SYDNEY: Swiss resources giant Glencore said Friday it is in merger talks with British-Australian rival Rio Tinto, potentially creating the world’s biggest mining group.
Glencore mentioned that it is currently engaging in initial talks with Rio Tinto “regarding a potential integration of parts or all of their operations.”
The deal could proceed as an all-share merger, it said in a statement.
The Financial Times was the first to reveal that the two entities were in talks about a “megamerger” to form the world’s biggest mining company.
Together, they would have a value of more than US$260 billion, the paper said.
As a unified group, they would possess more influence in purchasing copper, a metal that is becoming increasingly sought after as nations develop electrical systems to utilize renewable energy sources.
In December, Glencore’s chief executive, Gary Nagle, presented strategies to position the company as one of the leading copper producers globally.
“Our portfolio, in particular in copper, is world class,” he told an investor presentation.
The “current expectation” is that Rio Tinto will take over Glencore through a court-approved arrangement, the Swiss company stated.
Rio Tinto’s shares declined by 5.1 percent during afternoon trading in Sydney, following the company’s confirmation of merger discussions in a separate announcement.
The two parties mentioned that there was no guarantee that the initial discussions would lead to a merger.
Experts mentioned that the two companies would need to overcome cultural disparities, as Rio Tinto has left its coal assets and Glencore continues to retain the fossil fuel.
“From a strategic perspective, Rio Tinto could be interested in Glencore’s copper resources, in line with its emphasis on sustainable, forward-looking metals,” stated CreditSights analysts in a report.
Any acquisition would require “meticulous integration” to prevent unnecessary asset duplication, they mentioned.
“Culturally, Rio Tinto is generally regarded as traditional and centered on maintaining stability, while Glencore is recognized for its bold strategies and consistently challenging boundaries in its activities,” the report noted.
This cultural gap could create difficulties in merging and making choices if the merger were to take place.
In August, Glencore stated that it had chosen not to separate its coal division, indicating that its investors perceive the fuel as a source of revenue.
The mining company had evaluated the possibility of combining its newly purchased Elk Valley Resources with its existing coal operations and then separating it.
However, Glencore mentioned that it requires the revenue generated from its coal mines to fund investments in raw materials essential for the green transition, including copper and cobalt.
“The coal industry meets the current energy demands while we move forward in the global landscape,” said Glencore’s chief executive in December.
The approach has faced criticism from environmental organizations and certain investors, who pointed out that coal is excluded from some financial portfolios.
Norway’s state-owned investment fund, the biggest in the world, has removed Glencore stocks from its holdings since 2020.
Companies involved in oil, gas, and coal are facing increasing demands to shift away from fossil fuels, which remain the primary cause of climate change.
Rio Tinto stated that it has until February 5 to declare whether or not it will proceed with the Glencore merger.