Don't Sell Your Teck Resources Stock Just Yet: Analyst

"Teck's in Play," says Jon Mills, as the bids roll in for its coal business - and what Glencore may do about it.

Joshua Peach 12 June, 2023 | 4:51AM
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Joshua Peach: Vancouver-based mining company Teck Resources (TECK.A) recently announced that it's in talks with multiple parties about selling its steelmaking coal business. This comes after the company cancelled a shareholder vote to separate its metals and coal business earlier this year. What does this potential sale mean for Teck Resources investors and is now a good time to buy the stock? Jon Mills is an equity research analyst with Morningstar Research Services. He is here to talk about it today. What does the potential sale of the coal business mean for Teck Resources?

Jon Mills: Yeah. Well, Teck's metallurgical coal or steelmaking coal business makes up the vast majority of its earnings. So, if it does dispose of that part of its business, it's going to have significantly lower earnings, at least in the midterm.

Glencore Will Update Its Offer for Teck Resources

Peach: Earlier this year, Swiss company Glencore (GLEN) expressed interest in acquiring the business, but Teck ultimately rejected the offer. Do you think Teck might get better terms this time around?

Mills: Yeah. I think Glencore will probably come back with a higher offer. They did make an offer that was around a 20% premium to the prevailing share price at the time, which is a little lower than your typical takeover premium. And look, Teck is an attractive target for the likes of Glencore and other miners. So, yeah, we think Glencore will come back at some stage.

Peach: Why would Glencoe be interested in Teck?

Mills: Well, I think, there's two main reasons. I mean, firstly, there's Teck's metallurgical coal business, which is making – well, it's making cash flow, it's the majority of earnings, as I said earlier. And so, Glencore wants to or proposes to combine that met coal business with its existing thermal coal operations and spin that new company off to shareholders. But the other major attraction of Teck to Glencore and other miners is Teck's existing copper operations but also its substantial copper growth pipeline. Glencore and well, a lot of other miners are trying to expand their copper operations because they see increasing demand from decarbonization and electrification, and that's why Glencore and potentially other miners are interested in buying Teck.

It's an Exciting Time to Be a Teck Resources Stock Investors

Peach: What does all this mean for shareholders of Teck Resources?

Mills: Well, it means Teck is in play. I mean, Teck has been receiving other offers for its metallurgical coal business. At the moment, they haven't revealed any potential offers for Teck as a whole. But we think that, again, given Teck's existing copper operations and its growth pipeline there, we think other miners may be interested in buying Teck at some stage. So, if you're a shareholder in Teck, then it's probably a good time to keep your shares and see what eventuates.

Peach: The stock is currently fairly valued. Do you expect that to change anytime soon?

Mills: Well, look, it depends on whether additional offers are forthcoming. And it also depends on what commodity prices are doing. I mean, Glencore's offer was an all-share offer, or at least its original one. And so, it will move around based on commodity prices, the potential value from a higher offer from Glencore and potential other activity from other miners. So, look, it's an exciting time to be a Teck shareholder, put it that way.

Peach: Jon, thanks for your insights today.

Mills: Yeah. Sure, Josh. No worries.

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Glencore PLC ADR12.30 USD1.23
Teck Resources Ltd Class B (Sub Voting)70.19 CAD1.40Rating

About Author

Joshua Peach  Josh Peach is journalist at Morningstar

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