Theme of the Day: Rio-Glencore talks highlight ‘bigger is better’ mining mantra

A merger between Glencore and Rio Tinto would create the largest copper company in the world, at a time of surging demand for the metal driven by the clean energy transition and the booming artificial intelligence sector. The proposed tie-up, which comes hot on the heels of the megamerger between Anglo American and Teck Resources, would also create the world’s largest mining group, with an enterprise value of more than $260bn. The deal could rank among the largest takeovers of the past 30 years.The two groups separately confirmed they were in “preliminary discussions” about a “possible combination of some or all of their businesses, which could include an all-share merger between Rio Tinto and Glencore.” The industry is becoming structurally more capital-intensive and complex. Bigger balance sheets and broader, more diversified asset bases matter far more than they did a decade ago in terms of funding growth and absorbing risk. Demand for the metal is expected to increase by up to 50% by 2040, according to S&P Global Energy & Market Intelligence, which projects a production shortfall by then of up to 10Mtpy. Copper demand is expected to grow strongly even if the energy transition is slow.“Two trends are inescapable: everybody wants to be big in copper, and shareholders seem to support growth in copper,” said Paul Knight, founder of AltaVista Advisors and a former banker in the sector. Copper-focused deals reflected the difficulty of developing projects from scratch as well as a shift from the historic focus among mining majors on steel-intensive businesses towards future-facing minerals such as copper and lithium. “This potential combination is yet another example of mining company managements’ desire to increase exposure to copper,” said veteran mining investor Evy Hambro at BlackRock, a key shareholder in both companies. “It also reinforces the view that buying rather than building offers more value, given the discount at which in-production assets are trading in the market.”A combined “GlenTinto” would produce more than 7% of globally mined copper in 2026, according to Benchmark Mineral Intelligence, in addition to significant shares of other critical materials, including zinc, cobalt and nickel. By contrast, Anglo Teck, the planned merger of the London- and Canada- based miners, would produce roughly 4% of copper in 2026.Rio is aiming to increase its copper production to 1Mtpy by the end of the decade, from about 700kt in 2024. Copper took up almost half of Glencore’s industrial capital spending in 2024, despite accounting for only a quarter of the division’s revenue. With an eye on battery materials and the energy transition, copper is not the only prize. Glencore is the world’s second-largest producer of cobalt, used in batteries and smartphones, mostly as a byproduct of its copper and nickel mines in the DRC, Australia, and North America.There is consensus that Glencore’s copper assets would be a prize for Rio, which has more challenging longer-term growth prospects for the critical industrial metal — including the huge, proposed Resolution mine that has been stuck in the US court system for years. If Rio wants to grow its copper business, acquiring Glencore is by far the easiest way to do it.