Analysis-Anglo-Teck proposed merger could break mining consolidation deadlock

By Clara Denina and Iain Withers

LONDON (Reuters) -The $53  billion planned merger between Anglo American and Teck Resources announced on Tuesday marks a breakthrough after years of failed mining sector consolidation attempts and could spur their rivals to action.

The sector's second-biggest ever tie-up that would create the world's fifth-largest copper company appears to have broad support. Anglo shares rose 9%, while Teck stock was up 14% after the announcement.

Rivals Glencore, BHP, and Rio Tinto, which had their M&A attempts fall through, could move to gain scale in an industrial metal critical for industries from electric vehicles to data centres.

"Both BHP and Rio would like more copper if they could get it, although they may blink at the prices now," said Ian Woodley, a fund manager at Old Mutual, which holds shares in mining companies including Anglo.

Last year, Anglo rejected a £39 billion ($53 billion) takeover bid from BHP, while in 2023, Teck turned down a $22.5 billion offer from Glencore. Early-stage talks between Rio Tinto and Glencore also fell through late last year. Anglo and Teck have been in negotiations for several months, a source close to the deal said.

A London-based shareholder said these same companies could pursue buying Anglo or Teck, arguing that control of future-facing metals will define the industry's winners over the next decade.

George Cheveley, portfolio manager at Ninety One, which is a top 20 shareholder in Anglo, said he supports the deal.

"It is certainly not impossible that others may try to interlope," he said. "At least this could spark further consolidation as companies look to establish larger positions, particularly in the copper market."

That sentiment around possible further consolidation was echoed by other investors, including Iain Pyle, portfolio manager at Aberdeen, and Nick Stansbury at Legal & General.

However, another top-20 Anglo shareholder said a share-based offer for Anglo would be expensive. Anglo's share price has risen by more than 25% since January 2024.

"On the Teck side, I wouldn't rule it out, but the shareholder structure makes it difficult," the investor added.

Teck operates under a dual-class structure, with Canada's influential Keevil family owning the majority of class "A" shares, which have more voting power than the numerous class "B" shares held by institutions.

"It's more likely someone could look to do something with the finished article," the investor said. The deal is expected to be completed within 12-18 months. 

Anglo's investors will get a $4.5 billion special dividend, and management is betting on cost savings from combining their adjacent mines in Chile, creating a natural premium over time. But some investors may be disappointed with the lack of a premium.

"Assuming someone can afford to pay a big premium ... They can come and do it; it should be a win for shareholders. You have to think between crystalizing value with a premium or participating in this combined entity. There's real value to both sides," a source familiar with the deal said.

Analysts suggest the deal could encourage other major players to explore mergers and acquisitions to remain competitive. 

"Anglo and Teck have made the first move, but the contest for control of these copper assets may not be over," said Tony White, analyst with MKP Advisors.

(Reporting by Clara Denina and Iain Withers; additional reporting by Tommy Reggiori Wilkes, Andres Gonzalez Estebaran, Editing by Veronica Brown and Rod Nickel)