Anglo American strikes deal to create a new copper giant
We are surprised that Teck agreed to the merger on these terms, and wouldn’t be surprised if there is a twist in the tale.
Mentioned: Teck Resources Ltd Class B (Sub Voting) (TECK), Anglo American PLC (AAL), BHP Group Ltd (BHP), Rio Tinto Ltd (RIO)
Anglo (LON:AAL) has agreed to buy Teck (NYS:TECK) to form copper-focused Anglo Teck, with iron ore and zinc its other major businesses. Teck shareholders will receive 1.3301 shares in Anglo, or a Canadian subsidiary, for each Teck share. Anglo also plans to pay a premerger USD 4.19 (GBX 310) special dividend.
The merger is driven by optimism over rising demand for copper for use in renewables, electric vehicles, and investment in electricity transmission grids as the world decarbonises and electrifies to reduce carbon emissions.
And given the increased costs to build new copper mines—as Teck experienced with cost blowouts to construct its Quebrada Blanca 2, or QB2, mine—existing large, long-life, low-cost mines such as QB2 and Anglo’s Quellaveco, Collahuasi, and Los Bronces are increasingly attractive assets.
Anglo Teck will be one of the world’s largest copper miners, producing around 1 million metric tons (its share) in 2027 once QB2 fully ramps, and is located in the second quartile of the industry cost curve. QB2, Quellaveco, Collahuasi, and Los Bronces also have extension and expansion options.
A twist in the tale?
Our updated fair value estimates are GBX 2,000 for no-moat Anglo (up 3%) and USD 32.50 (down 4%) for no-moat Teck.
Despite being marketed as a merger of equals, Anglo is using its overvalued shares to acquire less overvalued Teck, so it is slightly value-accretive to Anglo but moderately value-destructive to Teck.
Shares of both companies trade at material premiums to our updated fair values. This is likely due to optimism over rising copper demand and many investors assuming higher midcycle copper prices than our USD 3.75 per pound assumption.
We are surprised Teck agreed to this deal and assume a 50% chance that it occurs in its current form. Both companies have attractive copper businesses and have received takeover proposals in recent years, and we think this deal may elicit further approaches to one or both of them.
The deal is subject to approval from both companies’ shareholders as well as regulators. Anglo Teck’s head office will be in Canada and senior management will reside in the country, meaning we think it is likely that Canadian regulators approve the deal.
While this won’t affect potential bidders for stand-alone Anglo, this could reduce the number of alternative bidders for Teck, given that the likes of BHP (BHP) and Rio (RIO) are unlikely to agree to similar conditions to obtain Canadian regulatory approval.
Teck and Anglo’s transformation continues
Both Teck and Anglo have slimmed down in recent years. Teck is now primarily a copper business with some zinc. For its part, Anglo is focusing on copper, iron ore, and its nascent crop nutrients business. It recently exited platinum group metals after selling its remaining 20% stake in Valterra (formerly Anglo American) Platinum, has agreed to sell its nickel business, and is trying to exit diamonds and metallurgical coal. While the sale of its remaining metallurgical mines to Peabody is unlikely to go ahead, we expect it will ultimately sell them to another bidder or bidders.
However, Teck’s share repurchase program is now on hold. The merger is also likely to see the potential development of its attractive copper growth pipeline, including its 50%-owned San Nicolas and 80%-owned Zafranal projects being pushed back in favor of ramping QB2 to full capacity, extending its Highland Valley Copper operations, and focusing on the combined entity’s larger copper assets mentioned above. We forecast the combined group’s attributable copper volumes to increase to about 1 million metric tons from 2027, up from around 900,000 in 2025.
Longer-term, there is the potential to further increase production at Collahuasi and QB2, given they are located in close proximity to each other, and similarly at Los Bronces and the neighboring Andina mine owned by Codelco. Combined, this could see an additional 10% to 15% in group copper volumes, but we ascribe little value to these volumes at this stage, given that they are likely to occur in the early 2030s at the earliest.
