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Rio Tinto and Glencore last year discussed merging some or all of their businesses, but this comes as executives seek to secure the metals they need for the energy transition. It shows whether you are concentrating on trading.
The London-listed companies held early-stage talks in October, but no agreement was reached, according to people familiar with the matter.
With market capitalizations of $103 billion and $55 billion, respectively, a full-fledged merger between Rio and Glencore would rank among the largest deals in history in the mining industry.
The talks between the companies follow the failure of BHP’s £39bn takeover bid for Anglo American last year, prompting rivals to consider strategic options.
BHP was interested in assets such as Anglo’s copper mines because the metal is used in renewable energy projects and electric vehicles.
Glencore and Rio declined to comment. Bloomberg first reported that the two companies had discussed combining their businesses.
Glencore shares rose 2% in early UK trade on Friday, while Rio shares rose 1% in London.
Rio is seeking to expand its exposure to commodities such as lithium and copper to offset the weakness in the iron ore market due to slowing demand from China.
Analysts say Glencore owns interests in two important copper mines, Collahuasi in Chile and Antamina in Peru, which will increase copper production by almost 1 million tonnes per year and provide significant expansion capacity. It is said that it will be done.
A potential deal with Glencore would be complicated by the Swiss-based company’s significant exposure to thermal coal. Thermal coal is a commodity Rio has abandoned in recent years.
Matthew Haupt, a portfolio manager at Wilson Asset Management, which owns a stake in Rio, said the deal was a “big deal” given Rio’s move to move away from coal and invest in renewable energy to power its operations. It didn’t make much sense.”
Glencore, which has a large commodity trading and mining operation, is debating the future of its coal business.
The company announced it would spin off the mine as a separate listed business in 2023, but changed its mind last year and decided to keep the mine afloat.
Glyn Lowcock, an analyst at investment bank Barrenjoey, said coal assets could be spun out as a separate company as part of the deal. He added that there is little overlap between the two companies, meaning there will be little synergy from the merger and the deal will need to be justified by diversifying assets and creating greater scale.
Ray David, portfolio manager at Blackwattle Investment Partners, which owns Rio’s UK-listed shares, said Rio could raise money to buy Glencore by issuing shares in Australia, which would allow Rio to ‘s share structure will be rebalanced to narrow the gap in value between Australian and London-listed shares, he said. .
Activist investors including Mr Blackwattle are calling for Rio de Janeiro to move its primary listing to Sydney, where shares trade at higher prices, to simplify share-based trading.
Demand for commodities needed to decarbonize the global economy, such as copper, lithium and aluminum, has triggered a flurry of deal activity in the mining industry over the past year.
Last year, Rio announced a $7 billion deal to acquire Arcadium Lithium to expand its presence in metals used in electric vehicle batteries. People close to the company said the company is still finalizing the deal.
Rio rejected Glencore’s takeover bid in 2014.
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Mr Lowcock said the reaction from some Australian Rio investors was one of concern, given Glencore’s reputation for shrewd trading.
“Shareholders have said they don’t want my company sitting across the table from Glencore,” he said.
Blackwattle’s David said the fact that negotiations had concluded shows that Rio remains cautious about stabilizing the market.
“I think Glencore wants a high premium,” he said. “(The cancellation of negotiations) is a positive sign because it shows Rio is being disciplined and conscious of not destroying shareholder value. It would be easy to panic.”
