a big bet all round: the coming years will show if it’s the right one.
Then there is SA. It lost Anglo to London in 1999 and now — with London — will lose it to Vancouver, Canada, where Anglo Teck will be headquartered and its top team will sit. Once the “simplification” is complete, all that will remain of Anglo in SA is Kumba Iron Ore. The latest deal should benefit Anglo’s SA shareholders. But it is another loss for mining in SA.
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