Rio Tinto, Glencore mull ASX coal spin-off

Rio Tinto (ASX, LON: RIO) and Glencore (LON: GLEN) are said to be examining whether a coal-heavy business could be spun off into an ASX-listed vehicle as part of early-stage talks on a potential merger that would create the world’s largest mining company.

The companies confirmed last week they are discussing a possible combination of some or all of their businesses, sparking speculation about how assets that sit awkwardly together would be handled, particularly coal and Glencore’s lucrative trading arm. 

“All we know is that they are trying to hammer out important details, like the price, the premium, who would run the new company, exactly what structure it would have,” Clara Ferreira Marques, Bloomberg’s Asia-Pacific head of commodities, said on the The Australia Podcast on Thursday. “They’re hiring banking teams to help them do that, and they really have to come up with some sort of proposal by the fifth of February to meet the UK takeover panel rules.”

One option under consideration is carving out coal assets, potentially into a separately listed Australian vehicle, echoing BHP’s (ASX, LON: BHP) South32 demerger a decade ago.

Glencore’s coal operations across NSW, Queensland, central Africa and Latin America would account for about 8% of a combined group’s $45.6 billion in EBITDA and could be worth tens of billions of dollars. Glencore’s trading arm, which would represent about 9% of earnings, remains another sensitive piece of the puzzle.

Analysts have also floated alternatives, including Glencore spinning off coal ahead of any transaction or Rio bidding only for Glencore’s copper assets, following Glencore’s decision last year to abandon a self-driven coal separation.

Why now

The renewed talks come as pressures that were present a year ago have intensified, particularly around copper, scale and market positioning.

“What has changed since the last time they held talks is that some of the issues that were already there a year ago have become a lot more stark,” Ferreira Marques said. “You look at the copper price, we’re now over $13,000 a tonne. That makes the case for adding copper to your portfolio not only compelling, but urgent.”

She added that Rio’s recent share price performance has improved the financial logic of a deal, while the sector’s shrinking relative size has become harder to ignore. 

Demand for the metal is anticipated to rise by as much as 50% by 2040, according to S&P Global Energy & Market Intelligence, leading to a projected production deficit of up to 10 million tonnes annually by that time.

A Rio Tinto-Glencore tie-up would position the new company as the leading copper producer globally, accounting for approximately 7% of the world’s output.

“You look at Rio Tinto at about $141 billion, and then you look at Nvidia at $4.5 trillion,” she said. “The problem of scale is very important. It’s not just about being the biggest, it’s about being able to attract generalist investors, talent and opportunities.”

Leadership changes have also helped reset the dynamic. Rio now has a new chief executive in Simon Trott and a more deal-minded chair in Dominic Barton, while Glencore is led by Gary Nagle, who has called the tie-up the “most obvious” deal in mining. 

Previous talks in late 2024 stalled over valuation, culture and control, but people familiar with the discussions say both sides now appear more open to compromise.

Hurdles ahead

Price remains the primary obstacle, followed closely by cultural fit, coal exposure and regulatory risk. Rio exited thermal coal in 2018, and some investors remain constrained by mandates that bar coal holdings, even as the political climate in the US has softened and coal profitability has endured longer than expected.

Antitrust scrutiny would be significant, particularly given China’s role as a major stakeholder in Rio, and the operational risks tied to Glencore’s copper assets in jurisdictions such as the Democratic Republic of Congo.

Speculation that BHP could attempt to disrupt the talks with a rival bid for Glencore has so far been played down.

“At this point, it’s unlikely,” Ferreira Marques said. “BHP is not a company that jumps on things at the last minute. The signalling is very much that they wouldn’t step in.” 

She cautioned, however, that early-stage deals can still unravel. “When companies talk about an M&A deal, they basically tell the world that they need to do something,” she said, adding that BHP’s earlier bid for Anglo American (LON: AAL) helped reopen the door to mega-deals across the sector.

Whether the talks culminate in a full merger that gives rise to a GlenTinto, a RioCore or something else entirely, a partial asset deal or yet another false start, the discussions underscore how urgently the world’s biggest miners are hunting for growth in an increasingly copper-constrained world.