Glencore Said to Lay Groundwork for Potential Rio Merger – by Matthew Campbell, Anousha Sakoui and Dinesh Nair (Bloomberg News – October 6, 2014)

Glencore Plc (GLEN) is laying the groundwork for a potential merger with Rio Tinto Group (RIO) in the next year that would create the world’s largest mining company, worth about $160 billion, according to people familiar with the situation.

As a preliminary step, Glencore has reached out to Aluminum Corp. of China, the Chinese state-backed company that is Rio’s largest shareholder, to gauge its interest in a potential deal, said two of the people, who asked not to be identified because the matter is private. The discussions with the company, which is known as Chinalco and controls about 9.8 percent of Rio, took place in recent weeks, one of them said.

Rio executives are well aware of Glencore Chief Executive Officer Ivan Glasenberg’s interest in a deal, which has been made clear in informal settings, the people said. However, no talks are underway between the two companies, no formal offer has been made, none is likely before the end of 2014, and Glencore could decide against an offer, they said.

Glencore views Chinalco as potentially supportive of a change in control after the Chinese company failed to secure a board seat at Rio and has seen little progress on a joint iron-ore project in Guinea, one of the people said. Glencore is also gauging the views of other Rio shareholders, and studying the tactical, financial, and regulatory obstacles to the deal as it considers its next steps, the people said.

Rio’s American depositary receipts rose as much as 20 percent in New York, and were trading 9.6 percent higher at 12:14 p.m.

Largest Mining Group

A merger would catapult the combined company past BHP Billiton Ltd. (BLT) to become the largest mining group, combining Glencore’s vast commodity-trading operations with Rio’s portfolio of iron-ore projects that feed demand for construction materials in China.

Spokesmen for Glencore, Rio and Chinalco declined to comment.

For Glasenberg, 57, the time may be right to move toward a deal because of persistent weakness in the market for iron ore, which accounts for almost half of Rio’s revenue and is weighing on its share price. The cost of the steelmaking ingredient has plunged about 41 percent this year due to a glut from giant new mining projects and relatively sluggish economic performance in China, the world’s biggest single market.

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