Canada Unearthed: Vancouver mega-miner Teck’s copper transformation is taking shape

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Our Canada Unearthed column wraps the news driving mining and exploration stocks listed in Canada, mostly on the TSX and TSX.V.

A route for Teck Resources (TSE:TECK.B) to get a big payout for its met coal business and avoid a tie-up with Glencore could be emerging with the entry of India’s JSW Steel to the party.

It is several months now since the game of cat and mouse began between two of the largest coal and copper companies in the world, the Canadian major persistently rebuffing the entreaties of the Anglo-Swiss trading giant.

Glencore started the chase in April when Teck refused an unsolicited US$23.2 billion offer to partner up.

Teck owns four copper mines across South America and Canada producing 270,000tpa but unlike most miners operating in the space it has a big growth profile ahead of it.

The completion of the second phase of the Quebrada Blanca mine in Chile at the end of this year — 60% owned by Teck — will move the company, also a major zinc producer, from the Top 20 to Top 10 global copper producers, though delays at the project saw Teck knock down guidance from 390,000-445,000t to 330,000-375,000t for 2023 at its second quarter results in July.

Annual production will roughly double over its first five years to 316,000t ahead of a 27-year mine life.

That’s very attractive to Glencore, which has a large portion of its copper and cobalt portfolio in the less ESG friendly DRC and would challenge Freeport and BHP’s (ASX:BHP) position as the world’s second and third biggest copper producers.

After it was rebuffed on a tie-up Glencore was knocked back on a second occasion with a plan to marry the companies’ coking coal and thermal coal assets.

Now Bloomberg is reporting India’s JSW Steel could come in with a bid for 20-40% of Teck’s 25Mtpa met coal spin Elk Valley Resources in partnership with Japanese and South Korean steel mills that values the unit at US$8 billion.

It came after reports of a potential bid for 75% of the company from JSW.

What does it mean for Canada’s biggest miner?

Fitch has already downgraded Sajjan Jindal’s JSW Steel from outperform to market perform on word of the potential transaction.

It comes after Teck CEO Jonathon Price told analysts at the company’s second quarter earnings call in July it could consider keeping a minority stake in Elk Valley after opening a sale process with multiple counterparties having knocked back Glencore’s US$8.2 billion bid.

Fitch’s analysts warned Glencore had remained persistent in its efforts to pursue an acquisition, while Nippon Steel had also expressed interest and the Canadian Government could prove a tough customer for approvals processes.

“Canada has historically been less inclined to allow its natural resources to be sold to foreign companies,” they noted.

Lurking behind the sale process is a bullish outlook for copper from Price, who said in July the long term supply challenges facing the market for the energy transition metal meant the Quebrada Blanca expansion continued to stack up despite its ramp up issues.

“Of course, one of the major changes that’s occurred since we started building the project is the long-term outlook for copper prices,” he said.

“When this was sanctioned and based on the returns we communicated at the time, we were using CAD 3.15 (only US$2.32/lb) for the long-term copper price here.

“Now, there’s a range of views as to what that price should be in future, but I think everybody recognises that that wouldn’t be sufficient to incentivise the capacity that we’re going to need to even go some way to filling the expected gap between supply and demand a few years out.

“So that’s a long way of saying, if you look at the additional CapEx that we’ve incurred, if you factor in some inflation in unit costs, which we, of course, have communicated as really updated our own unit costs for the market, you can still get a very strong return on QB2 using quite a reasonable copper price.”

TSX and TSX.V Winners & Losers

Here’s how TSX and TSX.V-listed mining and exploration stocks performed last week:

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