Rio Tinto and Glencore tight-lipped on rumours of $255b mega merger

The mining world will be altered drastically if whispers of a tie up between Rio Tinto and Glencore are true, with the two behemoths yet to break their silence.

According to Bloomberg reports, Rio Tinto and Glencore were in early stage negotiations to combine their businesses, setting the stage for the mining industry’s largest-ever deal.

Rio, which is dual listed on the Australian Securities Exchange and London Stock Exchange, has a market value of about $164 billion and the London-listed Glencore is valued at about $90b.

A deal coming to fruition would likely see chunks of the consolidated company sold off and a big shift in the strategic direction of the duo’s individual businesses.

Rio runs a huge iron ore network consisting of 17 mines in the Pilbara, which accounts for the lion’s share of its global earnings. Glencore in WA owns the Murrin Murrin nickel and cobalt operation — Australia’s sole surviving major nickel mine following a price rout in recent years.

But the rumoured merger is likely driven by an aspiration to produce more copper, in a similar vein to BHP’s $80b pursuit of Anglo American last year. Copper is used extensively in electronics, including in electric vehicle batteries and components.

Rio — like BHP — still depends on iron ore for the bulk of its profits at a time when long-term demand for the steelmaking commodity looks shaky. China’s decades-long construction boom is winding down and India’s growth is yet to fill the void.

Glencore’s copper exposure is spread across South America and the Democratic Republic of Congo, while Rio’s is in South America, Mongolia and the United States.

Rio has a stake 30 per cent stake in the world’s largest copper mine — Escondida in Chile. Escondida is run, and majority owned, by BHP.

Glencore controls 44 per cent of the high-grade Collahausi copper mine a few hundred kilometres north of Escondida. Both Rio and Glencore are roaming the copper-rich Chile for more of the orange-red metal.

Glencore previously tried buy Rio in 2014 when iron ore prices were low. The deal fell apart after Rio’s board labelled the move opportunistic. But a decade later the takeover target is now the bigger fish.

Beyond mining, Glencore also operates one of the world’s biggest commodity trading businesses — buying, selling and transports huge volumes of metals and oil.