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Glencore ( GLCNF ) has leverage as a top 3 global copper producer

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Company's valuation is cheap compared with peers -analysts

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Glencore ( GLCNF ) still hopeful talks with Rio may restart -source

By Clara Denina and Pratima Desai

LONDON, Jan 20 (Reuters) - Miner and commodity trader

Glencore ( GLCNF ) said it is open to M&A transactions that create value

for its shareholders, leveraging its position as a top three

global copper producer.

"As we have always said, M&A is something we are good at and

we are always open to do transactions that are value-accretive

for the company," a Glencore ( GLCNF ) spokesperson said.

Potential M&A deals were the chief preoccupation for

investors in the sector in 2024, but BHP's $49 billion

failed bid for Anglo American in May showed the

difficulty of combining diversified producers.

Glencore ( GLCNF ) made an approach to Rio Tinto late

last year with a proposition to merge the two mining companies

but talks did not progress, according to two sources close to

the matter. Neither company has commented on any talks.

The spokesperson would not comment on the reports.

Rio Tinto would benefit from more copper production through

a deal with Glencore ( GLCNF ), but the world's second-largest miner had

questions around how much it would have to spend and its culture

compatibility with the Swiss company, a third source with direct

knowledge of the matter said.

"Glencore ( GLCNF ) is a trader... and their operating assets are

nothing but a captive source of material for them to trade

against. The culture clash would be quite something... but any

deal can be done at the right price," said Abel Martins

Alexandre, previously a Rio Tinto treasurer and a former

managing director at Lloyds Bank.

For example, Martins Alexandre said if Glencore ( GLCNF ) had Rio

Tinto's portfolio they may believe they could make more money

out of trading the materials that Rio Tinto produces than Rio

Tinto does alone, as this is not a trading entity.

Mining companies are racing to expand copper output, with

demand poised to jump from use for energy transition

applications such as solar panels, electric cars and data

centres for artificial intelligence.

At the same time, major producers are wary of paying hefty

premiums that could put pressure on their balance sheets and

irritate shareholders.

Glencore ( GLCNF ) produces more than one million metric tons of

copper a year, outpacing Rio's output by up to 40%.

Glencore's ( GLCNF ) valuation is cheap compared with peers, analysts

say, and its share price lost 25% of its value in 2024.

Diversified miners BHP and Rio Tinto's London shares lost 21%

and 19% respectively, while Anglo's shares rose 20%.

Glencore's ( GLCNF ) coal operations will be perceived as a "poison

pill" for other companies' shareholders, said Martins Alexandre.

While most Western miners have sold assets of the

carbon-intensive fossil fuel, Glencore ( GLCNF ) has remained an industry

outlier, amassing more of it over the past few years.

CASH DEALS

Reuters reported last year that Glencore ( GLCNF ) had also been

studying a potential combination with Anglo American after BHP's

approach emerged. The company declined to comment.

Its 2023 failed attempt to acquire Teck Resources ( TECK ) for $23

billion meant it had to settle for 77% of the steelmaking coal

assets that the Canadian miner intended to spin off anyway.

Teck, now mainly a copper miner with a market capitalization

of $22 billion, would cost much more today.

Glencore ( GLCNF ) is still hopeful that talks may restart with Rio

Tinto, one of the sources with direct knowledge of the matter

said. Glencore's ( GLCNF ) spokesperson declined to comment.

The company has always had an acquisitive strategy, but in

recent years it has increasingly relied on cash for deals,

reflecting management's belief that the company's stock is

undervalued, RBC Capital Markets analyst Ben Davis said.

Some institutional shareholders said they would be happy for

companies like Glencore ( GLCNF ) or Anglo American to be sold to bigger

miners for premiums above 30%.

They see synergies in overheads reduction, or use of same

infrastructure facilities at adjacent mines, for example.

Other shareholders are however sceptical of big M&A for the

mining sector, and executives are not "going to push the

boundary", as none of the portfolios are perfect and some assets

are more desirable than others, a mining banker said.