Updated ,first published
A proposed merger between Rio Tinto and Glencore would create the world’s biggest mining company with a major stake in the booming copper market, but could be detrimental to the local economy as the new resources behemoth shifts its focus away from Australia, analysts say.
A year after talks between Rio and Glencore collapsed, the companies confirmed they had re-engaged in discussions on Friday morning, with options including an all-share transaction that would see Rio buy Glencore. Glencore said there was no certainty of a deal, adding that a further announcement would be made as appropriate.
In a statement on Friday morning, Rio confirmed it had been engaging with Glencore “in preliminary discussions about a possible combination of some or all of their businesses.
“The parties’ current expectation is that any merger transaction would be effected through the acquisition of Glencore by Rio Tinto by way of a Court-sanctioned scheme of arrangement,” the statement said.
The fresh talks come amid a wave of deal making in the sector as the biggest miners look to bulk up on copper, a crucial metal for the construction of data centres to power the artificial intelligence boom and in the renewable energy transition, which is trading at near record highs.
Teck Resources and Anglo American agreed to merge last year, while BHP Group has made attempts to buy Anglo.
“They do slot nicely together. Rio gets a trading arm and extra copper and critical minerals. Glencore gets those foundation assets like iron ore which have started to tick up after three years of a depressed Chinese market,” MPC Markets chief executive Mark Gardner said.
If the two did merge, the combined business would leapfrog BHP – worth $203 billion – to become the world’s largest mining company worth around $300 billion, and the second-largest copper producer. Glencore produces around 1 million tonnes of copper annually, while Rio had a production target of 860,000 to 875,000 tonnes for 2025.
Gardner said that scale afforded the companies an extra layer of security against an increasingly uncertain geopolitical moment.
“When you’ve got [Donald] Trump versus Xi [Jinping] and those geopolitical divides getting broader over time, that consolidation gives them a lot more stability in a lot more countries,” he said.
But MST Financial senior energy analyst Saul Kavonic questioned whether the two companies would be a good fit for each other.
“Any deal is likely to be bad for Rio Tinto shareholders. Glencore simply don’t do bad deals, while Rio Tinto has a long history of value destructive deals,” he said.
“The large company and British mindset of Rio Tinto is a complete contrast to Glencore’s trading culture.”
Kavonic also said that Rio’s future moving offshore was not good for Australia. The company is dual-listed on the ASX and the London Stock Exchange, which is home to around three quarters of its shares.
“It’s another wake-up call that Australia can’t take its resource-driven economic engine for granted,” he said.
Rio’s ASX-listed shares fell by 6.32 per cent on Friday to $142.98 after trading at record highs. Glencore shares, meanwhile, rose as much as 7.7 per cent.
The tie-up with Glencore, the world’s largest listed coal company, could also represent a strategic pivot for Rio, which divested from coal in 2018. But analysts suggested that it could spin off its coal assets as part of a prospective deal, a move which has already been floated recently.
“When you buy something big, it’s always going to come with some things you don’t, and you deal with that,” Barrenjoey founding partner and head of resources research Glyn Lawcock said.
After failing to reach an agreement in 2024, Glencore continued to work behind the scenes with its bankers on what a potential deal with Rio could look like, Bloomberg reported.
Management has taken steps to prime Glencore to be able to move quickly, and Glencore chief executive Gary Nagle has repeated in private conversations that it’s a deal that should get done – describing a Rio-Glencore tie-up as the most obvious deal in the industry.
When a similar merger plan between the two mining giants was floated a year ago last January, analysts warned that the deal could face regulatory challenges and scrutiny from environmentally conscious investors.
Since the previous talks collapsed – primarily because of valuation – Rio has replaced its chief executive, with Simon Trott succeeding Jakob Stausholm. Glencore, meanwhile, has sought to convince investors – and potential buyers – of its plans to grow its copper business.
Under London Stock Exchange regulations, Rio Tinto has until February 5 to either announce whether it intends to make an offer for Glencore.
With Bloomberg
Kishor Napier-Raman is a CBD columnist for The Sydney Morning Herald and The Age. Previously he worked as a reporter for Crikey, covering federal politics from the Canberra Press Gallery.Connect via Twitter or email.
