Coal rally raises Glencore hopes of reviving Rio Tinto talks - report

(Sharecast News) - Glencore is hopeful that a recent rally in coal prices and a shift in relative share performance could revive discussions with Rio Tinto over a potential mega-merger once regulatory restrictions expire later this year, it emerged on Friday. The two mining groups had previously held talks about combining their businesses into a company worth about $240bn that would unite Glencore's global commodities trading network and copper portfolio with Rio Tinto's large-scale mining operations.

However, the negotiations collapsed in February after the companies failed to agree on valuation, and under the UK Takeover Code they cannot reopen formal discussions until August.

According to a Reuters report citing three investors following meetings with company leaders, Glencore chief executive Gary Nagle remained optimistic that another opportunity to pursue the deal could emerge.

The proposed combination would create the world's largest mining group and position the business to capitalise on rising global demand for copper, a key metal used in electrification and renewable energy technologies.

Market movements since the talks became public had strengthened Glencore's argument that it deserves a larger share of any merged entity.

Coal prices and Glencore's share price had risen about 26% since early January, while Rio Tinto's shares had gained around 9% as weaker iron ore prices weighed on the miner's outlook.

Based on those changes, Glencore would now represent roughly 35% of the combined market value of a merged company, compared with about 31.5% previously and closer to the roughly 40% stake it had sought during earlier negotiations.

One disagreement in the previous talks centred on how Glencore should be valued, with Rio reportedly basing its calculations on commodity prices at the time discussions became public in January.

Nagle argued that longer-term price expectations should also be considered when assessing the company's value, the investors said.

Glencore also reportedly believed Rio Tinto's core iron ore division could face pressure if global supply increases and pushes the market into surplus, potentially shifting the balance of value between the two companies and making a merger easier to negotiate.

Despite that view, some investors remained sceptical that the deal would be revived.

Several Australian funds raised concerns earlier this year about governance and the potential reputational impact of merging with Glencore, which had faced corruption investigations in the past, Reuters said.

Others also questioned the logic of Rio returning to coal assets after previously divesting them to strengthen its environmental credentials.

With Rio generating more than half of its profits from Australian operations, any merger would require government approval and support from shareholders in the company's Australian listing.

Investors told Reuters that Glencore could struggle to win that backing without demonstrating stronger long-term strategic benefits beyond recent movements in commodity prices and share performance.

At 0917 GMT, shares in Glencore were down 1.66% at 522.4p, while those in Rio Tinto Group were off 1.26% at 6,759p.

Reporting by Josh White for Sharecast.com.