Mining heavyweights Rio Tinto (ASX : RIO) and Glencore are in early-stage discussions about a potential merger, Bloomberg has reported, citing anonymous sources close to the matter.
A merger between Rio, the world’s second-largest miner and the Swiss miner would create an entity worth about US$155 billion (A$250 billion), making it the world’s number one miner – overtaking BHP (ASX: BHP), which is worth around US$126 billion.
If a merger goes ahead, it may raise a few eyebrows, as Glencore is the largest seller of thermal and the top producer of coking coal in the world.
Yet Rio had divested all of its coal assets - exiting in 2018 with the US$2.25 billion sale of Kestrel and marketing its pivot with a US$1bn spend towards a goal of reaching net-zero emissions by 2050.
The combined entity would give it exposure to copper that would rival BHP's own vast red metals assets. The Big Aussie had just yesterday finalised a US$2.1 billion acquisition of South American copper projects.
BHP also wants to invest up to US$14 billion in Chile - the number 1 copper-producing country in the world - which could increase BHP's total global copper output to 540,000tpa.
Recent history suggests the two majors are willing to do big deals with each other, having flirted with the idea back in 2014, with Rio rejecting an approach by the Swiss commodities trader after it approached key shareholder Chinalco about a potential merger.
RBC Capital says it's unclear if a deal would be a simple merger or require a breakup of certain parts of each company and the news itself comes as a surprise.
“The approach of BHP to Anglo American last year may well have catalysed talks between the two,” RBC says.
"Rio Tinto [is] seeking to gain more copper exposure (Collahuasi, Antamina and possibly Katanga) and Glencore [would want] to have an exit strategy for its large shareholders.
"We would not expect a straight merger to happen as we believe Rio shareholders would see it as favouring Glencore, but it is possible there is a deal structure out there that could keep both sets of shareholders and management happy.
“[With] the M&A parlour games that we saw last year, they will undoubtedly start again in earnest.”
Neither miner has commented on the media reports.
Eyes on big deals
Attempted M&A deals at the top of the mining tree are nothing new in recent times.
Glencore is likely to still be on the M&A hunt after its failed 2023 bid for Canada’s Teck Resources, instead settling for the latter’s coal mining unit for US$9 billion.
Last year saw BHP lob a US$49 billion failed bid for South Africa's Anglo American, while Rio itself successfully spent US$6.4 billion to acquire Arcadium Lithium last year to become one of the world's top 5 lithium producers.
Back in 2008, BHP attempted a hostile takeover of Rio in a US$165 billion deal which collapsed as the global financial crisis took hold.
