Failed Rio Tinto-Glencore talks show big copper deals are hard to do

SEATTLE (Scrap Monster): The collapse of deal talks between Rio Tinto and Glencore underscores the challenge facing miners as they vie for dominance in copper, a metal essential to powering artificial intelligence and electric cars.

The two companies spent weeks trying to agree on a deal that could have created not only the largest mining company globally, but potentially the world’s biggest copper producer. Those talks came to nothing as differences on price couldn’t be bridged.

 “The outcome reinforces a high bar for large-scale copper M&A across the diversified miners,” RBC Capital Markets analyst Kaan Peker wrote in a note to clients after talks ended.

Mining executives have re-embraced dealmaking as a way to potentially fast-track growth in copper. Building new copper mines is becoming more difficult and costly, as deposits get deeper, lower grade and, in some places, face community opposition.

 Meantime, concerns about future supply have intensified, propelling copper prices to a record high.

Data centers, which house the infrastructure supporting the boom in AI and cloud computing, contain a lot of copper and need a huge amount of copper-intensive power infrastructure to operate. Electric vehicles and wind farms also use copper in much greater quantities than gasoline-powered cars and coal-fired power plants.

BHP Group, which tried unsuccessfully to buy Anglo American to cement itself as the world’s biggest copper producer, expects copper demand to increase by 70% by 2050.

 “Large-scale diversified mergers are simply too complex and too pro-cyclical to clear at current copper prices, unless there is significant asset/group synergies to justify,” Peker said. He thinks future dealmaking may center on asset purchases and partnerships instead.

One deal that has gained support is a planned merger of Anglo and Teck Resources, which includes significant benefits from combining some neighboring operations in Chile. That deal was signed off by each of the companies’ shareholders late last year.

Glencore had previously itself bid for Teck and ended up acquiring its steelmaking coal business in 2024.

There are plenty of reasons why mining megadeals are tough to agree, said Jefferies analyst Christopher LaFemina.

“Large mergers in mining are difficult to pull off due to cultural issues, regulatory constraints, and many other complexities,” he said. “These challenges are exacerbated by heightened geopolitical risks, especially in a world where critical minerals have become a top priority national security concern for the U.S., China and other regions.”

 He said a BHP-Anglo American deal would have made sense, and that there was a strategic rationale for Rio Tinto and Glencore to combine, too.

Glencore owns a stake in the Collahuasi mine in Chile, one of the world’s richest copper deposits, as well as several other copper mines, smelters and refineries globally. Rio Tinto’s copper business includes the Kennecott mine in Utah and a long-delayed project in Arizona that could supply a quarter of U.S. demand of the industrial metal when it starts up.

“I was disappointed that they didn’t get the deal done,” Wilson Asset Management portfolio manager Matthew Haupt said. Two of Haupt’s funds hold Rio Tinto shares.

“The more work I did on it, the more I thought: Oh, what a great opportunity for the two companies to come together,” Haupt said. “The combined group, you’d go: It’s good for the next 20 years.”

Still, Haupt said Rio Tinto was right not to overpay. Glencore was seeking a deal that would have given its shareholders about 40% of the combined company, according to a person familiar with the matter.

Shares in Rio Tinto ended little changed in Sydney on Friday, despite a retreat in mining stocks more broadly.

Under U.K. rules, Rio can’t pursue Glencore for at least six months, except in specific circumstances, such as a rival suitor emerging.

“No doubt they will come back again in the next couple of years,” he said. The pair previously discussed combining as recently as 2024. “It just looks like the timing wasn’t completely right to get it done at this time.”

 Courtesy: www.msn.com