Diversified mining giant Rio Tinto’s bid to take over Glencore to create the largest mining company in the world, with a market cap of $200-billion (R3.29-billion), is likely to face opposition from shareholders of the Anglo-Australian giant who could baulk at the acquisition of Glencore’s coal assets.
This is according to RMB’s mining analyst Manqoba Madinane, who said that some Rio Tinto shareholders could disinvest from the company if it acquires all of Glencore’s assets, including its massive coal haul.
Glencore confirmed in a JSE Sens announcement on Friday that it is in preliminary discussions with Rio Tinto about a “possible combination of some or all of their businesses, which could include an all-share merger between the two miners. The parties’ current expectation is that any merger transaction would be effected through the acquisition of Glencore by Rio.”
A tie-up would create the largest mining company in the world with a combined market value of over $200-billion.
Rio Tinto has a market cap of $137-billion, while Glencore is valued at $71-billion. Australia’s BHP Billiton is the world’s biggest mining group, valued at $161-billion.
Glencore has coal mining assets in Australia and South Africa, including iMpunzi, Tweefontein Coal and Goedgevonden – all thermal coal mines based in Emalahleni, Mpumalanga.
Madinane said Rio Tinto’s appetite for Glencore stems from the world’s heightened demand for transition metals that are key in renewable energy and artificial intelligence.
Both companies are seeking to bulk up on especially copper, a critical transition metal.
“At the centre of that investment cycle is quite a significant role as well as interest globally in the copper mining assets. Copper is central for electrification in general, but AI as a technology is quite copper-intensive.
“The problem around copper is that there have been few mega copper discoveries over the past few years, with the last reported one in 2012. So copper is getting harder and harder to find, and the assets that are valuable are older. And so, for the miners that are trying to secure it, the easiest way to do it is to try and do a merger or to try and take over other mines.”
Madikane said the scramble for copper assets was driving merger activity in the mining sector. In September, Anglo American and Canadian mining firm Teck Resources announced a merger of equals to form a major global minerals company heavily focused on copper. Anglo-American rebuffed three attempts by BHP Billiton to acquire it in 2025.
“The mergers and acquisitions activities, particularly around copper assets, are increasing particularly because literally the only way for miners to secure a higher copper output is to merge with others… [delivering economies of scale] by producing copper at a lower cost… and margins earned by a merged entity would be higher than a smaller entity.”
Madinane said Rio Tinto was highly concentrated in the risky iron-ore sector dominated by China and has to diversify. He said Glencore was attractive because of its significant copper assets. It is the biggest trader of copper assets, which include aluminium, copper, and nickel.
“There are complexities as well… Glencore is also the biggest coal trader as well, which raises environmental, social and governance issues. Some of the major investors in Rio are primarily concentrated in green metals, and one of the complexities is that if Rio were to put out a takeover bid, for instance, this means that all of a sudden Rio’s investors will face a prospect of being involved in coal once again,” he said.
Rio Tinto divested from coal mining in 2018.
He said coal remained the biggest hurdle for the proposed merger to succeed, especially since it’s not yet clear if Rio Tinto wants to buy all of Glencore’s assets or pick and choose attractive ones.
“That said Glencore investors wouldn’t want to let go of its most valued assets (copper).”
