THE failure of Rio Tinto and Glencore to agree on a proposed $240bn merger in February was, as one prominent bank described it, met with a “sigh of disappointment”.
“Too bad. GlenTinto would have been a neat company,” said Bank of America. “We, and we believe many market participants, saw the potential combination favourably and thought that a leading global metals and mining company would result.”
All — except perhaps Rio Tinto’s Australian shareholders. Though worth only 16% of the total share register, they rejoiced that the deal didn’t progress. Rio’s recently appointed CEO, Simon Trott, had passed an early test in nerve, they added. He could now get on with the serious work of cost-saving and divesting from noncore assets.
Yet the market thinks it’s a case of farewell but not goodbye for a Rio Tinto-Glencore combination. “Both parties have walked away with the view that this was a deal worth pursuing and that it would make strategic sense,” said analysts at Swiss bank UBS. “But not at any price,” they added.
Too true. Rio’s all-share offer was thought to be a 68%-32% split, whereas Glencore wanted 60%-40%. For a company heavily exposed to depressed thermal and metallurgical coal prices, and with a significant but yet-to-be-developed copper project pipeline, Glencore’s offer was too steep a price for Rio Tinto.
But how do matters stand after the past two weeks, in which thermal coal prices have gained nearly 25%? The last time coal ex-Newcastle (Australia) averaged $130/t, about the spot price at the time of writing, the group’s coal division earned $3.2bn in ebitda — double 2025’s contribution from the fuel. Coal futures ex-Newcastle were as high as $150/t, suggesting there’s more to come from thermal coal. Meanwhile, there’s been an unrelated decline in the iron ore price, to which Rio’s earnings are strongly correlated.
In this scenario, Glencore CEO Gary Nagle thinks a new discussion is worth holding, according to a Reuters report citing three investors who’d had discussions with both companies this month. The deal can’t be revisited until August, owing to UK listing regulations which prevent Rio from approaching Glencore anew for six months. But some investors are already girding themselves for a new fight, saying they don’t see how Rio can change its mind in six months just because coal has gone up and iron ore has gone down.
This sets the stage for an interesting renewal of mega-merger dynamics, possibly in a much-changed world for commodities consisting of higher interest rates and high inflation, owing to geopolitical disruption in the Middle East — a context supporting Nagle’s view that larger miners can only benefit from more scale. “In our view, a merger with a large peer remains an option,” said analysts at Deutsche Bank on Glencore’s deal prospects.
A version of this article first appeared in the Financial Mail.
