Glencore chief executive Gary Nagle had a clear message at an industry event last October: the mining sector needs fewer, bigger companies in order to stay relevant.
More consolidation is needed, he told a private conference hosted by Goldman Sachs at LME Week. As it happened, Jakob Stausholm, the boss of rival mining company Rio Tinto, was also speaking at the event. Around the same time, Glencore and Rio held tentative talks about combining part or all of their business to create a $160bn mining behemoth.
Glencore’s “bigger is better” mantra has made it one of the most aggressive and ambitious dealmakers in the sector, even if those deal discussions do not always work out.
While discussions with Rio did not progress beyond early stages, megadeals are back in vogue for the mining sector. The question ripping through the industry now is: what will Glencore do next?
The return of big mining M&A was supercharged by BHP’s failed £39bn bid for Anglo American last year, which spurred companies to review their strategic options. But it is also due to structural factors: the 20-year commodity supercycle driven by China has ended, and miners are repositioning themselves for the next phase of growth, in which the energy transition is expected to boost demand for copper and battery metals.
Glencore has dealmaking in its DNA. Founded as a commodity trader in 1974, it built up its mining business almost entirely through acquisitions. Under former chief executive Ivan Glasenberg, a pugnacious South African who ran the company from 2002 to 2021, Glencore went public in 2011, and announced it was merging with Xstrata the following year.
“They are always trying to do deals, more so than the big mining companies,” said Barry Jackson, chief executive of mining consultancy Ascentia Resources. “You hear about Glencore talking with every mining company in the world.”
One of the biggest barriers for Glencore is that other miners are generally more conservative when it comes to mergers and acquisitions. Compared with bigger rivals where the M&A process is very tightly controlled, at Glencore “the freedom to do those kind of initiatives is higher”, Jackson said.
Glasenberg — who still owns 10 per cent of Glencore’s shares — earned a reputation as an enthusiastic dealmaker and his successor Nagle has continued that tradition, holding talks on potential megadeals every year since he became chief executive.
In early 2022, Glencore held preliminary talks with BHP about a deal that would have brought the two companies together and spun out their combined coal businesses, according to four people familiar with the discussions.
The next year, Glencore launched a hostile $23bn bid for Canada’s Teck Resources, proposing a similar structure: merge, then demerge into a metals group and a coal group. That bid failed due to opposition from Teck’s management and controlling shareholders; instead a Glencore-led consortium bought Teck’s steelmaking coal business in a $9bn deal later that year.
Last year, after BHP’s bid for Anglo became public, Glencore examined making a rival bid for Anglo, but did not make an offer. The talks with Rio took place in September and October, but did not progress. Rio previously spurned an approach from Glencore in 2014.
Rio CEO Stausholm has said Rio is interested in deals that boost its growth profile, but stressed that there is no “fear of missing out” at the company, which is guarding against a move that could “derail” the business.
Rio is under pressure from an activist shareholder campaign to move its primary listing from London to Sydney — as BHP did — which the activists argue will give the miner greater power for share-based deals. Rio, which is listed in both London and Sydney, has not done a share-based transaction since its dual-listing structure was established.
One reason Rio is more conservative than Glencore in terms of deals is because it has been burnt by bad deals in the past, according to advisers. Rio overpaid for its $38bn purchase of Alcan in 2007, which is widely considered one of the worst mining deals ever.
“Glencore is born out of a trading culture, so they are a bit more aggressive in terms of deal flow — like in the way they approached the Teck deal a couple years ago,” said Richard Hatch, analyst at Berenberg.
The company’s dealmaking style is highly opportunistic, he added, pointing out its countercyclical acquisition of the Cerrejón thermal coal mine in 2021, which paid off handsomely when coal prices rocketed the following year.
One handicap for Glencore is that its share price has fallen 17 per cent in the past six months, giving it less financial firepower for any next potential deal.
Earnings have normalised after the bonanza couple of years that followed Russia’s invasion of Ukraine, and lower volatility in commodity prices has reduced trading profits. During the first half of 2024, Glencore reported a loss of $233mn, partly due to a $1bn impairment charge related to its South African coal operations.
With the Rio talks now on ice, analysts believe a Glencore-Anglo combination could make sense. In the wake of BHP’s failed bid, Anglo launched a radical restructuring, which will split off four of its businesses, and leave behind a company focused on coal and copper.
Glencore and Anglo already work closely together at the Collahuasi copper mine in Chile, where each has a 44 per cent stake. But Anglo’s price tag has gone up: its shares have risen 45 per cent in the past year, as shareholders rally behind its restructuring plan.
“There is more to be said for Glencore and Anglo to be doing something, rather than Glencore and Rio,” said Hatch at Berenberg. “But my view is that Anglo does not want to be bought.”
Whether or not this year holds a Glencore-Anglo bid, the cycle of mining consolidation is set to continue, analysts believe.
Kaan Peker, an RBC Capital Markets analyst, wrote in a note: “The M&A parlour games that we saw last year, will undoubtedly start again in earnest.”
