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Mining lore has long held that a megadeal between Rio Tinto and Glencore is only a matter of time. The two companies have sniffed around each other before, both in 2014 and as recently as October 2024. Now, they have reopened talks about an all-stock transaction. Their time may finally have come.
Some of the things that probably hampered past tie-ups are still an issue. Glencore, as the far smaller partner with an enterprise value of £74bn compared to Rio’s £120bn, would likely demand a big premium to give up its independence. But combining the two companies wouldn’t create anything like the value necessary to justify Rio paying top dollar.
Let’s say Glencore wanted a 25 per cent premium to its undisturbed stock price. For Rio’s shareholders to offer that without detriment to themselves, the combined company would need to be worth an extra £20bn. On Friday, Rio lost about £3bn of market value and Glencore added about £5bn, suggesting investors think that, together, they’re only worth about £2bn more than they were before.
That makes sense. Unlike, say, Anglo American and Teck Resources, Rio and Glencore don’t have overlapping mines where they could cut costs. A combination could still create some value: Rio, with its mining expertise and rock-solid balance sheet, might be a better developer of Glencore’s copper assets. Glencore’s trading business might be able to squeeze more value from Rio’s £40bn or so of annual sales.
But those are still shaky grounds on which to justify a big transfer of value from Rio’s shareholders to Glencore’s. All else being equal, to create £20bn of value they would need to increase their combined ebitda by 15 per cent.
Concerns about bad mining M&A are as old as the hills, and as immutable. In other ways, however, the lay of the land has changed. Investors are much less focused on climate goals, for example. Rio’s shareholders may no longer be quite so reluctant to own Glencore’s coal business.
The second, and most important, change is that the mining world is now in the grip of copper mania. Prices of the red metal have risen more than 40 per cent over the past year. And with Anglo and Teck already betrothed, the pool of available assets has shrunk. Glencore, though, has some good ones, including 44 per cent of the Collahuasi mine, in which Anglo also holds a stake, and 34 per cent in the Antamina mine, which it shares with BHP and Teck Resources.
If history is any guide, metal mania tends to trump concerns about value creation. That, in itself, is not a guarantee that a deal between Rio and Glencore will go through. BHP has recent interloping form. Chinese miner Chinalco retains an 11 per cent stake in Rio, and may object. But the conditions for this enormous deal have rarely looked more favourable.
