Teck: greenwashing away

Gary Nagle must be grinning like the Cheshire Cat. The Glencore chief executive is certainly the cat that got the cream after concluding a US$6.9 billion deal to buy 77% of Teck Resources' steelmaking coal business after less than a year of hounding his prey.Glencore's stock has ripped more than 8%, while Teck's has slumped more than 7% since the deal was announced and is at close to a 12-month low. Teck shareholders may have a cleaner conscience but at a cost. Careful what you wish for."Dealers are telling me they are getting inbound calls from "mystified" investors wondering why Teck's shares are down. Let me solve that mystery. They sold their best assets for nothing!!!!! Glencore will make a fortune off of Teck's virtue signalling," fund manager Warren Irwin posted on X. Mining legend Pierre Lassonde also said he was "mystified" at Teck's sale of its coal unit to Glencore, stating that his group (Prem Watsa and Stelco CEO Alan Kestenbaum) had offered the same price. That may be, but the word on the street was that there were doubts he could ever raise the funds to come good on his offer.Teck chief executive Jonathan Price presumably did not want to sell the Elk Valley River (EVR) coal assets, which include four metallurgical coal mines in British Columbia, Canada. They are, after all, the company's crown jewels, its cash cow, which is why when Teck first announced its plans to separate its coal and base metals businesses at the start of the year, it included a cake-and-eat-it clause through which Teck Metals would retain steelmaking coal cash flows to fund its copper growth. This was bonkers from the get-go. Teck expected shareholders of the spin-co, Elk Valley Resources, to entertain Teck Metals, holding an 87.5% interest in a gross revenue royalty and preferred shares of EVR and receive quarterly payments consisting equal to 90% of EVR free cash flow, and all the negativity associated with producing coal.It is unsurprising that Glencore sniffed an opportunity and put in a $23 billion stink bid for the entire company in April, which scuppered Teck's spinout plans, as initially conceived. Nine months on, Glencore has its prize, and Teck shareholders must be wondering what just happened.ESGTeck has spent most of 2023 naval gazing at what it wants to be. Long seen as a white knight of Canadian mining, some of its shareholders were discontented at having soot on its armour, forcing Price's hand to do something other than run a successful mining business.Price should have said no, but in a woke world of appearances, he may have been replaced with someone who would have said yes if he had not. And why not? Several of his peers have said yes. Anglo American spun out its South African coal assets into Thungela in 2021. Anglo American and BHP sold their stakes in the Cerrejon coal mine in Colombia to, who else, Glencore in 2022. At many mining houses, the contortion to create a business with lower carbon emissions is washing out the cash-generating machines that other parts of the business rely on for investment funds.Teck wanted a call on EVR's metallurgical coal revenues to fund its copper growth at assets in Chile, Canada and Peru. "This transaction will be a catalyst to refocus Teck as a Canadian-based critical minerals champion with an extensive portfolio of copper growth projects, unlocking the full value potential of the company," said Price.Following the sale, that growth path looks more financially fragile, and the payment Teck receives from Glencore could quickly be consumed if its experience building the QB2 copper mine in Chile is anything to go by. Originally with a sub-$4 billion budget, Teck's latest figure is $8.6-8.8 billion! Cost overruns cost chief operating officer Harry Conger his job recently and chief executive Price may think twice before greenlighting another build. And, after forcing self-harm on the company, Teck shareholders may also expect a special dividend to be paid out of the Glencore cheque.A year ago, Nagle said Glencore would not build out its copper pipeline until the world "is screaming for it". This sounds mercenary, but he is running a business intending to make money for its shareholders, not easing the planet's ills. ESG is leading some executives away from this mission to the cost of their companies and harming their ability to invest in things that will make a difference for the planet's future. The world is not screaming for copper yet, but the Western world has long been shrieking its distaste for coal. However, like it or not, the world still needs coal for energy and other purposes, and Glencore is cashing in, as its stock hit a record high in late 2022 as profits rolled in. And it will soon have Teck's metallurgical coal, which is believed to sell for double the price of thermal coal and lower-quality met coals.Unfortunately for Teck, many shareholders fail to differentiate between thermal and metallurgical coal. With steel, a key industrial material for energy transition things such as wind turbines, metallurgical coal is a product that boards can stand behind and defend against the ESG lobby. "Teck should have rebranded it as steel-making carbon," an industry participant with a famous last name told Mining Journal.While Teck races to be right on, its ESG immolation may have given Glencore the means to effect its own ESG denouement. Some Glencore investors have also called for the company to ditch coal, and now, maybe, with the added heft of EVR, the time to do so may be approaching. Glencore said it would perform a spinout within two years of completing the Teck deal, with a primary listing in New York and secondary listings in Toronto and Johannesburg.

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