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Rio Tinto and Glencore held discussions last year about combining some or all of their operations, underscoring the extent to which the mining companies’ efforts to obtain the metals needed for the energy transition have focused executives on large-scale agreements.
The London-listed companies began preliminary negotiations as early as October, according to sources familiar with the matter, but the discussions did not result in an agreement.
A true merger between Rio and Glencore – which have market capitalizations of $103 billion and $55 billion respectively – would be among the largest deals ever in the mining industry.
Discussions between the two companies followed BHP’s failed £39bn bid for Anglo American last year, prompting rivals to rethink their strategic options.
BHP was particularly interested in 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 Rio and Glencore had discussed merging their businesses.
Rio Tinto is seeking to increase its exposure to commodities, including lithium and copper, to offset weakness in the iron ore market as Chinese demand slows. Glencore has stakes in two major copper mines – Collahuasi in Chile and Antamina in Peru – which would increase its production of the red metal by almost a million tonnes a year and provide substantial capacity for expansion, analysts say.
A potential deal with Glencore would be complicated by the Switzerland-based company’s heavy exposure to thermal coal, a product Rio has abandoned in recent years. Matthew Haupt, a portfolio manager at Wilson Asset Management, which owns shares in Rio, said the deal “doesn’t make a lot of sense” given Rio’s efforts to exit coal and invest in renewable energy to fuel its operations.
Glencore, which has a significant commodities trading business as well as mining operations, is debating the future of its coal business.
The company announced that in 2023 it would spin off its coal mines into a separate listed company, but then changed his mind last year and decided to keep them.
Glyn Lawcock, an analyst at investment bank Barrenjoey, said the coal assets could be spun off into a separate company as part of any deal. He added that there was little overlap between the two companies, meaning a merger had few synergy benefits and a deal would have to be justified by diversifying assets and creating more large scale.
Ray David, portfolio manager at Blackwattle Investment Partners, which owns Rio’s UK-listed shares, said Rio could fund the Glencore acquisition by issuing shares in Australia, which would rebalance Rio’s share structure and would reduce the gap in value between the ASX and LSE listings. Activist investors including Blackwattle have urged Rio to move its main listing to Sydney – where its shares trade at a premium – to simplify share-based trading.
Rio’s Australian-listed shares fell 1.8 percent in early trading in Sydney, before recovering to 1.4 percent.
Demand for raw materials needed to decarbonize the global economy – such as copper, lithium and aluminum – has sparked a flurry of trading activity in the mining industry over the past year.
Rio announced a $7 billion deal last year to acquire Arcadium Lithium, aiming to increase its presence in metals used in electric vehicle batteries.
Sources close to the company said it was still digesting the transaction.
Rio rejected a takeover bid from Glencore in 2014.
Lawcock said the reaction from some Rio investors in Australia was one of unease given Glencore’s reputation for smart trading. “Shareholders have said I don’t want one of my companies sitting across from Glencore,” he said.
David de Blackwattle said the end of negotiations showed Rio remained cautious in a consolidating market. “I suspect Glencore wants a high premium. This is a positive sign [that talks ceased] as this shows, Rio is disciplined and conscious not to destroy shareholder value. It would be easy to panic.
