Glencore visit spurs Rio talk

Glencore is believed to remain eager to embark on a major transaction once conditions stabilise.

Top executives from Swiss miner Glencore were in Australia last week, prompting some to ask whether the charm offensive was a precursor to a major merger or acquisition.

Most big M&A transactions have been sidelined for the short term, with debt markets challenging and share price volatility causing companies and investors to sit on their hands for the time being.

But, Glencore is believed to remain eager to embark on a major transaction once conditions stabilise. And most believe Rio Tinto is in its cross hairs.

The $155bn Rio Tinto is said to have held detailed talks with Glencore about a merger last year, and the market is still waiting to see if BHP returns to the negotiating table with Anglo American.

The motivating factor for large scale mergers and acquisitions by Rio Tinto and BHP, which have $155bn and $200bn market values respectively, is they want more copper ­assets.

Iron ore has been the bread and butter for Rio and BHP, but their interest in other copper-rich targets comes as demand for iron ore from China has been trending down.

This will probably continue after new tariffs were introduced by US President Donald Trump.

Glencore’s share price is down 30 per cent since the start of the year, while Rio’s is only down 6 per cent, so that makes any deal look hard to justify for now.

Market experts believe while Glencore would be keen, Rio Tinto would be less so, because it would not want exposure to Glencore’s coal assets.

One possibility is Rio Tinto embarks on a demerger, and Glencore buys part of the business, or Glencore and Rio merge, and then Glencore deals with splitting the portfolio up.

Glencore’s approach to Rio last year was on the basis there would be a spin-out of iron ore and coal.

The understanding is Glencore’s Gary Nagle was lined up to run the iron ore and coal mining division.

The challenge for groups like BHP and Rio is they rely on coal and iron ore for cash.

The deal speculation comes after activist investor Pallister Capital has been urging Rio to collapse its dual-listed structure, but the board has rebuffed the proposals on the grounds it would lead to tax costs and not be in the best interest of shareholders.