Glencore holds merger talks with Rio

Rio Tinto (NYSE, LSE, ASX: RIO) and commodities trading giant Glencore (LSE: GLEN) are holding preliminary talks about combining some or all of their businesses in a deal that could create the world’s largest miner.

Possible scenarios include an all-share merger between the companies, Glencore and Rio said Thursday afternoon in separate statements. The parties’ current expectation is that any merger transaction would be effected through the acquisition of Glencore by Rio Tinto by way of a court-sanctioned scheme of arrangement, the Swiss-based commodities trader said. 

“There is no certainty that the terms of any transaction or offer will be agreed, nor as to the terms or structure of any such transaction or offer, if agreed,” Glencore warned.

Under U.K. securities rules, Rio Tinto said it will have until 5 p.m. (London time) on Feb. 5 to either announce a firm intention to make an offer for Glencore or announce that it doesn’t intend to make an offer. This deadline may be extended with the consent of the U.K. Takeover Panel, Rio said.

Anglo-Teck aftermath

News of the negotiations comes as Anglo American (LSE: AAL) and Teck Resources (TSX: TECK.A, TECK.B; NYSE: TECK) work to complete a $53-billion (C$74 billion) mega-merger that would create of one of the world’s largest copper producers amid rising prices for the metals and forecasts of a long-term supply shortage. Canada’s federal government approved the tie-up last month, though other regulatory hurdles remain.

Rio and Glencore reportedly held early-stage talks a year ago amid efforts by the London-based miner to diversify away from iron ore. Their combined copper production would rival that of BHP (NYSE, LSE, ASX: BHP).

Following the Anglo-Teck merger, and BHP’s previous interest in Anglo, the Rio Tinto-Glencore deal shows how much size and scale matter as development projects grow, Sean Boyd, Agnico Eagle Mines (TSX, NYSE: AEM) chair and Canadian Mining Hall of Fame member told The Northern Miner by email.

“This is likely a net positive for Canada as their combined Canadian businesses will be large and capable of investing more capital to grow the business in Canada, particularly in critical metals,” Boyd said. “Canada’s challenge and great opportunity is to fully develop its resource potential. This takes capital and skills that this combined company will have.”

The Rio-Glencore development wasn’t unexpected after the 2024 talks and the strengthening strategic rationale, Wen Li, head of metals and mining analysis at CreditSights, a unit of Fitch Solutions, said in a note late on Thursday.

“Strategically, the pending Anglo American-Teck Resources combination has intensified competitive pressure to scale, especially given copper’s growing importance,” Li said. “Rio’s appointment of Simon Trott as CEO also likely signals a more proactive stance toward portfolio actions and M&A, while Glencore’s CEO has argued that consolidation can deliver material synergies, stronger capital discipline, and better access to talent and long-term capital.”

Also, Glencore’s restructuring of its coal business into a subsidiary reduces one of the obstacles to a tie-up with Rio, Li said. An all-share merger would be a deal’s likely structure, the analyst said. 

Glencore expects to produce about 850,000 tonnes of copper this year, while Rio’s upper target for 2025 is about 875,000 tonnes. By 2035, Glencore is aiming to produce 1.6 million tonnes a year.

BHP rival

A combined Rio-Glencore would leapfrog long-running No. 1 miner BHP for size. BHP is worth about A$240 billion ($161 billion) as of Thursday’s close in Australian stock trading, compared with about $143 billion for Rio and $65 billion for Glencore.

Rio, which expanded into lithium last year with the $6.7-billion acquisition of Arcadium Lithium, expects total commodities output to rise about 3% a year by 2030 as new assets such as Guinea’s Simandou iron ore mine and Mongolia’s Oyu Tolgoi complex ramp up production. New lithium projects should also help, CEO Simon Trott said last month.

In the meantime, the company is conducting strategic reviews of its iron, titanium and borates businesses. That effort is advancing as planned, with the next phase focused on testing the market for the assets, Rio said Dec. 4.

Global restructuring

Glencore last year transferred almost $22 billion in foreign assets into its Australian subsidiary in a sweeping global restructuring that analysts said could lay the groundwork for a future merger with a rival mining heavyweight.

By centralizing key assets in a single jurisdiction, which is close to Asian markets, Glencore has created a more attractive and simplified structure for would-be partners or a mega-merger, investors said at the time.

After shelving plans to spin off the company’s coal division, Glencore CEO Gary Nagle centralized all coal operations within the Australian unit. They include Canadian subsidiary Elk Valley Resources, which operates four steelmaking coal mines in British Columbia: Elkview, Fording River, Greenhills, and Line Creek. EVR also holds a 46% stake in Neptune Terminals, a key bulk export facility.

Deal history

Several megadeals have been attempted at the top of the global mining industry –and it’s not the first time Glencore had been at the centre of it.

Under former CEO Ivan Glasenberg, Glencore made its first attempt to merge with Rio Tinto in 2014. That approach – which came barely two years after the company gobbled up Xstrata for $90 billion to add a vast mining portfolio to its then high-flying trading business –was quickly rebuffed.

Glencore’s tie-up with Xstrata itself came about after Anglo in June 2009 rejected a proposal to merge with Xstrata.

Rio’s M&A record is mixed. In 2007, the company bought Alcan for $38 billion, paying a 65% premium for the Montreal-based aluminum maker to beat other suitors. In the following years as the cycle turned, Rio had to take some $25 billion of Alcan-related writedowns.

Industry watchers will also recall BHP Billiton’s failed 2008 attempt to take over Rio. Regulators in multiple countries opposed the $116-billion deal and BHP eventually walked away as the global financial crisis, which hit the commodities world hard, erupted.