Monsters of Rock: Rio Tinto and Glencore merger talks could create the biggest dog in the mining yard

Two of the world’s biggest diggers held talks about creating the world’s biggest miner, according to media reports.

Josh Chiat

5 min read

12:59PMJanuary 17, 2025.

Updated 2:05PMJanuary 17, 2025

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Speak now or forever hold your peace. Pic: Getty Images

Media reports point to potential $255bn mega merger between Rio Tinto and Glencore
Grades, costs hit Rio Tinto iron ore business
Lynas down as it sieves cash in December quarter

Bloomberg has lifted the lid on a potential $255 billion merger between Rio Tinto (ASX:RIO) and Glencore, a deal that would set the scene for the biggest shake up in the order of the world's top miners since the Mining Boom.

The financial news monitor, citing people familiar with the talks, suggests early stage discussions have taken place between the London-listed mining behemoths, though it's unclear if they've continued.

Rio Tinto shares are down 1.3% in early trade on the ASX, with the iron ore and copper miner yet to comment on the speculation, which comes just over 10 years since a Glencore approach failed to find favour in 2014.

The deal would make the combined Rio and Glencore a larger player than BHP (ASX:BHP), the world's biggest miner by market cap, which once tried to merge with Rio in a major tie-up that ran aground after regulators tried to force the sale of vast swathes of the companies' Pilbara iron ore empires if the US$118bn marriage went ahead.

Glencore is the world's largest coal producer, having mopped up the met coal business of Teck Resources after an unsuccessful play for all of the Canadian base metals miner.

Curiously, Rio left that field years ago, with Glencore having responded to investor pressure not to split off the fossil fuel assets last year.

It comes after BHP was knocked back in its attempts to acquire Anglo American last year, as big miners work overtime to grow their copper books through aggressive M&A. Glencore's list of mines include large copper-cobalt assets in the DRC and stakes in Collahuasi and Antamina in Chile, which is part-owned by Anglo and produced 573,000t in 2023.

Glencore produced 705,200t of copper through the first nine months of 2024, while Rio mined 697,000t in 2024 for the full year. At 1.6Mt, the company we're calling MonstroRioGlen could be the second largest copper miner globally with a 6% market share.

Rio recently received key regulatory approvals for a US$6.7bn ($10bn) takeover of Arcadium Lithium (ASX:LTM), which would make it one of the world's largest producers of the battery metal.

'Surprise' merger

RBC's Kaan Peker and Ben Davis called the talks a 'surprise', saying investors would see it as favouring Glencore.

"Despite Glencore once approaching Rio Tinto's key shareholder Chinalco in July 2014 for a potential merger, it still comes as a surprise. Rio Tinto has since divested coal, while Glencore has added assets through buying out its JV partners of Cerrejon and acquiring Teck's coking coal assets," they said in a note.

"The approach of BHP to Anglo American last year may well have catalysed talks between the two. Rio Tinto seeking to gain more copper exposure (Collahuasi, Antamina and possibly Katanga) and Glencore to have an exit strategy for its large shareholders. Difficult to estimate potential operational synergies, but possibly in the aluminium/copper division (likely small).

"We would not expect a straight merger to happen as we believe Rio shareholders would see it as favouring Glencore, but its possible there is a deal structure out there that could keep both sets of shareholders and management happy. The MA parlour games that we saw last year, will undoubtedly start again in earnest."

Peker and Davis say any potential deal could deliver additional copper exposure and diversify Rio Tinto, protecting it from exposure to the iron ore price in the face of a slowing Chinese super cycle.

But they added Rio's 2018 coal exit and perception that Glencore has a lower quality, higher cost asset base were disincentives.

Grade dilemma for Rio

Meanwhile, the price Rio is pulling for its Pilbara iron ore continues to drop despite a recent rally in iron ore prices back above US$100/t, as it continues to wait on replacement mines to do the heavy lifting when it comes to product quality.

Rio produced 328.6Mt in 2024, down from 332Mt a year earlier and short of the mid-range of its 323-338Mt guidance level.

That included 85.7Mt of shipments and 86.5Mt of production in the December quarter at a realised price of US$83/t, 4% below consensus estimates (US$86/t).

SP10, its lower grade, lower quality blend, accounted for 25% of sales, up from 18% for the first three quarters of the year.

While the first of its replacement mines – Western Range – is about 90% complete and due to produce first or in H1 2025 and the high grade Simandou development in Guinea is expected to be exporting from the end of 2025, Rio has previously flagged it will not address its product quality issues in the Pilbara fully until the Rhodes Ridge deposit comes into operation late this decade.

Costs are also projected to be at the top end of the range set by Rio of US$21.75-23.50/t, with the mining giant blaming inflation and lower production, impacted by rainfall that came in at five times the fourth quarter average.

Rio will need to focus on recovering 'pit health' through the first quarter of 2025. At the same time, RBC's Kaan Peker and Ben Davis called the results positive thanks to beats, notably in bauxite (9% above consensus at 15.4Mt, beating annual guidance of 53-56Mt), alumina (1.992Mt, 8% above consensus) and copper (202,000t, 10% above consensus). That largely came down to higher grades at the Escondida mine, a positive for investors in the operation's majority owner BHP (ASX:BHP).

"Good finish to the year with beats across divisions, with the small exception of titanium dioxide," Peker and Davis said.

"Production guidance has been reaffirmed following 2024 investor seminar in December and projects remain all on track with Rio Tinto hoping to achieve 3% compound annual growth in copper (Oyu Tolgoi), iron ore (Simandou) and lithium for the next decade."

Lynas crawls through rare earth bear market

Like slowing to a crawl as cramps hit in the final interminable stretch of an ironman triathlon, Lynas (ASX:LYC) has continued to trudge to the end of a long growth program, burning over $100 million in cash despite seeing rare earth sale prices hit their highest level since March 2023.

The largest producer outside China and one of just two globally estimated to be generating positive operating cashflows in FY24, LYC sold 2871t of rare earth oxides in the December quarter at an average price of $49.2/kg, pulling in $141.2m in revenue, up from $42.5/kg and $120.5m in September.

That sale price, largely engineered through an "optimised product mix", sales to strategic customers and a weak Aussie dollar, came despite continuing blah prices seen in the broader rare earths market ahead of China's Lunar New Year period, averaging US$51/kg after value added tax in the three months to December 31.

Lynas opened its Kalgoorlie carbonate plant on November 8 and finished a major step of its expansion project at Mt Weld, but saw teething issues at the former that pushed up costs.

Having hit its lanthanide processing limit in late November, LYC relied solely on mixed rare earth carbonate delivered from Kalgoorlie, which required additional chemical inputs due to impurities in the material which only arrive on Christmas Day.

Preventative maintenance works were also undertaken during the Malaysian plant shutdown, with payments on capex, exploration and development coming to $140.9m in the quarter, on top of $94.3m in production, admin and royalty costs, $10.9m to extinguish rehabilitation liabilities, $16.1m for borrowings and $5.6m for income taxes.

Cash on hand fell from $414.3m to $308.3m, down from $523.8m at the start of FY 2025.

Lynas says demand for rare earth materials inside China, which relies not just on EV and renewables growth but also on consumer electronics linked in part to its ailing property sector and broader economic performance, remains subdued.

Lynas shares fell 5% in early trade on Friday.