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Rio Tinto and Glencore held talks final 12 months about combining half or all of their companies, in a sign of how the push by mining firms to safe metals wanted for the power transition has targeted executives on large-scale offers.
The London-listed firms engaged in early-stage talks as lately as October, based on folks accustomed to the matter, however the discussions didn’t progress to a deal.
A full-blown merger between Rio and Glencore — which have market capitalisations of $103bn and $55bn, respectively — would rank among the many largest-ever transactions within the mining trade.
The talks between the 2 firms adopted BHP’s failed £39bn bid for Anglo American final 12 months, which prompted rivals to overview strategic choices.
BHP was enthusiastic about Anglo’s copper mines, amongst different belongings, as a result of the metallic is utilized in renewable power tasks and electrical automobiles.
Glencore and Rio declined to remark. Bloomberg first reported the businesses had mentioned combining their companies.
Rio has been trying to enhance its publicity to commodities together with lithium and copper to offset weak spot within the iron ore market as demand from China slows.
Glencore owns stakes in two vital copper mines — Collahuasi in Chile and Antamina in Peru — that might enhance its manufacturing of the metallic by virtually 1mn tonnes a 12 months and provide substantial enlargement capability, based on analysts.
A possible cope with Glencore could be difficult by the Swiss-based firm’s heavy publicity to thermal coal, a commodity Rio has deserted lately.
Matthew Haupt, a portfolio supervisor at Wilson Asset Administration, which owns shares in Rio, mentioned the deal “didn’t make a whole lot of sense” given Rio’s efforts to get out of coal and spend money on renewable power to energy its operations.
Glencore, which has a big commodity buying and selling enterprise and mining operations, has been debating the way forward for its coal enterprise.
The corporate mentioned in 2023 it could spin out its coal mines right into a separate listed enterprise however changed its mind final 12 months and determined to retain them.
Glyn Lawcock, an analyst with funding financial institution Barrenjoey, mentioned coal belongings may very well be spun out as a separate firm as a part of any settlement. He added there was little overlap between the 2 firms, which means there have been few synergy advantages from a merger and a deal would should be justified by asset diversification and creating extra scale.
Ray David, a portfolio supervisor at Blackwattle Funding Companions, which owns Rio’s UK-listed shares, mentioned Rio might fund an acquisition of Glencore by issuing shares in Australia, which might rebalance Rio’s share construction and shut the worth hole between its Australian and London listings.
Activist buyers, together with Blackwattle, have urged Rio to maneuver its main itemizing to Sydney — the place its inventory trades at a premium — to simplify share-based offers.
Rio’s Australia-quoted shares fell 1.8 per cent in early buying and selling in Sydney on Friday, earlier than climbing again to be down 0.5 per cent.
Demand for commodities required to decarbonise the worldwide economic system — equivalent to copper, lithium and aluminium — has triggered a flurry of dealmaking exercise within the mining trade over the previous 12 months.
Rio final 12 months introduced a $7bn deal to accumulate Arcadium Lithium to will increase its presence in metals utilized in batteries for electrical automobiles. Individuals near the corporate mentioned it was nonetheless digesting that transaction.
Rio beforehand rejected a takeover bid by Glencore in 2014.
Lawcock mentioned the response from some Rio buyers in Australia was one in every of unease given Glencore’s repute for good dealmaking.
“Shareholders have mentioned I don’t need any of my firms sitting throughout the desk from Glencore,” he mentioned.
Blackwattle’s David mentioned the actual fact talks had ended confirmed Rio remained cautious in a consolidating market.
“I think Glencore needs a excessive premium,” he mentioned. “It’s a constructive signal [that talks ceased] because it exhibits Rio is being disciplined and conscious of not destroying shareholder worth. It will be straightforward to panic.”
