Rio Tinto, Glencore explore merger to create $260bn mega miner

Rio Tinto and Glencore have held early-stage talks about a deal valued at $260bn which would create the biggest mining company in the world.

Gary Nagle became Glencore CEO in 2021. Picture: Jose Cendon/Bloomberg

A Rio Tinto and Glencore mega-merger built around ambitions in copper remains a possibility and raises more concerns about future of Australia’s economy-defining iron ore mines, industry insiders say.

Rio and Glencore have held early-stage talks about deal valued in the order of $260bn that would be the biggest ever in mining.

It appears the talks happened towards end of 2024 and were brief. They discussions came less than a year after Anglo American rebuffed a copper-focused $75bn takeover offer from BHP, the other big player in WA iron ore.

Rio declined to be drawn on the buyout talk on Friday, saying it did not comment on M&A speculation.

Glencore also declined to comment but the two companies also did not hose down talk of a deal that would see the combined entity surpass BHP as the world’s biggest miner.

Investors were among those anxious to find out if Glencore made the initial approach or if Rio instigated the talks as it looks to life after iron ore.

Most brokers are predicting iron ore prices will fall to around $US80 a tonne in 2025 whereas Rio and BHP have prospered on prices closer to $US120 a tonne in recent years.

A price drop of $US40 a tonne would see Rio take a revenue hit of more than $US11bn and wipe out most of free cash flow based on the equity share of production from its Pilbara mines being about 278 million tonnes a year.

Rio Tinto CEO Jakob Stausholm. Picture: John Feder

BHP faces a similar dilemma as the mining giants acknowledge demand from Chinese steelmakers has peaked.

Barrenjoey analyst Glyn Lawcock said he’d fielded multiple calls form investor curious about whether Glencore or Rio had instigated merger talks.

Mr Lawcock said he leaned toward Glencore as the aggressor and having the ability to extract a better deal.

“The view of most people would be there’s more in it for Glencore than there is for Rio,” he said.

The talks came to light after Rio handed down December quarter results that showed it was having to ship more lower grade iron ore which attracts a price discount from aging mines in the Pilbara.

Glencore a major iron ore trader and has long coveted mining assets in the sector. However, but copper ambitions appear front of mind for Rio, Glencore, BHP and other major diversified miners.

Mr Lawcock said all good things eventually came to an end and that was the reality starting to sink in with Rio and BHP on iron ore.

“People are wondering if this is Rio going we need diversification and growth optionality outside what we’ve currently got because iron ore is now a mature, if not declining market,” he said.

Glencore’s coal business, including multiple mines in Queensland and NSW, looms as a major hurdle given Rio has exited the coal industry.

Queensland Premier David Crisafulli. Picture: Peter Carruthers

A change in sentiment on coal played into Glencore’s recent decision not to spin off the fossil fuel unit after it was boosted by the $US7bn acquisition of Canadian mines from Teck Resources last July.

However, a spin off remains possible if there is a tie up with Rio.

Rio subscribes to the theory that Chinese iron ore demand has peaked and wants to reduce its reliance on the steel-making ingredient through big investments in copper and lithium.

Glencore and Rio own some of the best copper mines in the world and like BHP see growth in demand as part of the energy transition.

Rio is the world’s second-biggest miner, with a market value of about $US103bn behind BHP at about $US126bn. The Gary Nagle-led Glencore is valued at about $US55bn.

Glencore proposed a merger with Rio in 2014 and has been one of the most aggressive dealmakers in the sector. Former chief executive Ivan Glasenberg owns almost 10 per cent of the company.

“It’s funny how history repeats itself,” said RBC Capital Markets analyst Ben Davis told Bloomberg. “Especially since they’ve gone on very different paths since then.

“It’s not obvious what the motivation for Rio is at this point given the strategic divergence between the two companies. For Glencore it potentially gives their big shareholders an exit route.”

Rio would gain a stake in the prized Collahuasi copper mine in Chile through an acquisition of Glencore. Glencore owns 44 per cent of Collahuasi alongside Anglo, which also has 44 per cent.

Rio is closing in on the $US6.7bn acquisition of Arcadium Lithium in what will be its biggest takeover deal since the $US38bn acquisition of Alcan in 2007.

Chief executive Jakob Stausholm said last month that investors would likely see the downside of mega deals to get more copper.

Analysts at Fitch Group’s CreditSights said any all-equity transaction would be unlikely to have a material impact on Rio’s credit rating. They speculated a deal could re-ignite BHP’s takeover interest in Anglo and stimulate other M&A activity.

Mr Nagle in November told The Australian that Queensland’s new LNP government – which has said there will be no change in royalty rates in the next four years – had signalled that it wanted to get back on track as a destination for investment.

Glencore’s policy issues in Australia extend to the Albanese government’s industrial relations changes that have dragged it into multi-employer bargaining, and duplication and confusion around state and federal regulation of greenhouse gas emissions.

Originally published as Rio Tinto, Glencore explore merger to create $260bn mega miner