RIO Tinto and Glencore are set to request additional time to finalise a deal creating the world’s largest mining company, as the parties negotiate over valuation terms, said Bloomberg News citing people familiar with the discussions.
The companies have been in talks since early this month about a combination worth approximately $235bn in combined market capitalisation, which would represent the mining industry’s biggest-ever transaction. Both sides remain interested in reaching agreement but require more time to resolve pricing issues, the newswire said.
Under UK takeover regulations, Rio faces a February 5 deadline to either confirm an offer or withdraw from negotiations for six months, unless Glencore requests an extension. Bloomberg said such a request appears highly probable, though the situation also remains fluid.
The proposed merger would roughly double Rio’s copper production and add about 1 million tons of future growth capacity at a time when copper prices recently reached a record $14,500 per ton. Prices have climbed 45% over the past year.
For Rio, the deal offers access to Glencore’s coal operations and marketing business, whilst addressing concerns about future copper supply constraints. However, a key challenge involves valuing Glencore’s copper division, which has seen output decline for four consecutive years despite plans to nearly double production over the next decade.
Rio’s Australian shareholders, who control nearly a fifth of the company, are viewed as conservative regarding acquisitions. The companies must also justify the transaction premium despite limited direct operational synergies between their assets.
Rio is working with Evercore, JPMorgan Chase and Macquarie Group, whilst Glencore has yet to appoint advisers.
