Glencore's share price rises as Rio Tinto and Glencore merge to create the world's largest miner
Glencore shares increased by almost 10% after news that it was in talks with Rio Tinto regarding a possible takeover. This would create the largest mining group in the world, valued at nearly $207 billion.
While Glencore?gained?, Rio Tinto?shares fell as much as 3%. This reflects investor scepticism and concern that the deal will be overpaid.
Both companies have previously discussed merging their operations. In 2014, Rio Tinto refused a Glencore merger offer, claiming it was not in its shareholders' best interest.
The merger talks that ended in 2024 did not result in a deal.
RACE FOR COPPER AND OTHER STRATEGIC MENERALS
Rio Tinto appointed a new CEO since then and the competition has intensified for metal reserves, including copper. Copper is needed for energy transitions and artificial intelligence.
Rio Tinto and Glencore announced late Thursday that they were expecting to buy "some or all of" Glencore's shares from the Financial Times.
?Few details were made public.
According to UK takeover regulations, Rio Tinto must make an offer in writing for Glencore by February 5, or it can say that they will not proceed.
Richard Hatch, Berenberg analyst, said that a deal was sensible and followed mergers such as the one between Anglo American Resources and Teck Resources. The rationale behind this merger was "access to copper".
Rio is in need of more copper because "the market views iron ore (rightly?or incorrectly) as a commodity that faces a price decline," said he, adding that it's better to purchase producing assets than to wait to construct new mines.
George Cheveley is the natural resources portfolio manager for investment manager Ninety One. Ninety One is an investor in Glencore.
He said Rio Tinto’s investor day held last month “struggled to articulate the copper growth beyond 2030” while Glencore has a pipeline. Glencore, unlike its main competitors, chose to keep its coal assets. This decision has resulted in substantial profits because of the recent price surge.
Cheveley said that one of the biggest uncertainties in the talks is whether BHP, the world's largest miner at the moment, will feel the need to get involved.
CERTAIN SHAREHOLDERS ARE UNCONVINCIED
Rio's shareholders aren't all convinced.
The share market will tell you everything you need to know. Hugh Dive said that investors are unhappy with the situation. Atlas Funds Management is a Rio Tinto investor.
"I like going copper but the track record of the majors is dreadful when it comes to mergers and acquisitions. He said that we've seen many of these "big mergers" occur at the top, which are very dilutive in the long run.
Rio Tinto is the largest iron ore mining company in the world. Its market capitalisation is $142 billion. Glencore, a world-leading producer of base metals, is worth $65 billion.
RBC analyst Kaan Pker said that China, as the largest buyer of industrial metals in the world and a shareholder in Rio through its state-owned Chinalco would most likely face antitrust issues.
The combined company will surpass Australia's BHP group, with a market cap of $161 billion. BHP shares ended Friday 0.8% higher.
(source: Reuters)
