Morning Note: Market news and mining sector M&A.
Market News
Treasuries firmed with some curve flattening as traders look to Federal Reserve rate cuts. Yields were down for the fourth consecutive session – the 10-year currently yields 4.06%. However, Goldman’s David Solomon signalled rates aren’t too restrictive, diverging from the Trump administration’s stance. The Fed’s Beth Hammack reiterated that she doesn’t see a case for easing this month. Gold hit a new high and currently trades at $3,645 an ounce.
Wall Street expects preliminary revisions to show payrolls were overstated by 800,000 to 1 million jobs in the year to March, signalling market deterioration as far back as 2023. Bloomberg Economics expects a smaller revision of about 555,000.
US equities edged last night – S&P 500 (+0.2%); Nasdaq (+0.5%, to a record close) – during a fairly uneventful session. Microsoft struck a deal to get cloud computing power from Nebius for up to $19.4bn. Nebius shares surged 44% after hours. Teck Resources rose 24% after hours ahead of a now confirmed merger with Anglo American (see below). In Asia this morning, equities were mixed: Nikkei 225 (-0.4%); Hang Seng (+1.0%); Shanghai Composite (-0.5%).
The FTSE 100 is currently 0.2% higher at 9,238. UK shoppers spent more as temperatures rose in August, BRC survey shows. The BRC said spending at its members, mostly larger retail chains, increased by 3.1% in annual terms in August after a 2.5% rise in July. Within the mix, food sales jumped 4.7%, driven by rising prices rather than people buying more. Non-food spending edged up 1.8%. Sterling trades at $1.3565 and €1.1540.
French bond futures were steady on expectations PM Francois Bayrou will resign today. Emmanuel Macron will appoint a new premier within days, the country’s fifth in less than two years.
Source: Bloomberg
Company News
Anglo American and Teck Resources have agreed to a merger of equals, forming Anglo Teck to bring together two highly complementary portfolios of mining and processing assets located across Canada, the US, Latin America, and Southern Africa.
The merger will create a company with over 70% copper exposure. It will be a top five global copper producer, with six world-class copper assets with combined annual production of 1.2mt expected to grow by c.10% to 1.35mt in 2027. The company will also be a major producer of high-quality premium iron ore and one of the world’s largest producers of mined zinc.
The company is committed to completing Anglo American’s announced portfolio simplification, including ongoing work to separate De Beers alongside the completion of the steelmaking coal and nickel disposals.
The merger is expected to deliver $800m in pre-tax recurring annual synergies by the end of the fourth year following completion of the transaction, with 80% expected to be realised on a run rate basis by the end of the second year, driven by economies of scale, operational efficiencies, and commercial and functional excellence. In addition, the company is targetting $1.4bn in annual average underlying EBITDA from synergies between the adjacent Collahuasi and Quebrada Blanca operations in Chile from 2030-2049, which is expected to result in an increase of 175kt of potential additional annual copper production.
Anglo Teck will remain committed to maintaining a strong balance sheet and will target an investment grade credit profile underpinned by a larger, more diversified asset and cash flow base. Anglo American shareholders will receive a special dividend of $4.5bn ($4.19 per share) before completion.
Post merger, Anglo American shareholders will own 62.4% and Teck shareholders 37.6% of Anglo Teck plc. The merger, unanimously supported by both boards, is subject to customary conditions and regulatory approvals, with completion expected in 12-18 months. Anglo’s chief executive, Duncan Wanblad, will remain CEO, while Teck’s Jonathan Price will serve as deputy CEO. The company will be headquartered in Canada but have its primary share listing in London.
The deal has been well received by the market. Last night, ahead of the announcement, Teck surged 24% after hours, while Anglo American has been marked up by 8% in early trading this morning. The market capitalisation of the combined company now exceeds $50bn.
We also note Glencore has been marked up by 4% this morning. In 2023, the company proposed a merger with Teck, in the end settling for the acquisition of its coal business. The company also previously weighed a bid for Anglo American. This announcement clearly makes any further moves much less likely.
We believe commodities and resource stocks are inexpensive when compared to financial assets and are relatively under-owned in investor portfolios. Furthermore, the mining sector has a long history of M&A and we did expect further industry consolidation, albeit there will always be concerns over capital allocation and a repeat of the mistakes of previous cycles.
Source: Bloomberg
