Economists split over Anglo Teck tie-up as questions mount about South Africa’s role

Tawanda Karombo

Economists remain divided over Anglo American’s proposed tie-up with Canada’s Teck Resources, with some arguing that the transaction will unlock significant value for South African shareholders while others warn it signals the final unravelling of the miner’s South African legacy.

This comes as shareholders are expected to vote in favour of the deal, touted by Anglo American as a merger of equals. The two resource giants also expect the deal to yield $800 million in pre-tax recurring annual synergies.

However, South African economist Duma Gqubule, this week said the tie-up is not a merger of equals.

In a report he compiled on the meger, Gqubule said the transaction will “provide a final death knell” for the Johannesburg and London-listed resource giant.

Anglo American has been shedding its South African assets under CEO Duncan Wanblad, with the company finalising its exit from Anglo American Platinum this year.

“On every metric, this is not a merger of equals since Anglo is much larger than Teck – even after the new company has disposed many of the former Anglo’s assets that accounted for half of its 2024 revenues and almost quarter of its earnings before interest, tax, depreciation and amortisation (Ebitda),” said Gqubule. 

However, other economists see the deal as a windfall for South African shareholders.

Robbie Proctor, resource analyst at Anchor Capital, said South African shareholders in Anglo American will receive a R73 per share special dividend in addition to other economic benefits on conclusion of the tie-up with Teck.

After the merger, the combined Anglo Teck is expected to remain with one South African asset, Kumba Iron Ore, which analysts fear could also be eventually be disposed of.

According to a research note by JP Morgan Cazenove, “if this merger is completed, iron ore could eventually be divested or demerged” in pursuit of Anglo American’s strategy for enhanced exposure to copper.

Resistance to the merger is not limited to South Africa. Canadian authorities previously pushed back on aspects of the deal, while Glencore has raised concerns about the future of its Chilean joint venture (JV) with Anglo.

Glencore CEO, Gary Nagle, said this week that his company would insist on keeping a bigger stake in the JV. He said: “We won’t be a junior partner.”

Analysts say South Africa’s Public Investment Corporation (PIC) currently owns 6.9% of Anglo American’s shares worth about R52 billion as well as 2.7% of Kumba’s shares that are worth R2.9vb. The Industrial Development Corporation owns 12.9% of Kumba shares worth R13.9bn.

The combined South African State shareholding in Anglo and Kumba is R68.8bn, with community and employee trusts owning 4.2% of the Sishen Iron Ore Company (SIOC) that is worth R6bn.

However, argued Gqubule, Anglo’s takeover of Teck will mostly benefit the Canadian economy and Anglo’s executives who will move to Vancouver “and get large bonuses if shareholders accept an incentive plan that also rewards them” for concluding the transaction.

If concluded, the merged entity will be renamed to Anglo Teck, becoming a Top 5 global copper producer, with combined current production of 1.2 million tons and expected to rise by 10% to 1.35 million tons in 2027.

“Excluding the steelmaking coal business, nickel and diamonds, Anglo American was estimated to derive 60% of EBITDA from copper. The combined entity’s copper contribution will be around 70%,” explained Proctor.

In addition to yielding $800m through synergies, Anglo Teck also stands to accrue $1.4bn in potential uplifts to its earnings before interest, tax, depreciation and armotisation (Ebitda) from combining the Collahuasi and Quebrada Blanca mines in Chile.

Neil Wilson, an investor strategist, said the merger between Anglo American and Teck is a “sign that consolidation in the industry is afoot as copper demand” explodes.

It comes after the two companies rebuffed take-over bids in the recent past; Anglo American rebuffed BHP while Glencore also looked at Teck in 2023.

BUSINESS REPORT