The mining industry was set abuzz over the weekend with speculation over a potential merger between Rio Tinto and Glencore, but what would a deal mean for the global landscape?
The news was broken by Bloomberg on Friday that it had received reports of a would-be deal that would see Rio rival BHP’s gargantuan size.
Described as what would be the “largest ever” deal in mining history, the merged entity would boast a $255 billion market value, overtaking BHP’s $204 billion as the world’s largest miner.
The talks are reportedly no longer active, though neither Rio nor Glencore have ruled out the possibility of a future merger.
But what would a future Rio-Glencore behemoth look like?
Though well known for its hefty coal production, Glencore produces over one million tonnes of copper per year across its global operations.
Combined with Rio’s 800,000 annual tonnes, the companies would together bite off a large share in the world’s copper supply – around seven per cent.
Rio has made no secret of its hunger for a larger piece of the copper pie, having pledged to increase copper production by 18 per cent this year, and 40 per cent by 2030.
The company’s Oyu Tolgoi in Mongolia will be the prized jewel in its copper crown, with production expected to skyrocket by 50 per cent in 2025.
But Rio doesn’t currently mine copper in Australia, making Glencore’s extensive assets a deserving object of Rio’s desire.
Glencore sources its copper from Queensland’s prolific Mount Isa, where it is turned into copper anode at the Glencore Mount Isa copper smelter and processed at its electrolytic refinery in Townsville.
Using Glencore’s proprietary IsaKIDD process, the refinery produces up to 300,000 tonnes a year of 99.995 per cent pure copper cathode – the primary raw material used to produce copper wire, cabling and many other products necessary to the green energy transition.
Not just a major copper player in Australia, Glencore could also offer Rio copper mines and processing power in South America and the Democratic Republic of the Congo.
But while copper may be what attracts Rio’s attention, it will have to reconcile Glencore’s mammoth coal portfolio, a commodity Rio is not so keen on.
Key mining and metals analysts at CreditSights, a FitchSolutions company, said a merger would be complex, requiring a deft hand to balance.
“Culturally, Rio Tinto is traditionally seen as conservative and focused on stability, whereas Glencore is known for its aggressive approach and constantly pushing the envelope in its operations,” CreditSights analysts said.
“This cultural divide might pose challenges in integrations and decision-making if a merger were to proceed.”
But analysts also speculated a Rio-Glencore merger could grease the global deal-making wheels, prompting action from other majors.
“If this materialises, it could have broader implications for mega deals in the metals and mining space, potentially putting BHP/Anglo American back in play,” they said.
BHP was decisively shut down by Anglo last year after three proposals from the Big Australian failed to move the company to sell.
But if Rio sets the trend of majors joining forces with coal kings turning to copper, who’s to say BHP won’t take another swing?
Tribeca’s Global Natural Resources Fund portfolio manager Ben Cleary told the Australian Financial Review a Rio-Glencore mega-merger is a long time coming.
“A merger makes sense,” Cleary said. “It’s been talked about on and off for a decade, and it solves issues for both Rio and Glencore.”
