Rio Tinto, Glencore could save $500m by joining coal businesses
Talks about Rio Tinto (LON:RIO) being a takeover target for Glencore (LON:GLEN) continue to be loud and strong, with analysts now saying the companies could save up over $500 million if the merge their coal operations in Australia.
According to analysts quoted by The Australian, the synergy potential between the two mining giants in the New South Wales Hunter Valley region are evident given they have several adjacent assets.
Earlier this month Australian Financial Review reported that Rio has made its way onto Glencore boss Ivan Glasenberg’s wish list but that any takeover attempt by the Swiss giant of Rio would “blindside” the market.
The speculation appears to have emerged from a note by Wall Street broker Berstein Research quoted by FT.com (subs. required), which listed a Rio-Glencore deal in a report as one which makes sense because Rio, with some of the lowest cost iron ore operations in Australia, is cheap.
Add to the mix the grim state of the coal market, both for thermal and metallurgical, and you have a strong case for wanting to optimize current operations.
A new old idea
Glencore’s chief has previously spoken about synergies between the two companies, in particular around their coal assets in the Hunter Valley.
At the company’s preliminary results presentation in March, Glasenberg was asked about a possible joint venture between Rio Tinto and Glencore. Rio Tinto owns the Mount Thorley Warkworth coal mine, which is adjacent to Glencore’s Bulga operations in the area.
“It’s clear, everyone knows it in the Hunter Valley there’s a lot of synergies between us and Rio Tinto in their Hunter Valley assets. There’s a lot to be done. We can get substantial synergies,” he was quoted as saying by News.com.au.
“We’re talking to Rio Tinto but it takes time for both sides to assess each other’s assets. But it’s something we look at. We’ve been talking to them for a long time. How far we’ll get and how soon we can reach an agreement, I don’t know. But it’s something that clearly makes a lot of economic sense,” Glasenberg added.
In the Hunter Valley, Rio Tinto’s operations export up to 12 million tonnes of coal per annum, while Glencore supplies local power stations and exports to Japan and China.
Talk of the merger has also put residents and environmentalists on alert, with the prospect of a 15-kilometre long ‘‘super pit’’ emerging from the union of Rio’s Mount Thorley Warkworth and Glencore’s Bulga open-cuts.
Image from archives.