Glencore chief govt Gary Nagle had a transparent message at an business occasion final October: the mining sector wants fewer, greater corporations in an effort to keep related.
Extra consolidation is required, he informed a personal convention hosted by Goldman Sachs at LME Week. Because it occurred, Jakob Stausholm, the boss of rival mining firm Rio Tinto, was additionally talking on the occasion. Across the similar time, Glencore and Rio held tentative talks about combining half or all of their enterprise to create a $160bn mining behemoth.
Glencore’s “greater is best” mantra has made it one of the aggressive and impressive dealmakers within the sector, even when these deal discussions don’t at all times work out.
Whereas discussions with Rio didn’t progress past early levels, megadeals are back in vogue for the mining sector. The query ripping by the business now’s: what’s going to Glencore do subsequent?
The return of massive mining M&A was supercharged by BHP’s failed £39bn bid for Anglo American final 12 months, which spurred corporations to assessment their strategic choices. However it’s also resulting from structural elements: the 20-year commodity supercycle pushed by China has ended, and miners are repositioning themselves for the subsequent section of progress, by which the vitality transition is anticipated to spice up demand for copper and battery metals.
Glencore has dealmaking in its DNA. Based as a commodity dealer in 1974, it constructed up its mining enterprise nearly fully by acquisitions. Below former chief govt Ivan Glasenberg, a pugnacious South African who ran the corporate from 2002 to 2021, Glencore went public in 2011, and introduced it was merging with Xstrata the next 12 months.
“They’re at all times making an attempt to do offers, extra so than the large mining corporations,” mentioned Barry Jackson, chief govt of mining consultancy Ascentia Assets. “You hear about Glencore speaking with each mining firm on the planet.”
One of many largest limitations for Glencore is that different miners are typically extra conservative in the case of mergers and acquisitions. In contrast with greater rivals the place the M&A course of could be very tightly managed, at Glencore “the liberty to do these sort of initiatives is increased”, Jackson mentioned.
Glasenberg — who nonetheless owns 10 per cent of Glencore’s shares — earned a popularity as an enthusiastic dealmaker and his successor Nagle has continued that custom, holding talks on potential megadeals yearly since he turned chief govt.
In early 2022, Glencore held preliminary talks with BHP a couple of deal that may have introduced the 2 corporations collectively and spun out their mixed coal companies, based on 4 individuals acquainted with the discussions.
The following 12 months, Glencore launched a hostile $23bn bid for Canada’s Teck Assets, proposing an identical construction: merge, then demerge right into a metals group and a coal group. That bid failed resulting from opposition from Teck’s administration and controlling shareholders; as an alternative a Glencore-led consortium purchased Teck’s steelmaking coal enterprise in a $9bn deal later that 12 months.
Final 12 months, after BHP’s bid for Anglo turned public, Glencore examined making a rival bid for Anglo, however didn’t make a suggestion. The talks with Rio occurred in September and October, however didn’t progress. Rio beforehand spurned an strategy from Glencore in 2014.
Rio CEO Stausholm has mentioned Rio is excited by offers that increase its progress profile, however careworn that there is no such thing as a “worry of lacking out” on the firm, which is guarding towards a transfer that might “derail” the enterprise.
Rio is beneath strain from an activist shareholder marketing campaign to move its primary listing from London to Sydney — as BHP did — which the activists argue will give the miner higher energy for share-based offers. Rio, which is listed in each London and Sydney, has not performed a share-based transaction since its dual-listing construction was established.
One motive Rio is extra conservative than Glencore by way of offers is as a result of it has been burnt by dangerous offers up to now, based on advisers. Rio overpaid for its $38bn buy of Alcan in 2007, which is extensively thought-about one of many worst mining deals ever.
“Glencore is born out of a buying and selling tradition, so they’re a bit extra aggressive by way of deal move — like in the way in which they approached the Teck deal a pair years in the past,” mentioned Richard Hatch, analyst at Berenberg.
The corporate’s dealmaking type is extremely opportunistic, he added, mentioning its countercyclical acquisition of the Cerrejón thermal coal mine in 2021, which paid off handsomely when coal costs rocketed the next 12 months.
One handicap for Glencore is that its share worth has fallen 17 per cent up to now six months, giving it much less monetary firepower for any subsequent potential deal.
Earnings have normalised after the bonanza couple of years that adopted Russia’s invasion of Ukraine, and decrease volatility in commodity costs has decreased buying and selling earnings. Through the first half of 2024, Glencore reported a lack of $233mn, partly resulting from a $1bn impairment cost associated to its South African coal operations.
With the Rio talks now on ice, analysts consider a Glencore-Anglo mixture might make sense. Within the wake of BHP’s failed bid, Anglo launched a radical restructuring, which can break up off 4 of its companies, and depart behind an organization targeted on coal and copper.
Glencore and Anglo already work carefully collectively on the Collahuasi copper mine in Chile, the place every has a 44 per cent stake. However Anglo’s price ticket has gone up: its shares have risen 45 per cent up to now 12 months, as shareholders rally behind its restructuring plan.
“There may be extra to be mentioned for Glencore and Anglo to be doing one thing, moderately than Glencore and Rio,” mentioned Hatch at Berenberg. “However my view is that Anglo doesn’t need to be purchased.”
Whether or not or not this 12 months holds a Glencore-Anglo bid, the cycle of mining consolidation is about to proceed, analysts consider.
Kaan Peker, an RBC Capital Markets analyst, wrote in a observe: “The M&A parlour video games that we noticed final 12 months, will undoubtedly begin once more in earnest.”
