Teck Resources Coal Unit Divestment Faces Undervaluation Scrutiny, 'Rocky Path' for Suitors

Canadian mining giant Teck Resources is navigating a complex divestment process for its steelmaking coal unit, Elk Valley Resources (EVR), a move that Bloomberg Opinion columnist Javier Blas suggests could see the company "sell itself on the cheap." Blas highlights the significant hurdles facing any rival bidder, describing their path as "rocky" as the company seeks a buyer for the division. This assessment comes after a period of intense corporate maneuvering and rejected acquisition offers.

The current situation follows Teck's rejection of a substantial $23 billion unsolicited bid from Glencore Plc for the entire company. Teck's board had unanimously favored its own plan to spin off EVR into a separate publicly listed entity, aiming to create Teck Metals and Elk Valley Resources. However, this internal separation strategy ultimately failed to secure sufficient shareholder support, leading to its withdrawal in April.

With the spin-off plan abandoned, Teck Resources announced it would instead explore alternative transactions for the steelmaking coal business. This strategic shift has reportedly attracted interest from major industry players, including BHP Group Ltd., which is said to be considering a bid for EVR, according to recent reports. The reported interest from a global mining behemoth like BHP underscores the perceived value of Teck's coking coal assets in the market.

"Teck sold itself on the cheap, but any rival bidder willing to pay a premium would have a rocky path ahead," writes Javier Blas, as quoted by Bloomberg Opinion.

Blas's analysis underscores the challenges in extracting a premium valuation for the coal unit, particularly given the backdrop of Teck's prior rejection of Glencore's all-company offer. He notes that while Teck's management has historically done well in maximizing value from the coal business, securing a high price now is complicated by factors such as increasing environmental pressures on fossil fuel assets and the delicate balance of finding a fair price without initiating a costly bidding war. The ongoing search for a buyer for EVR represents a critical juncture for Teck's future strategic direction and its portfolio optimization efforts.