Teck, Chilean miner deny report of merger talks
Combination of two closely-held firms would create copper behemoth
Investors got excited at the prospect of a merger between Teck Resources Ltd. and Antofagasta PLC on Monday, but any deal would likely require major compromises by the families in control of each company.
Vancouver-based Teck is controlled by the Keevil family and Japanese firm Sumitomo Metal Mining Co. through multiple-voting shares. Antofagasta is under the thumb of Chile’s Luksic family, which owns 65 per cent of the shares.
Both companies denied they are in merger talks, but Bloomberg reported that they held early-stage negotiations.
A merger would create a dominant copper producer with more than one million tonnes of output per year, vaulting it into the top five producers worldwide. It would also reduce Teck’s reliance on coking coal, where it is facing very weak market conditions.
Their valuations are quite similar: Teck is worth $11 billion while Antofagasta is worth slightly above $13 billion. Any deal is likely to be all-stock or very close to it, which puts the family share ownership in the spotlight. No deal will happen unless the families endorse it and loosen their respective grips on the companies.
To date, Teck chairman Norm Keevil has shown no willingness to collapse Teck’s dual-class share structure. That structure may well have prevented Teck from getting taken over last decade, when all its major Canadian competitors (including Inco Ltd. and Falconbridge Ltd.) were bought out by foreign giants following hostile bidding wars.
“From Norm Keevil’s perspective, he can control his destiny this way. He can do the deal he wants to do and not the deal someone forces on him,” said Kerry Smith, an analyst at Haywood Securities.
Antofagasta only has one class of shares, most of which are held by the Luksics. The family would likely be diluted heavily downward in a merger.
Shares of both companies have often traded at a discount because of the family control, experts said. Teck shares jumped 11 per cent on Monday, partly on the assumption that the dual-class shares would be collapsed. However, the stock dropped sharply in after-market trading after the company said it is not in talks with Antofagasta.
The Keevils and the Luksics are both mining royalty, and have likely known each other for decades.
Antofagasta, which is based in London, is largely unknown to Canadian investors. But it is a significant player in the copper business, producing more than 700,000 tonnes of the red metal a year, primarily from its giant Los Pelambres operation. All its mines are in Chile.
Teck is the more diversified company. It produced 333,000 tonnes of copper last year, but that only made up 46 per cent of its gross profit. The company has major coal and zinc operations, and is expanding into energy with a $2.9-billionUS investment in the Fort Hills oilsands project.
Teck has been eager to grow its Chilean copper output, but it has not green-lighted either of its two big operations in the country: QB2 and Relincho.
Meanwhile, its balance sheet is under some pressure because of the huge spending commitments at Fort Hills. A merger could help alleviate those issues.
There has been plenty of speculation that Teck could be a buyer of assets this year. Last week, analysts suggested the company could acquire HudBay Minerals Inc. or Barrick Gold Corp.’s Zaldivar mine.
Teck’s last big deal was in 2008, when it acquired Fording Canadian Coal Trust for $14 billion. That transaction nearly wrecked the company, as it left Teck with excess debt in the midst of the global financial crisis. The company was eventually able to extend its debt commitments and clean up its balance sheet.