REPORT: Glencore Eyeing Rio Tinto in Takeover Bid
Glencore PLC (LSE:GLEN) is looking to make its next big move as the mining world continues to struggle with volatile commodity markets.
The Swiss-based company, which has a stout reputation of growing through acquisitions, reportedly has its eye on Rio Tinto as iron ore prices continue to plunge, reaching a new five-year low.
A takeover attempt at current prices, however, seems improbable.
According to Pengana Capital fund manager Tim Schroeders, Rio Tinto is definitely on CEO Ivan Glasenberg’s radar but the company is unlikely to make a move.
“Where the two companies currently sit market cap wise, I doubt whether Glencore would be that aggressive,” Schroeders said.
Glasenberg, who has an impressive history of buying assets at the bottom of the market, has snatched up Xstrata, Viterra and Caracal in the space of just the last two years.
The ability to have the quality asset base of any of the top-three iron ore players makes perfect sense for Glencore.
“They would love to be in iron ore longer term without spending the significant capital needed for a greenfields development,” Schroeders adds.
Merger of the century
If the deal actually happened, sources in the industry believe there would be “massive regulatory issues” around a Rio-Glencore merger.
“Let’s face it, they (Glencore) had to sell Las Bambas to do Xstrata (merger), what would they have to sell to do Rio?”one resource fund manager said about the potential deal.
“They couldn’t even pull off the nickel merger with Vale in Canada.”
While Glencore doesn’t have the quality assets of Rio Tinto or BHP Billiton, the company has a phenomenal management organization.
“The argument within Glencore is that management have had to work harder because of (the company’s) lesser-quality assets and their internal belief is that they do it better than BHP and Rio because they are not blessed with wonderful assets.”
A merger with Glencore would give Rio shareholder “the best of both worlds” including a chance to share in potential upside in Glencore’s coal, copper and nickel mines.
“A Rio Tinto-Glencore combination would create market leading positions in iron ore, copper, nickel, zinc and coal as well as significant optionality around a number of lesser metals and minerals,” said Paul Gait, senior analyst for Wall Street brokerage Bernstein Research.
“Moreover, it would create the biggest and most diversified mining company on the planet. It would be a Glencore-Rio combination that would quickly become the ‘most own’ stock for anyone looking for mining exposure.”
With Glasenberg at the helm, anything is possible.
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.