Teck / Anglo American

Less than two months after I wrote about Teck, they have agreed to a so-called “merger of equals” (not! – Anglo will have 62%, Teck 38%, and that is after a US$4.5 billion asset strip!) where Anglo American would take out Teck in a stock swap – Teck holders will receive 1.3301 shares of Anglo American.

The other salient term is that Anglo will also take out US$4.5 billion cash before proceeding with the merger – which is a pretty big way of effectively extracting the remaining equity out of the Teck operation and leveraging the crap out of it! Teck is still relatively under-levered by virtue of selling their coal mining operation (having blown a serious amount of this cash on a buyback at higher stock prices than today). But none of this will matter for Teck shareholders anymore as they will be gone!

The big opportunity here are for so-called synergies (which take a much longer time to materialize, if at all, in these mega-mergers) but there is some basis for finding synergies with Teck’s QB2 project and the Collahuasi mine, which is 44% owned by Anglo and 44% by… Glencore. Collahuasi is about 15 kilometers away from QB2 and there is potential for some engineering synergies to be realized to combining assets, but first Teck has to get its own crap together on QB2!

Anglo, pre-merger, is involved in copper (28% of revenues), Iron (24%), Platinum (22%), the infamous De Beers (yes, the diamond cartel, 12%) and Metallurgical Coal (13%).

Ironically De Beers is the only significant business unit that is not making money for the company at present. Perhaps diamonds are not forever!

Skimming the Anglo financial statements, it is not a company that I want to be holding for very long. It is completely outside of my desired investment profile. All of these synergistic promises will take a ton of time to materialize. The forced internationalization and geographical diversification of executives and staff sounds like a total nightmare to manage. I also don’t want to have to care what’s going on in South Africa – my investment in First Uranium sufficiently traumatized me.

However, I think the institutional money will love it. I actually think there is enough pro-Canada material in there for them to get the stealthy “Canada is open to foreign investment” nod of government approval.

Before thinking there will be a superior counter-proposal, the only logical other suitor out there for Teck was Glencore. After the sale of the coal unit to them, this is simply not happening. The deal should be a done deal. If only Cenovus, Strathcona and MEG Energy was as clear!

Finally, part of the deal was them changing their name from “Anglo American” to “Anglo Teck”. It looks like they were really eager to shed the “American” part of their name and needed an excuse!

I’ll be looking to divest my remaining small stake in Teck, but I am not in any rush. Commodities are skyrocketing (monetary debasement is a very powerful force) and even though it looks like that Anglo American is doing just as bad a job of cost containment as Teck, in a rising price environment they won’t be crashing down anytime soon.

Apparently the merger is expected to take 12-18 months and so this is not to be a case of selling on the first day – there will be a link going forward to Anglo’s common stock and my paper napkin adjusted income has them trading at around a P/E of 14. It’s not as if Microstrategy did a stock swap for them.

I originally acquired a substantial stake in Teck a couple months after everything hit the fan in the 2020 Covid shutdown. About 2/3rds of it was eliminated in 2024 for an average of $66/share. It looks like there will be another opportunity to disposing of the rest soon enough. Needless to say, the market timing has been borderline perfect – it rarely works this way!