Rio Tinto, Glencore Discuss Biggest Mining Merger Ever

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(Bloomberg) — Rio Tinto Group and Glencore Plc are holding early talks about merging their businesses to create a behemoth that will rival longtime titan BHP Group.

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The talks took place late last year but are still not working, according to people with knowledge of the matter, who asked not to be identified discussing confidential information. Rio Tinto is the world’s second-largest miner, with a market value of about $103 billion at the close of trading in London on Thursday, while Glencore is worth about $55 billion. BHP is valued at $126 billion.

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A potential combination of the two companies would rank as the largest mining deal ever, but any transaction would be complex and face many potential hurdles. While Glencore has large copper assets at a time when major producers around the world are looking for an increase in the essential metal in the energy transition, it also has a large coal business that will not be appealing to Rio. The big miner’s chief executive has repeatedly expressed caution about big deals, and the two companies have very different cultures.

Representatives for Rio and Glencore declined to comment. Rio shares in Sydney fell as much as 1.8% in early trading on Friday. Glencore rose about 3.4% at the open in London.

The mining industry has been buoyed by a wave of deals in the past few years, driven largely by the desire of the biggest producers to expand on copper – the metal that is the backbone of the world’s efforts to decarbonise.

Both Glencore and Rio own the world’s largest copper mines. However, Rio – like BHP – is still heavily dependent on steel to drive its profits, at a time when China’s decades-long boom is coming to an end and the steel market appears headed for a prolonged period of weakness.

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History Repeats itself

Glencore, which previously proposed a merger with Rio in 2014, has been one of the most aggressive bidders in the sector. Its former CEO Ivan Glasenberg, who led the way to Rio, still owns nearly 10% of the company.

“It’s funny how history repeats itself,” said RBC Capital Markets analyst Ben Davis. “Especially since they’ve gone on very different paths since then.”

In the decade since, Rio Tinto has tried to move away from fossil fuels. It has completely exited coal mining and instead sought to grow its copper and lithium businesses. In contrast, Glencore has added more coal, including buying mines in Rio.

Glencore made an unsuccessful bid to buy Teck Resources Ltd. in 2023 but instead settled in the coal unit of a small company. BHP last year tried to buy Anglo American Plc in a $49 billion deal – which forced Anglo to accelerate a restructuring of its business as part of its defense strategy – before it came up empty.

Central to a wave of deals sweeping the sector is copper. Major miners are eager to pile on the assets that investors love, but existing mines are growing and low-quality, while new ones are hard to find and expensive to build.

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Buying Glencore would give Rio a stake in the Collahuasi mine in Chile, one of the richest investments the company has coveted for more than a decade. Anglo’s stake in the same mine was a major horse in BHP’s takeover bid last year, while Bloomberg previously reported that Rio made offers to both Glencore and Anglo for their stakes in the mine during the 2015 asset downturn.

The combination of the two companies will create the first copper miner, according to Bloomberg Intelligence analyst Grant Sporre.

Clear Obstacles

However, there are also very clear obstacles. Glencore is the world’s largest coal exporter and the company recently decided against spinning off the profitable unit after feedback from its investors. It mines nickel and zinc, commodities Rio does not own, and has copper and cobalt mines in the Democratic Republic of Congo – a difficult operating environment that Rio has long avoided.

Glencore also has one of the largest commodity trading businesses in the world – buying, selling and shipping large quantities of metals, coal and oil.

The merger with Rio will raise questions about the coal mining assets of Glencore, which was spun off from Rio a few years ago. Glencore is also the world’s largest thermal coal exporter and a top coal producer. Any merger could also attract antitrust scrutiny from regulators.

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One of the most obvious obstacles is the culture clash between the two companies. Glencore is known as a hard-driving, automated trading business that made a name for itself as a commodities trader before venturing into mining. The company was listed in 2011 under former manager Glasenberg, before it was handed over to Gary Nagle, a South African accountant trained to rise through the ranks of the company, making a name for himself in running coal mines and trading the fuel they produce.

Rio has been wary of M&A – hit by two disastrous deals in the past decade – but has made a cautious comeback in recent years. The company bought a copper miner for $3.1 billion, acquired a lithium project in Argentina and last year agreed to a $6.7 billion deal to buy Arcadium Lithium Plc.

Cultural Change

Yet Rio’s chief executive Jakob Stausholm remains publicly skeptical about the massive transaction and the possibility of shareholder pushback. He said last month that investors are likely to see a decline in large deals to get more copper.

Rio also underwent a major cultural shift as it sought to continue the destruction of Aboriginal Australian heritage that eventually cost the CEO and chairman their jobs.

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Under Stausholm, the company sought to rebuild its reputation and tried to address issues of bullying, sexual harassment and discrimination in its mines. Glencore has also faced its own reputational challenges, after paying more than $1.5 billion in recent years to settle a series of investigations into bribery and corruption around the world.

Both companies have large 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.

Talks came up again with Rio riding high. The company has a growth plan unmatched by many of its competitors, with copper, iron ore and lithium projects all coming on stream in the near future.

“It’s unclear what Rio’s motivation is at this point given the strategic differences between the two companies,” Davis said. “Glencore is likely to give major shareholders a way out.”

—Courtesy of Jack Farchy and Michelle F. Davis.

(Updates to add that expressions are not working yet.)

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