On Friday, RBC Capital Markets kept its Sector Perform rating and GBP54.00 price target steady for Rio Tinto Plc (NYSE:RIO:LN) (NYSE: RIO). The update follows media reports of preliminary discussions between mining giants Rio Tinto and Glencore (OTC:GLNCY) about a potential combination of their businesses.
Glencore, currently valued at $56.42 billion and showing a GOOD Financial Health Score according to InvestingPro data, appears undervalued at its current trading price. These talks, however, are no longer active, and neither company has issued a statement regarding the reports.
The prospect of a merger or a more complex deal involving the breakup of certain operations was mentioned. This news is somewhat unexpected, given that Glencore had previously reached out to Rio Tinto's major shareholder Chinalco in July 2014 about a possible merger. Since that time, Rio Tinto has sold off its coal assets, while Glencore has expanded its holdings, including the acquisition of Teck Resources (NYSE:TECK) Limited's coking coal assets and buyouts of its partners in the Cerrejon joint venture.
InvestingPro analysis reveals Glencore's strong free cash flow yield and management's aggressive share buyback strategy, suggesting financial flexibility for strategic moves. Get access to 7 more exclusive ProTips and comprehensive analysis with an InvestingPro subscription.
The recent approach by BHP to Anglo American (JO:AGLJ) might have played a role in reigniting discussions between Rio Tinto and Glencore. The aim of the talks could be for Rio Tinto to increase its copper assets, with potential targets like Collahuasi, Antamina, and possibly Katanga, while Glencore might be looking for an exit strategy for its significant shareholders. With an EBITDA of $11.45 billion in the last twelve months and a relatively low price volatility, Glencore maintains a strong position for potential strategic transactions.
Estimating operational synergies, particularly in the aluminium and copper sectors, is challenging, and any benefits are expected to be limited. RBC Capital Markets expressed skepticism about the likelihood of a straightforward merger, suggesting that Rio Tinto's shareholders might perceive such a move as more advantageous to Glencore. Nevertheless, analysts at RBC noted that there might be a deal structure that could satisfy stakeholders from both companies.
The discussions between Rio Tinto and Glencore are reflective of the broader merger and acquisition activities within the mining industry, which have been gaining momentum. RBC Capital Markets anticipates that the strategic maneuvers observed last year will continue with renewed vigor.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.