(Bloomberg) — Rio Tinto Group and Glencore Plc have discussed merging their businesses, which if successful would rank as the largest mining deal ever and create a giant to rival longtime leader, the BHP group.
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Rio and Glencore recently held preliminary discussions toward a deal, according to people familiar with the matter, who asked not to be identified discussing confidential information. It is unclear whether talks are still ongoing.
Rio Tinto is the world’s second-largest mining company, with a market value of around $103 billion at the close of the London Stock Exchange on Thursday, while Glencore was valued at around $55 billion. BHP is worth around $126 billion.
Representatives for Rio and Glencore declined to comment. Rio’s shares in Sydney fell 1.8% in early trading on Friday, after Glencore’s American depositary receipts jumped 8.7%.
Any agreement would be complex and face many potential obstacles. Glencore’s huge coal business would be a stumbling block – and could be split up, one of the sources said – while the smaller mining company’s assets, from Kazakhstan to the Democratic Republic of Congo, could not to interest Rio. Companies also have very different cultures and histories.
The mining industry has been galvanized by a wave of deals over the past two years, driven largely by the desire of larger producers to expand into copper, a metal critical to global decarbonization efforts.
Both Glencore and Rio have some of the best copper mines in the world. However, Rio – like BHP – still relies heavily on iron ore to generate profits, at a time when China’s decades-long construction boom is coming to an end and the iron ore market appears heading into a long period of weakness.
History repeats itself
Glencore, which had already proposed a merger with Rio in 2014, was one of the most aggressive negotiators in the sector. Its former CEO Ivan Glasenberg, who spearheaded Rio’s previous approach, still owns nearly 10% of the company.
“It’s funny how history repeats itself,” said RBC Capital Markets analyst Ben Davis. “Especially since they have since followed very different paths.”
In the decade since, Rio Tinto has sought to move away from fossil fuels. It abandoned coal mining altogether and instead sought to expand its copper and lithium businesses. Glencore, on the other hand, has added more coal, including buying mines from Rio.
Glencore made an unsuccessful bid to buy Teck Resources Ltd. in 2023, but instead opted for the smaller company’s coal unit. Last year, BHP attempted to buy Anglo American Plc in a $49 billion deal – forcing Anglo to accelerate the overhaul of its business as part of its defense strategy – before ultimately walking away. empty-handed.
Copper is at the heart of the wave of transactions sweeping the sector. The biggest mining companies are desperate to focus on a commodity favored by investors, but existing mines are aging and of lower quality, while new ones are hard to find and expensive to build.
Buying Glencore would give Rio a stake in Chile’s Collahuasi mine, one of the richest deposits, which the company has coveted for more than a decade. Anglo’s stake in the same mine was a major draw for BHP’s takeover proposal last year, while Bloomberg previously reported that Rio had made offers to Glencore and Anglo for their stakes in the mine during of the 2015 raw materials crisis.
A combination of the two companies would create the number one copper miner, according to Grant Sporre, an analyst at Bloomberg Intelligence.
Remove obstacles
But there are also very obvious obstacles. Glencore is the world’s largest coal shipper and the company recently decided not to spin off the highly profitable unit after feedback from its investors. It mines nickel and zinc, raw materials Rio does not mine, and has copper and cobalt mines in the Democratic Republic of Congo – a difficult-to-mine location that Rio has long avoided.
Glencore also operates one of the world’s largest commodities trading businesses – buying, selling and shipping huge volumes of metals, coal and oil.
A tie-up with Rio would raise questions about Glencore’s coal mining assets, a business Rio abandoned several years ago. Glencore is also the world’s largest shipper of thermal coal and a leading producer of coking coal. Any merger could also face antitrust scrutiny from regulators.
One of the most obvious obstacles is the clash of cultures between the two societies. Glencore is renowned for being a cutthroat, swaggering company that made its name as a commodities trader before moving into mining. The company was listed on the stock exchange in 2011 under former boss Glasenberg, before handing over to Gary Nagle, a South African-trained accountant who rose through the ranks of the company, making a name for himself in mine management of coal and in the trade in the fuel they produced.
Rio is wary of mergers and acquisitions – haunted by two disastrous deals at the top of the cycle more than a decade ago – but has returned cautiously in recent years. The company bought a copper mining company for $3.1 billion, acquired a lithium project in Argentina and closed a $6.7 billion deal last year to buy Arcadium Lithium Plc.
Cultural change
Yet Rio CEO Jakob Stausholm has remained publicly skeptical of the big deals and the potential for shareholder backlash. He said last month that investors would likely see the downside of mega-deals aimed at securing more copper.
Rio has also experienced a radical cultural shift as it seeks to move forward from the destruction of an ancient Aboriginal site in Australia that ultimately cost the CEO and president their jobs.
Under Stausholm, the company sought to rebuild its reputation and tackle head-on issues of bullying, sexual harassment and racism at its mines. Glencore has also faced its own reputational problems, having paid more than $1.5 billion in recent years to resolve a series of investigations into bribery and corruption around the world.
Both companies have significant key shareholders. After Glasenberg, Glencore’s second largest shareholder is Qatar’s sovereign wealth fund, while Aluminum Corp. of China owns more than 14% of Rio Tinto, according to data compiled by Bloomberg.
The talks also come as Rio is booming. The company has an unprecedented growth plan compared to most of its competitors, with copper, iron ore and lithium projects all coming online in the near future.
“Rio’s motivation is not clear at this point, given the strategic divergence between the two companies,” Davis said. “For Glencore, this potentially gives its large shareholders an exit route.”
–With assistance from Jack Farchy and Michelle F. Davis.
(Updates with Rio stock price in fourth paragraph.)
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