Glencore and Rio Tinto mega merger: Can mining giants make it work this time?

What's going on?

RioCore? GlenTinto? Rio Tinto and Glencore have restarted talks over a possible combination that would create the world’s largest mining group.

In an update to the market last week, Glencore confirmed that it is in preliminary discussions with Rio about “a possible combination of some or all of their businesses”, which could include an all-share merger between Rio Tinto and Glencore, with Rio Tinto as the larger of the two acquiring Glencore by a scheme of arrangement. A full tie-up would create a mining giant worth $260bn including debt.

Rio shares were trading close to 2023’s all-time highs near 6,300p while Glencore shares were almost a third below their high of 2023. Following the news of talks shares of Glencore jumped around 8%, while Rio fell a touch.

Rio and Glencore first explored a merger in 2024 but talks broke down over a range of issues, including valuation and Glencore’s coal mines.

Can it work this time?

Since the 2024 talks broke down Rio has new CEO in Simon Trott, who appears much keener on doing a deal than his predecessor. The company has a chequered history with dealmaking – its $38bn bet on aluminium producer Alcan went sour from the get-go. But the scramble for copper assets has ratcheted up and Rio looks ready to do a deal this time.

Additionally, Glencore’s coal business looks an easier square to circle after it restructured its coal holdings into a separate company. This will make it more straightforward to spin out its coal mining operation. Rio left coal in 2018 under investor pressure. 

Consolidation in the mining sector is already taking place. For sure Rio was given some extra impetus to strike a deal with Glencore after Anglo American’s $50bn friendly deal with Teck Resources of Canada. This deal piles pressure on the likes of BHP and Rio to do deal to increase their mining assets.

Copper prices are at all-time high, and the market looks well set to sustain prices given a supply crunch amid soaring demand for the metal from industry. The key for Rio is to build its copper exposure as demand grows whilst weaning itself off iron ore as Chinese demand is in a structural downtrend.

Glencore touted its growth potential last month, saying it would become the biggest copper producer in the world. Currently the sixth-largest copper producer in the world, Glencore has significant expansion plans that appeal to Rio – specifically doubling copper output by 2035 to around 1.6mn tonnes.

Speaking in December, Glencore chief executive Gary Nagle said: “It makes sense to create bigger companies ... Not just for the sake of size, but also to create material synergies, to create relevance, to attract talent, to attract capital.”

There’s added impetus for Rio since rival BHP has twice made unsuccessful attempts to acquire Anglo American. Twice rebuffed it could also be sizing up Glencore’s copper potential. BHP, currently the world’s largest miner, could be the fly in the ointment for Rio and launch a rival bid. 

There are still question marks. It’s unclear at present if Glencore’s commodity trading business will form part of the deal. And what premium can Rio shareholders stomach? The Anglo-Teck deal was done at zero premium – it's unlikely that can be done with Glencore. Rio shareholders may still be wary about overpaying at the top of the market.

Rio has until February 5th to put up or shut up under the UK’s takeover rules.