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Because the mega-merger craze has come to the fore in the mining industry

The Rio Tinto Group logo on the Central Park tower, which houses the company’s offices, in Perth, Australia, Friday, January 17, 2025.

Bloomberg | Bloomberg | Getty Images

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 British-Australian multinational Rio Tinto and Switzerland-based Glencore were in early merger talks on Thursday, although it was unclear whether the talks were still alive.

Separately, Reuters reported Friday that Glencore approached Rio Tinto at the end of last year about the possibility of combining their activities, citing a source familiar with the matter. The talks, which were said to be brief, were thought to be no longer active, the news agency said.

Rio Tinto and Glencore declined to comment when contacted by CNBC.

A prospective merger between Rio Tinto, the world’s second-largest miner, and Glencore, one of the world’s largest coal companies, would be the biggest deal in the mining industry.

Combined, the two companies would have a market value of about $150 billion, surpassing a longtime industry leader. BHPwhich is worth about $127 billion.

Analysts were largely skeptical about the merits of a Rio Tinto-Glencore merger, pointing to limited synergies, Rio Tinto’s complex. dual structure and strategic divergences on carbon and corporate culture as factors that pose a challenge to concluding an agreement.

“I think everyone is a little surprised,” Maxime Kogge, equity analyst at Oddo BHF, told CNBC by phone.

“Honestly, they have limited overlapping assets. That’s the only branch where there’s really some synergy and opportunity to add assets to make a bigger group,” Kogge said.

Global mining giants have been considering the benefits of mega-mergers to strengthen their position in the world energy transitionespecially with the demand for metals like copper he expected to jump over the coming years.

A highly conductive metal, copper is projected 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 is currently “really complicated” for major mining companies to bring new projects online, citing the long-delayed Rio Tinto. controversial Copper mining resolution in the United States as an example.

“It’s a very promising branch project, it could be one of the biggest in the world, but it’s full of problems and somehow acquiring another company is a way to really accelerate the expansion in the branch,” said Kogge.

“For me, a deal is not that attractive,” he added. “It goes against what all these groups have tried to do before.”

What's behind the impending copper shortage

Last year, BHP made a $49 billion bid for a smaller rival American Englisha proposal that ultimately failed due to problems with the business structure.

Some analysts, including those at JPMorgan, expect another unsolicited bid for Anglo American to materialize in 2025.

M&A parlor games

The company’s logo adorns the side of BHP’s headquarters in Melbourne on February 21, 2023. – The Australian multinational, a major producer of metallurgical coal, iron ore, nickel, copper and potash, said the net profit fell by 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 at RBC Capital Markets said it is unclear whether the talks between Rio Tinto and Glencore could result in a simple merger or require the break-up of certain parts of each company instead.

Regardless, they said the M&A parlor games that arose after the merger talks between BHP and Anglo American would undoubtedly be “seriously restarted”.

“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 published on Thursday.

BHP’s move to acquire Anglo American may have catalyzed talks between Rio Tinto and Glencore, analysts said, with the former potentially looking to gain more exposure to copper and the latter seeking an exit strategy for its major shareholders.

“We don’t expect an outright merger because I believe Rio’s shareholders will see it as favoring Glencore, but (it’s) possible that there will be a deal structure that could keep both groups of shareholders and management happy,” they added.

Copper, coal and culture

Analysts led by Wen Li at CreditSights 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 sustainable and future metals. In addition, Glencore’s marketing business could offer synergies and expand Rio Tinto’s reach” , analysts at CreditSights said in a research note issued 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 asset overlaps,” they added.

A mining truck carries 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 | Getty Images News | Getty Images

From a cultural perspective, CreditSights analysts said Rio Tinto was known for its conservative approach and focus on stability, while Glencore gained a reputation for “constantly pushing the envelope in its operations.”

“This cultural divide could pose challenges in the integration and decision-making process if a merger should proceed,” CreditSights analysts said.

“If this materializes, it could have wider implications for mega deals in the metals (and) mining space, potentially putting BHP/Anglo American on the line,” they added.

— CNBC’s Ganesh Rao contributed to this report.


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2025-01-20 14:35:00

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