Citigroup sees no rationale for Antofagasta in rumoured Teck merger
Citigroup said it sees no clear rationale for Antofagasta in its denied merger with Canadian mining peer Teck Resources, saying that it is unlikely that the UK group is 'in play' in M&A terms.
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The US bank reiterated a 'sell' rating and 690p target price on Antofagasta.
Both Antofagasta and Teck have quashed the speculation, despite a Bloomberg report that suggested the two were in "early-stage talks".
The rumoured deal, which would have created one of the largest copper producers in the world, is said to have required major compromises by the families that control each party.
"Our initial reaction to any potential deal is puzzlement, seeing no obvious benefits to Antofagasta," according to Citi.
"Operating synergies would be relatively small. Strategically we see no benefits to Antofagasta’s minority shareholders from diversification into coal and zinc (although this does hinge on long-term prices); plus risk of a major de-rating risk from losing the pureplay copper premium. The only good rationale would be if Los Pelambres really is at risk (in which case Teck would walk)."
Antofagasta's biggest shareholder is a vehicle owned by Luksic family with a 60.66% holding. "Investors may interpret that the Luksic family is willing to part with Antofagasta but this is highly speculative at this point, in our view," Citi added.
Antofagasta was down 0.1% at 739p by 10:23 on Tuesday.