Is the world's number one mining merger deal about to happen? Media reports that Rio Tinto is in talks to merge with Glencore

A new giant may emerge in the global mining industry.

On Thursday, January 16th, during the U.S. stock market's midday session, Bloomberg reported, citing informed sources, that Rio Tinto Group and Glencore Plc had been discussing a merger between the two companies and had recently engaged in preliminary negotiations regarding the deal. It remains unclear whether the negotiations are still ongoing.

Following the news, Glencore's trading price in the U.S. over-the-counter market surged rapidly, with an intraday increase of over 8%, ultimately closing up more than 2%. Rio Tinto's U.S. stock closed down 1.1%.

A spokesperson for Glencore later stated that the company does not comment on market rumors or speculation. Rio Tinto declined to comment.

If the news is true, it could lead to the largest deal in mining history, as the merged company would have a market value surpassing that of BHP Group, which has long been a leader in the industry.

Rio Tinto is the world's second-largest mining company. As of Thursday's close, based on the closing prices of Rio Tinto and Glencore listed in London, Rio Tinto's market value was approximately $103 billion, while Glencore's market value was about $55 billion. Based on Thursday's U.S. stock closing price, BHP's market value is less than $125 billion.

Both Glencore and Rio Tinto own some high-quality copper mines. However, like BHP, Rio Tinto, as the world's largest iron ore producer, heavily relies on iron ore to drive its profit growth. Last year, Rio Tinto agreed to acquire the U.S.-listed lithium producer Arcadium for $6.7 billion, reflecting Rio Tinto's efforts to enhance its influence in the battery minerals supply sector.

The merger with Glencore would allow Rio Tinto to acquire a stake in the Collahuasi copper mine in Chile. Collahuasi is one of the largest copper mines in the world, located in northern Chile, and is jointly controlled by Glencore and Anglo American Plc. Reports indicate that Rio Tinto has been eyeing the Collahuasi copper mine for over a decade.

At the same time, the merger with Rio Tinto raises questions about whether Glencore, as a global commodity trading giant, will continue its coal mining operations.

Rio Tinto began listing its coal assets for sale as early as 2013 and has gradually exited the coal business over the past five to six years. In contrast, Glencore is the world's largest thermal coal transporter and the largest coking coal producer.

In August last year, Glencore announced that after discussions with shareholders, the company decided to abandon its plan to divest its coal business. In an open letter, Glencore stated that this was because over 95% of shareholders "bowed to money," believing that retaining the business would enhance cash generation capabilities.

Some commentators suggest that whether the merger between Rio Tinto and Glencore can be achieved may depend on whether former Glencore CEO Ivan Glasenberg will support it. Glasenberg stepped down as CEO in 2021 but still holds nearly 10% of Glencore's shares. During his tenure as CEO, Glasenberg led a merger attempt with Rio Tinto in 2014, which ultimately did not succeed In addition, the support from Qatar and China is also crucial for the merger and acquisition between Rio Tinto and Glencore. Qatar is one of Glencore's largest shareholders, holding 8.5% of the company's shares, while Aluminum Corporation of China Limited is Rio Tinto's largest investor.

In 2008, Chinalco, in conjunction with Alcoa, acquired 12% of Rio Tinto's shares, with a total transaction value of slightly over $14 billion. In 2009, Chinalco also attempted to inject an additional $19.5 billion to nearly double its stake in Rio Tinto to 18% and secure two board seats, directly owning rights to some aluminum, copper, and iron ore assets, as well as establishing alliances with these businesses. However, as commodity prices recovered that year, Rio Tinto's financial situation improved, and Chinalco's investment plan was not realized