Glencore opens to deals as investors prepare for more mining M&A
Glencore, the commodity and miner trader, said that it was open to M&A deals that created value for its investors. It is leveraging its position in the top three producers of copper globally.
Glencore's spokesperson stated: "We are experts in M&A and are open to any transaction that adds value to the company."
Investors in the sector were most concerned about potential M&A transactions in 2024. However, BHP's failed $49 billion bid for Anglo American last May demonstrated the difficulties of merging diversified producers.
Two sources familiar with the situation say that Glencore approached Rio Tinto in late 2013 and proposed a merger of the two mining firms. However, the talks failed to progress. Both companies have not commented on the talks.
The spokesperson refused to comment on the reports.
Rio Tinto will benefit from increased copper production by a deal with Glencore. However, the second largest miner in the world has questions about how much money it would need to spend, and whether its culture is compatible with that of the Swiss company.
"Glencore's a trader... their operating assets are nothing more than a captive material source for them to trade with." Culture clashes are a big deal, but at the right price any deal is possible. Abel Martins Alexandre was formerly a Rio Tinto Treasurer and former managing director of Lloyds Bank.
Martins Alexandre explained that if Glencore owned Rio Tinto, they might think they could make more profit by trading the materials Rio Tinto produces, than Rio Tinto alone does, since this isn't a trading entity.
Copper demand is expected to increase due to its use in solar panels, electric vehicles, and data centres to support artificial intelligence.
Major producers are also wary of paying high premiums, which could place pressure on their balance sheet and upset shareholders.
Glencore produces over one million metric tonnes of copper per year, exceeding Rio's production by up to 40 percent.
Analysts say that Glencore is valued cheaply compared to its peers. Its share price will lose 25% of its value by 2024. BHP, Rio Tinto and Anglo all lost value in London.
Martins Alexandre said that Glencore's coal operation will be perceived by other company shareholders as a "poison tablet".
Glencore, an outlier in the industry, has continued to accumulate more fossil fuels, even though most Western miners sold their assets.
CASH DEALS
Reports from last year indicated that Glencore was also studying a possible combination with Anglo American following BHP's approach. The company declined comment.
The company's failed 2023 attempt to purchase Teck Resources at $23 billion forced it to accept 77% of the assets for steelmaking coal that the Canadian miner had planned to spin-off anyway.
Teck, a company that is primarily a copper mining company with a capitalization of 22 billion dollars, would be much more expensive today.
One of the sources who has direct knowledge of this matter stated that Glencore still hopes to restart talks with Rio Tinto. Glencore's spokesperson refused to comment.
Ben Davis, an analyst at RBC Capital Markets, said that while the company has always pursued acquisitions, it has relied more on cash to fund deals in recent years, reflecting its belief that stock prices are undervalued.
Institutional shareholders have said that they are happy to see companies like Glencore and Anglo American sold to larger miners at premiums of more than 30%.
Synergies are seen in the reduction of overheads or the use of similar infrastructure at nearby mines.
A mining banker stated that other shareholders were sceptical about big M&A in the mining industry. They said that executives would not "push the boundaries" as no portfolio is perfect and certain assets are more valuable than others. Clara Denina, Pratima Dasai, Felix Njini, Andres Gonzalez Estbaran and Susan Fenton contributed to the reporting.
(source: Reuters)
