The Rio Tinto Group logo atop the Central Park Tower, which houses the company’s offices, in Perth, Australia, on Friday, Jan. 17, 2025.
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The mining sector looks set for a frenetic year of deals, following market speculation about a potential tie-up between the industry giants Rio Tinto and Glencore.
It comes after Bloomberg News reported On Thursday, British-Australian multinational Rio Tinto and Switzerland-based Glencore were in early merger talks, although it was unclear if talks were still active.
Separately, Reuters reported On Friday, Glencore contacted Rio Tinto late last year about the possibility of combining their businesses, citing a source familiar with the matter. The talks, which were said to have been brief, are believed to be no longer active, the news agency reported.
Rio Tinto and Glencore declined to comment when contacted by CNBC.
A possible merger between Rio Tinto, the world’s second largest miner, and Glencore, one of the world’s largest coal companies, would rank as the biggest mining deal ever.
Combined, the two companies would have a market value of approximately $150 billion, surpassing the long-time industry leader BHPwhich is worth about 127 billion dollars.
Analysts were largely skeptical of the merits of a merger between Rio Tinto and Glencore, pointing to limited synergies, Rio Tinto’s complex dual structure and strategic differences around coal and corporate culture as factors that pose a challenge to closing a deal.
“I think everyone is a little surprised,” Maxime Kogge, an equity analyst at Oddo BHF, told CNBC by phone.
“Frankly, they have limited overlapping assets. Only copper is where there are really synergies and an opportunity to add assets to create a larger group,” Kogge said.
Global mining giants have been mulling the benefits of a mega-merger to strengthen their position in the energy transitionespecially with the demand for metals like copper expects a dizzying increase in the coming years.
Copper, a highly conductive metal, is predicted to face shortages due to its use in powering electric vehicles, wind turbines, solar panels and energy storage systems, among other applications.
Oddo BHF’s Kogge said it was currently “really difficult” for major mining companies to bring new projects online, citing long delays by Rio Tinto and controversial Resolution copper mine in the USA as one 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 somehow taking over another company is a way to really accelerate the expansion into copper,” Kogge said.
“For me, the job is not that attractive,” he added. “It goes against what all these groups have tried to do before.”
Last year, BHP offered $49 billion for its smaller rival Anglo-Americana proposition which in the end he failed due to problems with the work structure.
Some analysts, including those at JPMorgan, expect another unsolicited bid for Anglo American to materialize in 2025.
M&A parlor games
Analysts led by JPMorgan’s Dominic O’Kane said the bank’s “highly confident view” that 2025 will be defined by mergers and acquisitions (M&A), particularly among UK-listed miners and global copper companies, will only play out two weeks after years.
The Wall Street bank said its own analysis of the mining sector showed the current economic and risk management environment meant M&A was likely to be preferred over organic project building.
Analysts at JPMorgan predicted the latest speculation would soon thrust Anglo American back into the spotlight, “specifically the merits and likelihood of another combination proposal from BHP.”
Before continuing Anglo American, BHP completed acquisition of OZ Minerals in 2023, strengthening its copper and nickel portfolio.
Company logo adorns side of BHP global headquarters in Melbourne Feb 21, 2023 – The Australian multinational, a leading producer of metallurgical coal, iron ore, nickel, copper and potash, said net profit fell 32 percent year-on-year. year to 6.46 billion US 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 remained unclear whether talks between Rio Tinto and Glencore could result in a simple merger or would instead require the break-up of certain parts of each company.
Regardless, they said the M&A games that had been brewing since the merger talks between BHP and Anglo American would undoubtedly “re-start in earnest”.
“Despite Glencore once approaching Rio Tinto’s key shareholder Chinalco in July 2014 for a potential merger, it is still a surprise,” RBC Capital Markets analysts said in a research note on Thursday.
BHP’s move to take over Anglo American may have catalyzed talks between Rio Tinto and Glencore, analysts say, with the former potentially looking to increase copper exposure and the latter seeking an exit strategy for its major shareholders.
“We would not expect a direct merger to take place as we believe Rio’s shareholders would see it as favoring Glencore, but [it’s] it is possible that there is a deal structure that could make both shareholders and management happy,” they added.
Copper, coal and culture
Analysts led by CreditSights’ Wen Li say 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 forward-looking sustainable metals. Additionally, Glencore’s marketing business could offer synergies and expand 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 would require careful structuring to avoid unwanted overlapping assets,” they added.
A mining truck transports 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 Pettersson | News Getty Images | Getty Images
From a cultural perspective, CreditSights analysts said Rio Tinto is known for its conservative approach and focus on stability, while Glencore has built a reputation for “constantly pushing the boundaries in its operations”.
“This cultural divide could present integration and decision-making challenges if the merger proceeds,” CreditSights analysts said.
“If this comes to fruition, it could have wider implications for mega metals deals [and] mining space, potentially bringing BHP/Anglo American back into the game,” they added.
— CNBC’s Ganesh Rao contributed to this report.
