Anglo American and Canada’s Teck Resources have agreed to combine. On completion, Anglo shareholders will own around 62% of the enlarged company.
Over 70% of output will come from copper, with $800 million in annual cost savings and an extra $1.4 billion a year of underlying cash profit from 2030–2049 driven by the integration of nearby Chilean mines.
The merger is expected to complete in 12-18 months, subject to the necessary approvals, and will be named Anglo Teck. Anglo shareholders will be entitled to a special dividend of around $4.19 per share.
The primary listing for the shares will be on the London Stock Exchange.
The shares rose 4.7% in early trading.
Our view
Markets have reacted positively toward the proposed merger of Anglo American and Teck Resources. Following significant efforts to rebalance the portfolio, this transaction continues the shift towards copper, with the combined group set to become the world’s second largest publicly listed producer.
Copper has an impressive track record of demand growth. Trends such as electrification and the build-out of artificial intelligence infrastructure could see that accelerate. Many of the world’s richest ore bodies have already been mined raising question marks over whether supply can keep pace, which should be supportive of prices. In the immediate future however, macroeconomic uncertainty presents an elevated risk of weakness in commodity markets which could dent Anglo’s profitability.
While Anglo’s seen its copper production dip of late due to operational issues, Teck’s output has been healthier, supported by the ramp up at its Quedabra Blanca mine. Plans are afoot to bring other assets on stream, as well as extend the life of its Highland Valley mine. There’s an improving outlook for Anglo’s own copper assets too, but investors need to be prepared to accept the significant execution risk that accompanies the sector.
While copper is the main event, the enlarged group won’t be completely exposed to one commodity, with diversity coming from the likes of iron ore and zinc. There’s also the crop nutrient Woodsmith project, where bringing in development partners still looks to be the most favoured course of action.
The scale of the merger has the potential to create value. Having two key copper mines next door to each other should allow for material efficiency gains which could come from actions like combining ore processing and site management. A smooth integration is vital if the benefits are to be achieved.
If the deal’s rubberstamped, Anglo shareholders will be in line for a one-off payment of $4.19 per share. There could also be a further payout if the spin-off of troubled diamond producer De Beers is successful. Thereafter we think the group’s likely to continue paying modest dividends. We’re not expecting a step change in payments, and there can never be any guarantees.
Anglo’s progress on optimising its portfolio, and plans to boost production have been reflected by a rebound in investor confidence. In the near-term, the key driver of sentiment is likely to be headway towards merger completion. There’s scope for further upside ahead. But as with all commodity companies that’s balanced by a relatively high chance of ups and downs.
Environmental, social and governance (ESG) risk
Mining companies tend to come with relatively high ESG risk. Emissions, effluences and waste and community relations are key risk drivers in this sector. Carbon emissions, resource use, health and safety and bribery and corruption are also contributors to ESG risk.
According to Sustainalytics, Anglo American’s management of material ESG issues is strong.
Climate targets include carbon neutrality across operations by 2040. There are also targets for a 30% improvement in energy efficiency and a 50% reduction in freshwater withdrawal against 2016 levels in water scarce areas by 2030. There is a strong renewable energy programme, which is expected to fully meet energy needs in Chile, Brazil, Peru and South Africa. The merger with Teck potentially brings exposure to additional ESG risk but we’re pleased that Sustainalytics views Teck’s management of the issues as amongst the strongest in the industry.
Anglo American key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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