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Rio Tinto and Glencore held talks last year about merging part or all of their businesses, a sign of how the push by mining companies to secure minerals needed for the energy transition has focused executives on large-scale deals.
The London-listed companies engaged in early talks last October, according to people familiar with the matter, but discussions did not progress towards an agreement.
A full 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.
The talks between the two companies follow BHP’s failed £39bn bid for Anglo American last year, which prompted rivals to review strategic options.
BHP was interested in Anglo’s copper mines, among other things, because the metal is used in renewable energy projects and electric cars.
Glencore and Rio declined to comment. Bloomberg first reported that Rio and Glencore had discussed merging their businesses.
Rio Tinto is looking to boost its exposure to commodities including lithium and copper to offset weakness in the iron ore market as demand from China slows. Glencore has stakes in two large copper mines – Colahuasi in Chile and Antamina in Peru – that would boost its production of the red metal by about 1 million tonnes a year and provide significant expansion capacity, according to analysts.
A potential deal with Glencore would be complicated by the Swiss-based company’s significant exposure to thermal coal, a commodity that Rio has abandoned in recent years. Matthew Haupt, a portfolio manager at Wilson Asset Management, which owns shares in Rio, said the deal “didn’t make a lot of sense” given Rio’s efforts to phase out coal and invest in renewable energy to power its operations.
Glencore, which has a large commodities trading business as well as mining operations, has been discussing the future of its coal business.
The company said in 2023 that it would spin its coal mines into a separate listed company, but then changed its mind last year and decided to keep them.
Glen Lowcock, an analyst at investment bank Barenjoey, said the coal assets could be spun off as a separate company as part of any agreement. He added that there is little overlap between the two companies, meaning there are few synergistic benefits from the merger and the deal will have to be justified by diversifying assets and creating more scale.
Ray David, portfolio manager at Blackwattle Investment Partners, which owns Rio’s UK-listed shares, said Rio could finance a takeover of Glencore by issuing shares in Australia, which would rebalance Rio’s share structure and close the value gap between… ASX and LSE listings. Activist investors, including Blackwattle, have urged Rio to move its primary listing to Sydney – where its shares trade at a premium – to streamline share-based deals.
Australian Rio shares fell 1.8 percent in early trading in Sydney, before rising again, falling 1.4 percent.
Demand for commodities needed to decarbonize the global economy – such as copper, lithium and aluminum – has sparked a flurry of deal-making activity in the mining industry over the past year.
Rio last year announced a $7 billion deal to acquire Arcadium Lithium, as part of increasing its presence in the minerals used in electric vehicle batteries.
People close to the company said it was still digesting the deal.
Rio rejected a takeover bid from Glencore in 2014.
Lowcock said the reaction of some Rio investors in Australia was one of discomfort given Glencore’s reputation for making smart deals. “The shareholders said I didn’t want any of my companies sitting at the table across from Glencore,” he said.
Blackwattle’s David said the fact that the talks had ended showed that Rio remained cautious in a consolidating market. “I think Glencore wants a high premium. It’s a positive sign [that talks ceased] It also shows that Rio is disciplined and aware of not destroying shareholder value. “It would be easy to panic.”