Candace MacGibbon is a Canadian mining executive.
Teck Resources TECK-B-T management remains unmoved by Swiss giant Glencore’s sweetened hostile takeover bid. And as a proudly Canadian mining executive, I will be very disappointed if the day arrives when Teck is sold to the highest foreign bidder.
But make no mistake, most shareholders aren’t as sentimental as I am. This move by Glencore GLNCY may mark the beginning of a new period of consolidation within the Canadian mining industry, with more foreign takeover attempts to come.
Mining giants such as Rio Tinto RTPPF, BHP Billiton BHP-N, Vale VALE-N, Glencore and Teck have been operating in a business-as-usual mindset for many years, with limited consolidation activity. And consolidation cycles are like forest fires: If we don’t have small ones every now and then, a big one erupts sooner or later.
As we head into what is likely to be a supercycle for the critical minerals required for the transition to net zero, the heavyweights of mining are looking for ways to unlock value related to those minerals within their existing asset portfolios and to acquire new assets.
This is happening in parallel with large companies – across all industries – looking to cleanse assets deemed non-ESG-friendly in order to lure big fund investors who are not investing in carbon-intensive industries.
Late last year, Vale announced it will look to separate its base metal assets from its primary iron ore business in order to unlock the trading multiples its peers enjoy. In February, Teck completed the sale of its stake in the Fort Hills oil sands mine, and shareholders will vote this month on its plan to spin off its metallurgical coal business.
Teck is one of the lone survivors of Canadian base metals companies, primarily owing to its complicated share structure and the dedication of its chairman emeritus, mining legend Norman B. Keevil, to the Canadian mining landscape.
Teck grew its attractive portfolio by doing what Canadian companies do best – investing in exploration and assets, developing talent – and through diversification. Teck’s portfolio of critical minerals, metallurgical coal and oil sands investments allowed its survival during periods of cyclical commodity prices. Despite this history, diversification is no longer seen by shorter-term investors as the advantage it once was in maintaining corporate cash flows during hard times. And mining has seen its fair share of those.
The Canadian base metals space was culled long ago by international giants. Inco was sold to Brazilian Vale, Alcan to Anglo-Australian Rio Tinto, NorandaFalconbridge to Anglo-Swiss Xtrata. Quadra FNX sold to Polish KGHM KGHPF, and Aur Resources and Inmet were swallowed by the only two remaining large-cap Canadian companies: Teck and First Quantum FM-T. Most of this activity took place more than 15 years ago, during the height of China’s demand growth prior to the 2008 financial crisis, with only the Quadra FNX and Inmet deals completed in 2012 and 2013.
The world needs critical minerals, lots of them, and mines take decades to permit and develop. The best way to grow a portfolio and avoid development risk is to buy producing assets or those under development. It makes perfect sense that Glencore wants additional exposure to critical minerals; it is betting on looming metal price increases, as demand is forecast to soon outstrip supply. If it is unsuccessful in its run at Teck, it is likely to remain a buyer.
The gold space is also currently embroiled in its own drama with Newmont’s hostile run at Australian miner Newcrest. Companies that have critical minerals exposure are bound to be merger-and-acquisition targets, and some will be glad to take the handsome premium offered and shift the financing and development risk to bigger, well-capitalized companies.
If this is the beginning of a supercycle in critical minerals, more Canadian companies and assets will become the targets of mergers and acquisitions.