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The Rio Tinto Group logo atop Central Park, which houses the company’s offices, in Perth, Australia, Friday, Jan. 17, 2025.
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The mining sector looks set for a frenetic year of deal-making following market speculation over possible tie-ups between the industry giants Rio Tinto and Glencore.
This comes after Bloomberg News reported British-Australian multinational Rio Tinto and Switzerland’s Glencore were in early-stage merger talks on Thursday, although it was unclear whether those discussions were continuing.
Separately Reuters reported On Friday, Glencore approached Rio Tinto late last year about the possibility of combining their businesses, according to a source familiar with the matter. The talks, which were called short, were considered inactive, the news agency reports.
Rio Tinto and Glencore declined to comment to CNBC.
A potential merger between Rio Tinto, the world’s second-biggest miner, and Glencore, one of the world’s biggest coal companies, would be considered the biggest deal in the mining industry.
Combined, the two firms will have a market value of about $150 billion, overtaking the longtime industry leader BHPwhich is worth about $127 billion.
Analysts were generally skeptical of the benefits of a merger between Rio Tinto and Glencore, pointing to limited synergies, the Rio Tinto complex dual structure and strategic differences over coal and corporate culture as factors that pose a challenge to a deal.
“I think everyone is a little surprised,” Maxime Koge, an equity analyst at Oddo BHF, told CNBC by phone.
“Frankly, they have limited overlapping assets. Only copper really has some synergy and the ability to add assets to create a larger group,” Koge said.
Global mining giants have been mulling the benefits of mega-mergers to strengthen their positions in the energy transitionespecially with the demand for metals such as copper sharp growth is expected over the following years.
Copper, a highly conductive metal, is projected to face shortages due to its use in electric vehicles, wind turbines, solar panels and energy storage systems, among other things.
Oddo BHF’s Kogge said it was currently “very difficult” for major mining companies to bring new projects online, citing Rio Tinto’s long delays and controversial One example is the separation of a copper mine in the United States.
“It’s a very promising copper project, it might be one of the biggest in the world, but it’s fraught with challenges, and somehow acquiring another company is a way to really accelerate the expansion of copper production,” Koge said.
“For me, the deal is not that attractive,” he added. “It goes against what all these groups have tried to do before.”
BHP made a $49 billion bid for a smaller rival last year Anglo-Americanthe proposal of which in the end it didn’t work out due to problems with the structure of the deal.
Some analysts, including JPMorgan, expect another unsolicited offer for Anglo American to materialize in 2025.
M&A parlor games
JPMorgan analysts led by Dominic O’Kane said the bank’s “highly bullish view” that 2025 will be dominated by mergers and acquisitions (M&A), particularly among British miners and global copper companies, will materialize in just two weeks. year
The Wall Street bank said its own analysis of the mining sector found that the current economic environment and risk management meant that mergers and acquisitions were likely to be favored over organic project construction.
Analysts at JPMorgan predicted that the latest speculation would soon put Anglo American back in the spotlight, “in particular the merits and likelihood of another merger offer from BHP”.
Before pursuing Anglo American, BHP completed acquisition of OZ Minerals in 2023, strengthening its copper and nickel portfolio.
The company logo adorns the BHP global headquarters in Melbourne on February 21, 2023. – The Australian multinational, a leading producer of metallurgical coal, iron ore, nickel, copper and potash, reported a 32 percent year-on-year drop in net income. year to US$6.46 billion 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 Davies of RBC Capital Markets said it remained unclear whether talks between Rio Tinto and Glencore could lead to a simple merger or would instead require the break-up of certain parts of each company.
Even so, they said the M&A parlor games that have emerged since the merger talks between BHP and Anglo American are sure to “commence in earnest again”.
“Although Glencore approached Rio Tinto’s key shareholder Chinalco about a potential merger in July 2014, it still came as a surprise,” RBC Capital Markets analysts said in a research note published on Thursday.
BHP’s move to buy Anglo American may have catalysed talks between Rio Tinto and Glencore, with the former potentially seeking a bigger stake in copper and the latter looking for an exit strategy for its major shareholders, analysts said.
“We don’t expect a straight merger because we believe Rio shareholders will see it as an advantage to Glencore, but (it’s) possible there is a deal structure that could make both the shareholder group and management happy,” they added.
Copper, coal and culture
Analysts led by CreditSights’ Wen Li said speculation about a merger between Rio Tinto and Glencore raised questions about strategic alignment and corporate culture.
“Strategically, Rio Tinto may be interested in Glencore’s copper assets, in line with its focus on stable, promising metals. In addition, Glencore’s marketing business could offer synergies and extend Rio Tinto’s reach,” CreditSights analysts said in a research note published on Friday. .
“However, Rio Tinto’s lack of interest in coal assets due to recent divestments suggests that any merger requires careful structuring to avoid unwanted overlapping assets,” they added.
A mining truck hauls a full load of coal at the Tweefontein coal mine, operated by Glencore Plc, on October 16, 2024. in Tweefontein, Mpumalanga Province, South Africa.
Per-Anders Peterson | Getty Images News | Getty Images
In terms of culture, CreditSights analysts said Rio Tinto was known for its conservative approach and focus on stability, while Glencore had built a reputation for “constantly pushing the envelope in its operations”.
“This cultural gap could cause integration and decision-making problems if the merger goes ahead,” CreditSights analysts said.
“If this materializes, it could have wider implications for metals (and) mining megadeals, potentially bringing BHP/Anglo American back into the game,” they added.
— CNBC’s Ganesh Rao contributed to this report.
