Source : THE AGE NEWS
Investors have queried Rio Tinto’s reasons for participating in rumoured merger talks with Glencore, saying it would mark a stunning strategic turnaround for the Anglo-Australian miner after it ditched coal in 2017 and given it is striving to slash emissions.
Rio Tinto, Australia’s second-largest mining company, held early-stage talks with Glencore last year over a possible deal valued at up to $160 billion ($260 billion), which would be the biggest in the history of the mining industry, according to overseas media reports on Friday. It is unclear whether those discussions remain active.
Glencore has faced shareholder demands for greater disclosure on how pursuing new coal projects is aligned with global efforts to fight climate change.Credit: Nic Walker
Combining parts or all of Rio Tinto and Glencore’s far-flung operations may be attractive to Rio Tinto, mining industry sources suggest, due to Glencore’s large portfolio of copper mines spanning Australia, Africa and North America.
Rio Tinto makes most of its money from its Australian iron ore mines but it has been pushing hard to boost its supplies of copper, a critical raw material in electric wiring, renewable energy and electric cars, ahead of an expected surge in demand driven by the hastening global shift to cleaner sources of energy.
While a tie-up between Rio Tinto and Glencore would create the world’s biggest mining company and the second-biggest copper producer, Glencore’s extensive ownership of coal mines in Australia and around the world may present an obstacle to any deal materialising, investors say.
“It would be a significant shift in strategy for Rio,” said Equity Trustees Management head of equities Chris Haynes.
“It is hard to see a strong reason for the merger of these two.”
Other than the appeal of Rio Tinto gaining greater exposure to copper and diluting iron ore as Chinese demand flattens, Rio Tinto and Glencore did not seem a good match, Haynes said. He said Rio Tinto had sold out of coal several years ago, while Glencore had a commodities trading and marketing business, “which is also not really in Rio’s wheelhouse”.
“I think if you took a poll today, you would find most investors would not like it,” he said. “However, strange things sometimes happen.”
Glencore operates 15 coal mines in NSW and Queensland, making it the biggest Australian coal producer. It supplies coal-fired power stations and the global steel-making industry. It also mines copper, lead, zinc, nickel and cobalt.
Rio Tinto divested its last coal mines seven years ago, making it the biggest diversified miner to be rid of fossil fuels entirely. It has a target to halve its direct carbon footprint by 2030 and to reach “net zero” emissions, removing as much carbon dioxide from the atmosphere as it emits, by 2050.
Other miners including Australian mining giant BHP have also been divesting or announcing closures of their coal assets, while a growing number of lenders, insurers and shareholders have pledged not to make new investments in the sector, citing questions about future demand and concerns over global warming.
Analysts at CreditSights also questioned whether Rio Tinto and Glencore were a suitable match. Rio Tinto was seen as conservative with a focus on stability, they said, while Glencore was known for a more aggressive approach and for “pushing the envelope” in its operations.
“Never say never, but the potential mega-merger raises questions about strategic alignment and corporate culture,” the analysts said.
Rio Tinto’s lack of interest in coal following divestments suggested any merger would need “careful structuring to avoid unwanted asset overlaps”, they said.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
