The Rio Tinto Group logo atop the Central Park Tower, which houses the company's offices, in Perth, Australia, on Friday, January 17, 2025.
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The mining sector appears set for a hectic year of deal-making, following market speculation about a potential tie-up between industry giants. Rio Tinto and Glencore.
This comes after Bloomberg news I mentioned British-Australian multinational Rio Tinto and Swiss-based Glencore announced Thursday that they were in early merger talks, although it was not clear whether discussions were still underway.
Separately, Reuters I mentioned On Friday, Glencore approached Rio Tinto late last year about the possibility of merging its businesses, citing a source familiar with the matter. The talks, which were said to have been brief, are believed to be no longer active, the news agency reported.
Both Rio Tinto and Glencore declined to comment when contacted by CNBC.
The upcoming merger between Rio Tinto, the world's second-largest mining company, and Glencore, one of the world's largest coal companies, will mark the largest deal in the mining industry ever.
Combined, the two companies would have a market capitalization of about $150 billion, surpassing the long-time industry leader. BHPWhich is worth about $127 billion.
Analysts have been widely skeptical about the merits of the Rio Tinto-Glencore merger, citing limited synergies, and Rio Tinto's complexity. Double structure Strategic differences around coal and corporate culture were challenges to closing the deal.
“I think everyone is a bit surprised,” Maxime Coge, an equity analyst at Oddo BHF, told CNBC by phone.
“Frankly, they have limited overlapping assets. It's the only copper where there really is some synergy and opportunity to add assets to create a larger group,” Koji said.
Global mining giants are studying the benefits of mega mergers to strengthen their position in the world Energy transmissionEspecially with the demand for metals such as copper It is expected to rise During 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 applications.
Oddo BHF's Koji said it was currently “really difficult” for major mining companies to bring new projects online, pointing to the long-delayed Rio Tinto project and controversial A copper mine decision in the United States is one example.
“It is a very promising copper project, and it could be one of the largest in the world, but it is fraught with problems, and acquiring another company one way or another is a way to accelerate copper expansion,” Koji said.
He added: “For me, the agreement is not very attractive.” “It goes against what all these groups have tried to do before.”
Last year, BHP made a $49 billion bid for a smaller rival Anglo Americanwhich is the proposal that Ultimately failed Due to problems in the deal structure.
Some analysts, including those at JPMorgan, expect another unsolicited offer for Anglo American to materialize in 2025.
Mergers and Acquisitions Lounge Games
Analysts led by Dominic O'Kane at JPMorgan said the bank's “high-conviction view” that 2025 will be defined by mergers and acquisitions (M&A), particularly between UK-listed miners and global copper companies, is beginning to bear fruit after just two weeks. From the beginning of the year. 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 favored over organic project construction.
Analysts at JPMorgan expect the latest speculation to put Anglo American back in the spotlight soon, “particularly the merits and potential of another BHP merger proposal.”
Before following Anglo American, BHP complete Acquisition of OZ Minerals in 2023, strengthening its copper and nickel portfolio.
The company's logo adorns the side of BHP's global headquarters in Melbourne on February 21, 2023. – The Australian multinational, a leading producer of metallic coal, iron ore, nickel, copper and potash, said its net profit fell by 32 percent year-on-year. year to US$6.46 billion 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 remains unclear whether talks between Rio Tinto and Glencore could lead to a simple merger or require unbundling certain parts of each company instead.
Regardless, they said the mergers and acquisitions that have arisen in the wake of merger talks between BHP and Anglo American will undoubtedly begin “again in earnest.”
“Although Glencore had once approached Chinalco, Rio Tinto's major shareholder, in July 2014 for a potential merger, it still comes as a surprise,” analysts at RBC Capital Markets said in a research note published on Thursday. .
BHP's move to acquire Anglo American may have spurred talks between Rio Tinto and Glencore, with the former likely looking to gain more copper exposure while the latter seeks an exit strategy for major shareholders, analysts said.
They added: “We do not expect a direct merger to occur as we believe Rio's shareholders will see that it favors Glencore, but (it is possible) there could be a deal structure that could keep both sets of shareholders and management happy.”
Copper, coal and culture
Speculation about the Rio Tinto-Glencore merger raises questions about strategic fit and company culture, said analysts led by Wayne Lee at CreditSights.
“Strategically, Rio Tinto may be interested in Glencore’s copper assets, consistent with its focus on future-facing, sustainable metals,” analysts at CreditSights said in a research note published on Friday. “In addition, Glencore’s marketing business could provide Synergies and expands Rio Tinto's reach.” .
“However, Rio Tinto’s lack of interest in coal assets, due to recent divestments, suggests that any merger will need to be carefully structured to avoid unwanted asset overlap,” 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 Peterson | 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 “continuously pushing the boundaries in its operations.”
“This cultural divide may pose challenges in integration and decision-making if the merger proceeds,” analysts at CreditSights said.
“If this materializes, it could have broader implications for mega deals in metals and mining, potentially bringing BHP/Anglo American back into the fold,” they added.
— CNBC's Ganesh Rao contributed to this report.
