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The Rio Tinto Group logo atop the Central Park Tower, which houses the company’s offices, in Perth, Australia, Friday, Jan. 17, 2025.
Bloomberg | Bloomberg | Getty Images
The mining sector appears poised for a frenzied year of deal-making following market speculation over a tie-up between the industrial giants. Rio Tinto and Glencore.
It comes after Bloomberg News notify British-Australian multinational Rio Tinto and Switzerland-based Glencore were in merger talks on Thursday, although it was unclear whether the discussions were alive.
Separately, Reuters notify Glencore on Friday approached Rio Tinto late last year about a possible business combination, a source familiar with the matter said. The talks, which they said were short, were believed to be no longer active, the news agency reported.
Rio Tinto and Glencore both declined to comment when contacted by CNBC.
A merger between Rio Tinto, the world’s second-largest miner, and Glencore, one of the world’s largest coal companies, would be the largest ever in the mining industry.
Combined, the two companies would have a market value of about $150 billion, surpassing the longtime industry leader. BHPWorth about $127 billion.
Analysts were highly skeptical about the merits of a Rio Tinto-Glencore merger, citing limited synergies, Rio Tinto’s complex. double structure and strategic divergences over coal and corporate culture as factors that create challenges to finalizing the deal.
“I think everyone is a little surprised,” BHF equity analyst Maxime Kogge Oddo told CNBC by phone.
“Frankly, they have limited overlapping assets. Copper is really where there are some synergies and an opportunity to add assets to make a bigger group,” Kogg said.
Global mining giants are exploring the benefits of mega-mergers to strengthen their position energy transitionespecially with the demand for metals like copper it is expected to rise in the coming years
A highly conductive metal, copper is expected to be in short supply as it is used to power electric vehicles, wind turbines, solar panels and energy storage systems, among other things.
Oddo BHF’s Kogge said it is currently “really tricky” for major mining companies to bring new projects online, citing Rio Tinto’s long-standing backlog and delay. controversial Resolution US copper mine as an example.
“It’s a very promising copper project, it could be one of the biggest in the world, but it’s fraught with problems and, in a way, acquiring another company is a way to really accelerate copper expansion,” Kogg said.
“For me, a deal is not that attractive,” he added. “It goes against what all these groups have tried to do before.”
Last year, BHP made a $49 billion bid for its smaller rival Anglo Americanthat proposal in the end it failed due to problems related to the structure of the agreement.
Some analysts, including JPMorgan, expect another unsolicited bid for Anglo American to take place in 2025.
M&A parlor games
JPMorgan analysts Dominic O’Kane said the bank’s “high conviction view” that 2025 would be defined by mergers and acquisitions (M&A), particularly among UK-listed miners and copper companies, was coming to fruition with less than two weeks to go. in the year
The Wall Street bank said its own analysis of the mining sector found that the current economic and risk management environment favored M&A over building organic projects.
Analysts at JPMorgan predicted that the latest speculation would soon return Anglo American to the spotlight, “specifically the merits and probabilities of another BHP combination proposal”.
Before continuing with Anglo American, BHP completed An acquisition of OZ Minerals in 2023, strengthening its copper and nickel portfolio.
The company’s logo adorns the side of the BHP headquarters in Melbourne on February 21, 2023. – The Australian multinational, a major producer of metallurgical coal, iron ore, nickel, copper and potash, said net profit fell 32 percent year-on-year. They reached 6.46 billion dollars in the six months to December 31. (Photo by William WEST / AFP) (Photo by WILLIAM WEST/AFP via Getty Images)
William West | Afp | Getty Images
Analysts led by Ben Davis of RBC Capital Markets said it was unclear whether the talks between Rio Tinto and Glencore could result in a simple merger or rather break up certain parts of each company.
In any case, the M&A parlor games that followed the merger talks between BHP and Anglo American will certainly “commence again in earnest”.
“While Glencore approached Rio Tinto’s major shareholder Chinalco in July 2014 for a potential merger, it is still unpredictable,” analysts at RBC Capital Markets said in a research note on Thursday.
BHP’s move to acquire Anglo American could catalyze talks between Rio Tinto and Glencore, analysts said, with the former seeking greater exposure to copper and the latter seeking an exit strategy for large shareholders.
“We would not expect a direct merger to happen as we believe Rio shareholders would favor Glencore, but (there may be) a deal structure that can keep the shareholder pool and management happy,” they added.
Copper, coal and culture
Analysts led by CreditSights’ Wen Li said speculation about a Rio Tinto-Glencore merger raises questions about strategic alignment and corporate culture.
“Strategically, Rio Tinto could be interested in Glencore’s copper assets, aligning with its focus on durable metals going forward. Additionally, Glencore’s marketing business could offer synergies and expand Rio Tinto’s reach,” CreditSights analysts said in a research note published on Friday. in a note .
“However, Rio Tinto’s lack of interest in coal assets due to recent divestments suggests that any merger would require careful structuring to avoid unwanted asset overlaps,” they added.
A mining truck carries a full load of coal at Glencore Plc’s Tweefontein coal mine on October 16, 2024 in Tweefontein, Mpumalanga province, South Africa.
Per-anders Pettersson | Getty Images News | Getty Images
From a cultural point of view, CreditSights analysts said Rio Tinto was known for its conservative approach and focus on stability, while Glencore gained a reputation for “relentless drive in its operations”.
“This cultural discontinuity could create integration and decision-making challenges if a merger were to go ahead,” CreditSights analysts said.
“If this materialises, it could have wider implications for mega-deals in the metals (and) mining space, bringing BHP/Anglo American back into the game,” they added.
— CNBC’s Ganesh Rao contributed to this report.
