Rio Tinto and Glencore were said to be in merger talks, or at least recently held them, according to a Bloomberg report.PATRICK T. FALLON
In the mining industry, mass creates mass. As mining companies get bigger, their expenses and debts rise, requiring more revenues and cash flow to cover their costs and occasionally epic cost overruns. So they devour their rivals, which also eliminates the hassle of building mines in unsavoury parts of the planet.
So it has always been, which is why a small number of giants dominate the global industry. BHP and Rio Tinto have market valuations of US$100-billion or more. Further down the list, though still enormous, are Glencore, Vale, Anglo American and Freeport-McMoRan. Soon there will be fewer. Another round of mergers and acquisitions seems almost certain this year.
This week, Rio Tinto and Glencore, both of them listed on the London exchange, were said to be in merger talks, or at least recently held them, according to Bloomberg. In a sense, the news was not really news, since highly opportunistic Glencore is always playing the M&A game
Glencore, which owns the Canadian nickel miner once known as Falconbridge, tried to merge with Rio a decade ago. Since then, it has attempted to buy Teck Resources of Vancouver several times, most recently in 2023. The attempts failed but Glencore did pay Teck US$6.9-billion for 77 per cent of its coal business. Last spring, BHP made a couple of attempts to buy Anglo but was rebuffed. Led by Canadian CEO Mike Henry, BHP was primarily attracted to Anglo’s copper and iron-ore assets.
BHP, like all miners who want more energy-transition “critical” metals, seems obsessed with copper. Last summer, it and Lundin Mining together bought Canada’s Filo for US$2.8-billion. The attraction was Filo’s big copper project on the Argentine-Chilean border.
On Friday, neither Glencore nor Rio would comment on the media reports about their merger talks. A “no comment” is often taken as confirmation that deal discussions are secretly under way. In this case, they may not be. Glencore shares rose as much as 3.4 per cent in the morning, then fell a bit. The U.K. Takeover Panel, the regulatory body that monitors deals to ensure that all shareholders are treated equally, did not publicly demand a clarification statement from either company, suggesting there was nothing to clarify.
Glencore and Rio together do not make a lot of sense on paper, even if synergies – the polite term for cost-cutting – are always possible. Glencore is a coal heavyweight. Rio does not want coal. Rio earns more than half of its revenue from iron ore. Glencore does not mine iron ore, though does trade the commodity. Each is a strong player in copper and wants more of it. But combining their enormous copper operations would almost certainly attract the attention of antitrust regulators, especially those in China, which is wary of Western domination of the commodity, which is in exceedingly short supply in the country.
And Rio CEO Jakob Stausholm seems allergic to M&A. “I know that big M&A can be very disruptive for the organization and I think we are in a very important transformative phase, including resetting our culture, and I do not want to see that being destabilized,” Mr. Stausholm told The Globe and Mail last year.
Of course, Glencore and Rio could merge, then spin off Glencore’s coal and Rio’s iron ore into separate businesses, but that looks like a lot of work to create a company primarily engaged in copper and a few other critical metals. Glencore, the perpetual takeover machine, may be taking a short rest.
Which is not to say that 2025 will be M&A-free, far from it.
The company to watch is Anglo, which would be any copper advocate’s dream. It is the 44-per-cent owner of the Collahuasi mine in the Chilean Andes. Collahuasi is the world’s second-biggest copper operation – the main pit is almost four kilometres across and more than one kilometre deep – and has enough ore to stay in business until 2100. Anglo has several other big copper projects in Chile and Peru, including Quellaveco, one of the world’s largest undeveloped copper reserves.
BHP could take another shot at Anglo once Anglo finishes its restructuring, which will see it sell or spin off its diamond and platinum businesses and mothball its nickel operations. The problem for BHP or another potential buyer is that Anglo’s slim-down exercise has made the company expensive. In the past year, its shares are up 45 per cent. Still, the copper assets are hard to resist, given the global shortage of the commodity as the electrification drive builds momentum.
Another possible victim is Teck, whose Quebrada Blanca copper mine, the Canadian company’s most valuable asset by far, lies less than a dozen kilometres from Collahuasi. QB, as it is known, suffered enormous cost overruns during the pandemic years but is nearing full production, turning Teck into one of the industry’s fastest growing copper players, though it has yet to crack the top 10 globally (QB is about a third the size of Collahuasi).
Whoever buys Anglo will end up with almost half of Collahuasi. That new owner would certainly want to merge Collahuasi with Teck’s QB, since they are so close. The industrial savings would be enormous from, for instance, combining the port, milling and water desalinization activities. But, like Anglo’s, Teck’s shares are getting expensive, and the company is technically takeover-proof as long as the Keevil family of Vancouver controls its supervoting A shares.
There might be a price, though, that chairman emeritus Norman B. Keevil could not refuse. Given the strong price for copper and the relentlessly rising global demand for the product as industries try to decarbonize, lavish takeover prices – and more M&A – cannot be ruled out.