Unlock the Editor’s Digest free of charge
Roula Khalaf, Editor of the FT, selects her favorite tales on this weekly e-newsletter.
Rio Tinto and Glencore held talks final yr about combining half or all of their companies, in a sign of how the push by mining corporations to safe metals wanted for the vitality transition has centered executives on large-scale offers.
The London-listed corporations engaged in early-stage talks as just lately as October, in accordance with folks aware of 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 business.
The talks between the 2 corporations adopted BHP’s failed £39bn bid for Anglo American final yr, which prompted rivals to evaluation strategic choices.
BHP was focused on Anglo’s copper mines, amongst different issues, as a result of the metallic is utilized in renewable vitality initiatives and electrical autos.
Glencore and Rio each declined to remark. Bloomberg first reported that Rio and Glencore had mentioned combining their companies.
Rio Tinto has been seeking to enhance its publicity to commodities together with lithium and copper to offset weak point 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 may enhance its manufacturing of the crimson metallic by virtually 1mn tonnes a yr and supply substantial growth capability, in accordance with analysts.
A possible cope with Glencore can 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, stated that the deal “didn’t make a whole lot of sense” given Rio’s efforts to get out of coal and spend money on renewable vitality to energy its operations.
Glencore, which has a big commodity buying and selling enterprise in addition to mining operations, has been debating the way forward for its coal enterprise.
The corporate stated in 2023 it will spin out its coal mines right into a separate listed enterprise, however then modified its thoughts final yr and determined to retain them.
Glyn Lawcock, an analyst with funding financial institution Barrenjoey, stated coal belongings might be spun out as a separate firm as a part of any settlement. He added there was little overlap between the 2 corporations, which means there have been few synergy advantages from a merger and a deal would have to be justified by asset diversification and creating extra scale.
Ray David, portfolio supervisor at Blackwattle Funding Companions which owns Rio’s UK-listed shares, stated Rio may fund an acquisition of Glencore by issuing shares in Australia, which might rebalance Rio’s share construction and shut the worth hole between the ASX and LSE listings. Activist traders, 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, earlier than climbing again to be off 1.4 per cent.
Demand for commodities required to decarbonise the worldwide economic system — similar to copper, lithium and aluminium — has triggered a flurry of dealmaking exercise within the mining business over the previous yr.
Rio final yr introduced a $7bn deal to amass Arcadium Lithium, because it will increase its presence in metals utilized in batteries for electrical autos.
Folks near the corporate stated it was nonetheless digesting that transaction.
Rio rejected a takeover bid by Glencore in 2014.
Lawcock stated that the response from some Rio traders in Australia was one in all unease given Glencore’s repute for sensible dealmaking. “Shareholders have stated I don’t need any of my corporations sitting throughout the desk from Glencore,” he stated.
Blackwattle’s David stated the actual fact talks have ended confirmed Rio remained cautious in a consolidating market. “I think Glencore needs a excessive premium. It’s a optimistic signal [that talks ceased] because it exhibits Rio is being disciplined and conscious of not destroying shareholder worth. It might be straightforward to panic.”
