Swiss mining giant Glencore reveals talks of merger with Rio Tinto

(Patria) - Swiss mining and trading group Glencore announced this morning that it is in merger talks with British-Australian rival Rio Tinto to create a global giant, AFP reported.

The company stated it is in preliminary discussions with Rio Tinto "regarding a possible combination of some or all of their businesses". The deal could proceed as an all-share merger, the statement added.

The Financial Times first reported that the two companies were discussing a "mega-merger" to create the world's largest mining company.

Together, they would have a value exceeding 260 billion US dollars, the newspaper stated.

As a combined force, they would have greater leverage to purchase copper resources, a metal whose demand is growing as countries expand their electrical grids to harness renewable energy sources.

Glencore CEO Gary Nagle outlined plans in December to become one of the world's largest copper producers.

"Our portfolio, particularly in copper, is world-class," he said at an investor presentation.

The current expectation is that Rio Tinto would acquire Glencore through a court-sanctioned scheme of arrangement, the Swiss firm announced.

Shares in Rio Tinto, which confirmed merger talks in a separate statement, fell five percent in late morning trading in Sydney.

The two groups said there was no certainty that the preliminary talks would result in a merger.

Analysts said the two firms would need to bridge cultural differences, given that Rio Tinto has divested its coal assets while Glencore retains fossil fuels.

Cultural Gap

"Strategically, Rio Tinto might be interested in Glencore's copper assets, aligning with its focus on sustainable, future-facing metals," CreditSights researchers said in a report.

Any merger would require "careful alignment" to avoid unwanted asset overlaps, they said.

"Culturally, Rio Tinto is traditionally seen as conservative and focused on stability, whereas Glencore is known for its aggressive approach and constantly pushing boundaries in its operations," the report added.

"This cultural divide could present integration and decision-making challenges should a merger occur."

Glencore announced in August that it had decided not to spin off its coal business, saying its shareholders viewed the fuel as a cash-generating activity.

The mining group had considered merging its newly acquired company Elk Valley Resources with its own coal operations and spinning off that entity.

But Glencore said it needed the cash flow from its coal mines to invest in raw materials useful for the green transition, such as copper and cobalt.

"The coal business supports today's energy needs as the world transitions," Glencore's chief executive said in December.

The strategy has drawn criticism from environmental groups and some shareholders, who noted that coal is banned in some investment portfolios.

Norway's sovereign wealth fund, the world's largest, has excluded Glencore shares from its portfolio since 2020.

Oil, gas, and coal companies are under pressure to move away from fossil fuels, which contribute most to climate change.

Rio Tinto stated it has until February 5 to announce whether or not it will proceed with a merger with Glencore.