Rio-Glencore deal closer than ever with premium and CEO in focus

[LONDON] Glencore boss Gary Nagle has called it the most obvious deal in mining. His predecessor and mentor Ivan Glasenberg has been trying to pull it off for nearly two decades. And yet the merger of Glencore with Rio Tinto Group has proven elusive, until now.

Sources familiar with the matter say that the current round of talks to create the world’s largest miner, which the two companies confirmed on Thursday (Jan 8) night, are the most serious they have ever been, while emphasising they are still at an early stage.

At the heart of the shift is a concern within Rio that its iron ore-heavy portfolio could be left behind as copper M&A frenzy sweeps the sector, as well as a configuration of personalities on both sides who are better able to come to an agreement, the sources said.

When the deal was last seriously discussed in late 2024, the talks foundered over Rio’s unwillingness to pay a big premium, as well as differences in the cultures fostered by Rio’s then-CEO and the Glencore leadership. At the time, Glencore pushed for Nagle to run the combined company.

Now, Rio has a new boss and both sides appear more willing to compromise. Rio may ultimately consider paying a takeover premium, some of the sources said, while other sources suggested that the Glencore side is open to being pragmatic on the subject of management, recognising that a larger firm paying a takeover premium would most likely seek to install its leadership in the new company.

What’s more, a shift in investors’ attitudes towards coal mining means that Rio could buy Glencore outright with less fear of a backlash. Bloomberg earlier reported that Rio was open to retaining Glencore’s vast coal business.

Still, talks are at a very early stage and the sources cautioned that the two sides are still some way from reaching a deal. Even if they can, any combination would be highly complex and require the approval of numerous regulators at a time of heightened government scrutiny of natural resources.

“It does feel like these two sides want a deal,” said George Cheveley, a portfolio manager at asset manager Ninety One, who owns Glencore shares. “Glencore have a lot of brownfield and greenfield copper projects and Rio don’t, but Rio has the expertise to build them and run them.”

Representatives for Rio and Glencore both declined to comment.

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In the 2024 talks, Glencore had asked for a merger ratio that would leave its shareholders with about 40 per cent of the combined company, according to several of the sources. If the same level remained a benchmark for Glencore’s negotiations, that would represent a premium of just over 25 per cent relative to the two companies’ undisturbed share prices.

Two sources familiar with Rio thinking said that it may be willing to consider paying a takeover premium, although other sources cautioned it was too early in the process to assess.

The idea of a combination of the two companies has been discussed several times over more than a decade. It was first floated before the global financial crisis of 2008, and then revived in 2014, when Rio quickly rejected an informal approach from Glencore, before conversations resumed in earnest in 2024.

While those talks ended without a deal, the idea of combining the two companies never went away. Bloomberg reported last September that Glencore had continued to work behind the scenes with its bankers on the contours of a potential deal.

This time, it was Rio that re-initiated the most recent conversations, according to some of the sources.

The miner had undergone a key change since the failed 2024 discussions: it had a new chief executive. Jakob Stausholm, a sober Dane with no background in the cut-and-thrust world of mining, had been asked by the board to step down, with his replacement announced as long-time Rio executive Simon Trott in July.

For Rio, the fundamental case for buying Glencore boils down to copper. While the miner is a significant player in markets from aluminium and copper to lithium, iron ore still accounted for more than half of its earnings in its most recent financial report.

The medium-term outlook for iron ore is downbeat, with China’s cooling property market sapping demand while Rio’s huge new project in Guinea is poised to flood the market with supply. Copper, meanwhile, has long been the most coveted metal for mining executives who see a bright future for the metal as the trend to electrification supercharges demand.

Rio has a relative dearth of copper development prospects as its vast Oyu Tolgoi mine in Mongolia reaches capacity. Glencore, on the other hand, spent an investor day last month highlighting its array of copper development options in Argentina, Peru and the Democratic Republic of Congo.

The merger deal struck by Anglo American and Teck Resources in September and the recent surge in copper prices to record highs above US$13,000 a ton only heightened the pressure on Rio to act.

The company’s executives recognised that its own relative reliance on iron ore, together with Glencore’s growth plans if it is able to achieve them, meant that waiting would likely only make the deal more expensive, according to some of the sources.

There remain many complexities to navigate, even if the two companies are able to agree on terms. Glencore’s coal business is still problematic for some large Rio shareholders because of sustainability concerns. And other parts of its business – from its trading unit, which in 2022 admitted to widespread historical corruption, to its assets in countries such as Congo and Kazakhstan – could prove unattractive to some.

The transaction structure is also likely to be complicated by Rio’s dual UK and Australian listings, while a successful deal would be scrutinised by antitrust regulators everywhere from China to Canada.

Still, speaking to Bloomberg on Friday, large shareholders of both companies were tentatively supportive of a potential deal.

“We are not pushing for a deal, but we are open to any and all options that create and highlight value for Glencore shareholders,” said Justin Hance, a partner at Chicago-based Harris Associates, which is Glencore’s 11th-largest shareholder, according to Bloomberg data. “The attractiveness of any deal would depend not only on the shareholder ratio, but also on the structure, terms, and finer details of the transaction.” BLOOMBERG