Glasenberg’s Glencore going big with potential $160 billion Rio Tinto bid

POSTED ON October 06, 2014 BY Travis McPherson
CATEGORY BHP Billiton, Glencore, Rio Tinto, Stories,

57 year old, South African-born Ivan Glasenberg - CEO of Glencore since 2002 (Photo: Commodity Global)

According to preliminary reports today from Bloomberg, Glencore (GLEN:LN) which is the fourth largest mining company by market capitalization is entertaining the idea of merging with iron-ore juggernaut Rio Tinto which would create the world's largest mining company in a +$160 billion deal.

According to the report, Ivan Glasenberg (Glencore's CEO) has begun talks with Aluminum Corp. of China (Chinalco) to gauge Rio's largest shareholder's interest in a merger of this magnitude. Chinalco owns 9.8% of Rio Tinto shares and is a Chinese state-owned company. Given that Rio denied Chinalco's request for Board representation, the state-owned entity may be even more motivated for a change of control at Rio.

A merger of this size would come with nearly endless complications including anti-trust laws. When Glencore acquired Xstrata in 2012, the Chinese insisted that Glencore agree to sell certain assets in order for the Chinese regulators to approve the transaction.

This merger would put the combined entity up against BHP Billiton as the largest mining company on the planet.

Glencore has the largest and most vast commodity-trading operation and Rio Tinto has a portfolio of iron-ore and other commodity assets that span the globe. Glencore's business covers the entire commodity spectrum but one area in which it lacks significant operating exposure is iron ore.

As a result of this year's weak iron ore prices, shares of Rio Tinto have dropped 12% versus Glencore's near 12% gain over the same period. This makes merger talks with Rio that much harder given that they would be coming from a place of weakness and might be resistant to a deal from the beginning. According to the report, Glasenberg isn't interested in a hostile bid.

Rio Tinto's shares have fallen 12% this year while Glencore's are up 12% (Image: Aaron Bunch/Getty)

With Rio sitting at a market capitalization of CAD $100 billion it is within merger territory of the CAD$80.5 billion Glencore.

Under Glasenberg's leadership, Glencore has completed a number of high-profile acquisitions which culminated in the 2012 takeover of Xstrata for CAD $32 billion. After the deal closed, Glencore proceeded to axe almost all of the former Xstrata management (perhaps something else working against Glencore in negotiations with Rio Tinto). Glasenberg has proven to be one of the most adept acquirers in the space, but a deal of this size is unheard of in the mining business.

Nothing is expected to materialize before year-end, but it would bode well for an industry on its knees after years of commodity price declines. Given that this merger would garner significant international media attention, it could help jump-start the natural resource sector by highlighting the deep value opportunities in select mining companies.

Read: Glencore Said to Lay Groundwork for Potential Rio Merger (Bloomberg)

*This post will be updated as developments unfold

Travis McPherson

trav@ceo.ca

Travis McPherson

trav@ceo.ca

Disclaimer:

Readers are advised that the material contained herein is solely for information purposes. Readers are encouraged to conduct their own research and due diligence, and/or obtain professional advice. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities. The information contained herein is based on sources which the publisher believes to be reliable, but is not guaranteed to be accurate, and does not purport to be a complete statement or summary of the available data. Any opinions expressed are subject to change without notice. The owner, editor, writer and publisher and their associates are not responsible for errors or omissions. They may from time to time have a position in the securities of the companies mentioned herein, and may change their positions without notice. (Any significant positions will be disclosed explicitly. This article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be — either implied or otherwise — investment advice. Thomas Humphreys, Pacific Website Company Inc., and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. We reserve the right to buy and sell such securities or commodities without notice to readers. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Thomas Humphreys, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in these publications or web site.

Forward-Looking Statements: This article may include certain "forward-looking information" within the meaning of Canadian securities legislation. Forward-looking statements include predictions, projections and forecasts and are often, but not always, identified by the use of words such as "seek", "anticipate", "believe", "plan", "estimate", "forecast", "expect", "potential", "project", "target", "schedule", budget" and "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions and includes the negatives thereof. All statements other than statements of historical fact included in this release, including, without limitation, statements regarding the potential of the Company's properties are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. Forward-looking statements are based on a number of material factors and assumptions. Important factors that could cause actual results to differ materially from Company's expectations include actual exploration results, changes in project parameters as plans continue to be refined, future metal prices, availability of capital and financing on acceptable terms, general economic, market or business conditions, uninsured risks, regulatory changes, delays or inability to receive required approvals, and other exploration or other risks detailed herein and from time to time in the filings made by the Company with securities regulators. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ from those described in forward-looking statements, there may be other factors that cause such actions, events or results to differ materially from those anticipated. There can be no assurance that forward-looking statements will prove to be accurate and accordingly readers are cautioned not to place undue reliance on forward-looking statements which speak only as of the date of this article. The Company disclaims any intention or obligation, except to the extent required by law, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Always do your own due diligence. We seek safe harbor.