Glencore rises on prospect of Rio Tinto merger to form world's biggest miner

Glencore and ⁠Rio have ‌held talks before

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Deal could face possible Chinese opposition

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AI has increased need ⁠for copper and other strategic minerals

By Clara Denina

LONDON, Jan 9 (Reuters) - Glencore shares rose by more than 10% on Friday following news it is in talks with Rio Tinto about a takeover that would create the ‍world's largest mining group, valued at almost $207 billion.

While Glencore gained, Rio Tinto shares fell by as much as 3%, reflecting investor scepticism towards a deal and concerns it will overpay.

The two miners ‍have discussed combining their operations before. In 2014, Rio Tinto rejected a merger offer from Glencore, saying it was not in the interest of its shareholders. Merger ⁠talks in late 2024 also ended without a deal.

RACE FOR COPPER AND OTHER STRATEGIC MINERALS Since then, Rio Tinto has appointed a new CEO and the competition for reserves of metals including copper, needed for the energy transition and artificial intelligence, has intensified. Copper prices have hit record levels this week as traders anticipate supply shortages.

The companies said late on Thursday, after ​the Financial Times newspaper reported the talks, that the expectation was for an all-share buyout of "some or all" of Glencore by Rio Tinto.

Few details were made public.

Under UK takeover rules, Rio Tinto has until February 5 to make a formal offer for Glencore or say it will not proceed.

GLENCORE'S TRADING ARM APPEALS While copper is an obvious motivation, sources said Glencore's commodities trading arm, which has a reputation for capitalising on market volatility and an enviable network of trading contacts, was another part of ‍the appeal.

One of the sources said Bold Baatar, who runs Rio's commercial operations from Singapore, has ambitions to make the company's trading division more active. Richard Hatch, analyst at ‌Berenberg, said a deal made sense and followed successful mergers, such as that between Anglo American and Teck Resources, whose rationale was access to copper.

Rio needs more copper as "the market (rightly or wrongly) views iron ore as a commodity facing ‌price decline," he said, adding it was better to buy producing assets rather than to wait to build new mines.

George Cheveley, natural resources portfolio manager at investment manager Ninety One, which is a shareholder in Glencore, also said copper was the driver.

He said Rio Tinto's investor day last month "struggled to articulate copper growth beyond 2030," while ‌Glencore had a pipeline of projects.

Cheveley added the uncertainties facing the talks included whether BHP Group, currently the world's biggest miner, would feel the need to get involved.

In addition, Glencore stands apart from Rio ​and its other peers in that it chose to retain its coal assets, a decision that has generated substantial profits due to soaring prices in recent years, but raises questions of whether Glencore's coal resources would be retained by a combined group.

SOME SHAREHOLDERS ARE UNCONVINCED

Some Rio shareholders think the obstacles are too great.

"The share market tells you what you ⁠want to know. Investors are not happy with this," said Hugh Dive, chief investment officer of Atlas Funds Management, ‍a Rio Tinto shareholder.

"I like the concept of going to copper, but the record is dreadful for the big majors making acquisitions or even mergers. We've seen a lot of these big mergers occur at the top of the market, and they ​end up being very dilutive over time," he said.

Rio Tinto, the world's biggest iron ore miner, has ⁠a market capitalisation of about $142 billion. Glencore, one of the world's largest base metal producers, is valued at $65 billion.

China, the dominant buyer of industrial metals and a stakeholder in Rio via state-owned Chinalco, would likely raise antitrust hurdles, said RBC analyst Kaan Peker.

The combined company would overtake Australia's BHP Group, which has a market capitalisation of $161 billion. BHP shares closed 0.8% higher on Friday.

(Reporting by Clara Denina; writing by Barbara Lewis; editing by Jason Neely)

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