The Rio Tinto Group logo on the Central Park Tower, where the company's offices are located, in Perth, Australia, on Friday, January 17, 2025.
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The mining sector looks set for a hectic year of business following market speculation about a possible merger between industry giants Rio Tinto and Glencore.
This comes after Bloomberg News reported on Thursday that British-Australian multinational Rio Tinto and Switzerland-based Glencore were in early merger talks, although it was not clear whether the talks were still ongoing.
Separately, Reuters reported on Friday, citing a source familiar with the matter, that Glencore approached Rio Tinto late last year about the possibility of merging their businesses. The supposedly short conversations are probably no longer active, the news agency reported.
Rio Tinto and Glencore both declined to comment when contacted by CNBC.
A proposed merger between Rio Tinto, the world's second-largest mining company, and Glencore, one of the world's largest coal companies, would be the biggest deal ever in the mining industry.
Together, the two companies would have a market value of around $150 billion, surpassing the long-time industry leader BHPwhich is worth around $127 billion.
Analysts have been largely skeptical about the merits of a Rio Tinto-Glencore merger, citing limited synergies, Rio Tinto's complex dual structure and strategic divergence over coal and corporate culture as factors making a deal difficult to complete.
“I think everyone is a little surprised,” Maxime Kogge, equity analyst at Oddo BHF, told CNBC by phone.
“Frankly, they have limited overlapping assets. It’s just copper where there really are some synergies and opportunities to add assets to form a larger group,” Kogge said.
Global mining giants have been mulling the benefits of mega-mergers to strengthen their position in the energy transition, especially as demand for metals like copper is expected to skyrocket in the coming years.
Copper, a highly conductive metal, is expected to face shortages due to its use in powering electric vehicles, wind turbines, solar panels and energy storage systems, among other things.
Oddo BHF's Kogge said it was currently “really difficult” for large mining companies to bring new projects online, citing Rio Tinto's long-delayed and controversial Resolution copper mine in the US as an example.
“It's a very promising copper project, it could be one of the largest in the world, but it's fraught with issues and acquiring another company is kind of a way to really accelerate the expansion into the copper space,” Kogge said.
“For me a deal is not that attractive,” he added. “It goes against what all these groups have tried before.”
Last year, BHP made a $49 billion bid for smaller rival Anglo American, a bid that ultimately fell through due to problems with the structure of the deal.
Some analysts, including those at JPMorgan, expect another unsolicited offer for Anglo American to materialize in 2025.
M&A parlor games
Analysts led by Dominic O'Kane at JPMorgan said the bank's “strong belief” that 2025 will be dominated by mergers and acquisitions (M&A), particularly among UK-listed mining companies and global copper companies, is already evident after two weeks year.
The Wall Street bank said its own analysis of the mining sector found that the current economic and risk management environment meant that mergers and acquisitions were likely to be preferred over building organic projects.
Analysts at JPMorgan predicted that recent speculation would soon put Anglo American back in the spotlight, “particularly the merits and likelihood of another combination proposal from BHP.”
Prior to the acquisition of Anglo American, BHP completed the acquisition of OZ Minerals in 2023, strengthening its copper and nickel portfolio.
The company logo adorns the side of BHP's headquarters in Melbourne on February 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 in the six months ended 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 lead to a simple merger or instead require the splitting of certain parts of each company.
Regardless, they said the M&A parlor games that emerged following merger talks between BHP and Anglo American would undoubtedly “begin in earnest again.”
“Although Glencore approached Rio Tinto's major shareholder Chinalco in July 2014 about a possible merger, it is still a surprise,” analysts at RBC Capital Markets said in a research note published on Thursday.
BHP's move to acquire Anglo American may have given a boost to talks between Rio Tinto and Glencore, analysts said, with the former potentially seeking greater copper exposure and the latter seeking an exit strategy for its major shareholders.
“We would not expect a direct merger to occur as we believe Rio shareholders would see this as favoring Glencore, but [it’s] “There may be a deal structure out there that could satisfy both shareholders and management,” they added.
Copper, coal and culture
Analysts led by Wen Li of CreditSights said speculation about a Rio Tinto-Glencore merger raises questions about strategic direction and company culture.
“Strategically, Rio Tinto may be interested in Glencore’s copper assets, consistent with its focus on sustainable, future-oriented metals. “In addition, Glencore’s marketing business could provide synergies and expand Rio Tinto’s reach,” analysts at CreditSights 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 need to be carefully structured to avoid unwanted asset overlaps,” they added.
A mining truck transports a full load of coal at the Tweefontein coal mine operated by Glencore Plc in Tweefontein, Mpumalanga Province, South Africa on October 16, 2024.
Peranders Pettersson | Getty Images News | Getty Images
From a cultural perspective, analysts at CreditSights said Rio Tinto was known for its conservative approach and focus on stability, while Glencore had earned a reputation for “constantly pushing the envelope in its operations.”
“This cultural divide could lead to integration and decision-making challenges in the event of a merger,” said analysts at CreditSights.
“If this occurs, it could have broader implications for metals mega-deals [and] “We will increase the mining space and potentially bring BHP/Anglo American back into play,” they added.
—CNBC's Ganesh Rao contributed to this report.
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