Bloomberg resources analyst David Fickling has floated the idea of a merger between BHP spin-off South32 and Canadian mining firm Teck Resources.
The merger has been proposed as a method of prolonging the ageing South32’s lifespan.
Despite a 28 per cent rise in share value over the past two years and a cash reserve of US$859m, the third largest in the industry, South32 is facing the expiry of many of its global mining assets.
On the other hand, Teck has accrued US$4.77 billion of net debt but owns copper and coking coal deposits with production capacity for a further 20 years.
Fickling’s proposal would see South32 offering a 30 per cent premium to Teck’s shareholders, using its stock as currency, generating an 11 per cent improvement in share earnings this year, followed by a 16 per cent gain in 2018.
There are, of course, some “significant hurdles” standing in the way of such a deal, such as the geographic structures of both companies and the nature of Teck’s ownership, but Fickling believes that both could be feasibly dealt with for the merger to go ahead.