More exposure to copper the prize as big miners look to mega mergers

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

Only time will tell whether Australia sees the global mega mining mergers hinted at unfold this year, but the moves by BHP and Rio Tinto to think about major transactions says a lot about their expectations for the country’s iron ore production.

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

The motivating factor for Rio and BHP, which have $167bn and $200bn market values respectively, for large scale mergers and acquisitions is that they want more copper.

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

Singapore iron ore futures are at $US105.65 per tonne and have been gradually moving lower over the past five years.

The grade of Australia’s iron ore deposits are in decline with mines now 30 to 40 years old, which leads to lower pricing.

Compound that with China last year exporting a record amount of steel with the fall of domestic demand, and at over 100 million tonnes it puts it at almost the total amount produced by Japan.

Japan’s Nippon Steel is now incidentally trying to buy US Steel for $US14bn but is being thwarted by an activist investor and government opposition, with former President Joe Biden blocking the transaction on national security concerns and Donald Trump signalling opposition.

A deal for BHP to buy Anglo American this year after its $75bn offer last year was rejected could be the catalyst for Rio to move on Glencore, but then again Rio may also make a bid for Anglo American.

Talks are not necessarily still happening between Rio Tinto and Glencore but at the time, they were said to be serious.