Glencore focuses on short-term disposals while Rio deal remains elusive

Glencore, the Swiss-based mining company, is likely to sell assets to bolster its copper portfolio after failing to merge with Rio Tinto.

The two companies have called off talks to create a global mining giant worth $240 billion due to disagreements over valuation and ownership. This is the third failed attempt at a tie-up, following earlier merger discussions between 2014 and 2024.

Sources close to the situation have confirmed that Glencore will announce its sale of its 70 percent stake in Kazzinc in the next few weeks as part of its portfolio reshaping. Kazzinc is a zinc, lead, and gold producer based in Kazakhstan.

Analysts estimate the asset's value at $5 billion.

Gary Nagle, Glencore's CEO, has spoken out in favor of consolidation and larger scale. He argues that the mining industry is too small to draw broad investor interest. Bringing assets together also creates value.

The company also said that it would aim to increase copper production from 852 tons in 2025 to 1.6 million tons by 2035, through "new and restarted" mines, and more efficient operations.

Investors believe that Glencore, with a market capitalization of $75 billion dollars, will concentrate on disposing its assets in the near future.

Iain Pyle is an investment manager with Aberdeen. He said, "The next step may be to sell assets individually...to create a more consolidated copper and trading business which could attract a greater multiple."

Glencore has entered into talks with the U.S.-backed Orion Critical Minerals Consortium to sell about 40% of its copper and coal business in Democratic Republic of Congo.

It also works with Brazil's Vale to evaluate jointly a brownfield copper project at their adjacent assets in Canada.

George Cheveley is the portfolio manager of Ninety One which owns shares in Glencore, Rio and Glencore.

Glencore shares have fallen more than 10% since Thursday's Rio Tinto deal talks failed. They have outperformed most of their competitors over the past few years but have increased 19% in the last year.

The company's core adjusted EBITDA profit dropped by around 16% between 2024 and the first half of 2018. The company is expected to announce its 2025 results by February 18.

Glencore was already working on deals prior to the Rio Tinto discussions, as it focuses on copper, nickel, and cobalt, which are all metals that are linked to the energy transformation. After consulting with shareholders, it also owns coal assets that it has decided not to spin off by 2024.

COAL SPINOFF DÉBATE

Glencore is a major producer of thermal coal in the world. With prices on the rise, investors believe that the company can unlock value and clean up its portfolio.

Cheveley stated that "they would probably like to see the recovery of coal prices which is happening. But, this cash from coal business remains very valuable for them."

Analysts believe that a partial listing could raise the value of Glencore shares and free up capital for it to expand its copper portfolios in Africa and South America, amid soaring demand from electric cars, AI data centres, and grid expansion.

Glencore has said that it will only consider a spinoff if the shareholders ask for it.

RIO TINTO RENEWED?

Analysts at Jefferies said that a new round of talks with Rio Tinto is not ruled out but they believe it to be unlikely. They expect Rio Tinto will pursue its strategy on its own.

According to British law, Rio Tinto and Glencore cannot resume talks for at least six months.

Rio Tinto rejected Glencore’s demand to retain about 40% of the combined group. This was a request that some investors considered too ambitious. Sources said that the offer was closer to a ratio of 62-38, which would have provided Glencore shareholders with a premium of 30%.

Pyle, from Aberdeen, said that "the strategic logic was always obvious but finding a common view on valuation would always be challenging".

Analysts speculated when Rio Tinto announced its latest talks with Glencore last month that BHP might get involved. Sources familiar with the situation said that the Australian miner had ruled out any counterbid. Sources familiar with the matter said that a new approach is unlikely.

BHP declined comment. Clara Denina reported; Jason Neely, Alexander Smith and Alexander Smith edited.

(source: Reuters)