Rio Tinto and Glencore shake up the mining market🚨 Giants negotiate merger 🤝

European stock markets are buzzing with rumours of a mega-merger. Rio Tinto (RIO.UK) and Glencore (GLEN.UK) have resumed merger talks that would create the world's largest mining entity, worth over $200 billion. This is the second attempt – the first in 2024 fell through due to valuation disputes. Now, however, conditions are better: copper is breaking records (over $13,000 per tonne) and the entire sector is experiencing a raw materials frenzy. The key deadline for the entire transaction is 5 February. By that date, Rio must confirm the offer or withdraw for six months.

The market reacts emotionally, but asymmetrically. Glencore shares are soaring by as much as 7.8% in London, their highest level since July 2024. Investors know that Glencore is a bargain: it has the best copper assets, wants to double production within a decade, and without copper itself, there is no energy future. Rio Tinto, on the other hand, is losing 1.7-6.3% depending on the stock exchange, reflecting fears of share dilution and integration costs. The mining sector across Europe is benefiting from flows driven by hopes of an agreement between the two sides.

The combined market capitalisation of both companies currently exceeds USD 260 billion. Source: Bloomberg Financial LP

Market experts are divided on whether the merger is a good idea. Analysts at Morgan Stanley see great potential here and recommend buying shares in both companies. According to them, the merger would highlight Glencore's true value, which the market underestimates. In addition, the combined company would be much more focused on copper – this metal would account for 35 per cent of revenues, compared to only 25 per cent at present. However, Oddo BHF bank criticises this idea. Analysts there argue that merging Rio and Glencore would be very complicated. They fear that the cultures of the two companies are completely different and may not get along. They are also concerned about coal – Glencore is one of the world's largest coal producers, while Rio withdrew from this business several years ago.

Secondly, the merger would have to be approved in at least eight countries, which would take time and money. Thirdly, Rio Tinto's structure as a dual-listed company complicates the share transaction. Some experts believe that the deal will ultimately be smaller than everyone expects. Glencore has a huge trading division that buys and sells raw materials around the world. This division would be a very strange addition to Rio Tinto and may prove difficult to absorb.

There is also a competitor lurking in the background – the large company BHP (BHP.UK), which would like to have more exposure to copper itself. If Rio and Glencore haggle for too long, BHP may enter the game and try to buy Glencore or parts of it itself. Rio Tinto's new boss, Simon Trott, is just taking the helm. For him, this merger will be his first big decision, so investors are watching to see how he ultimately handles such a serious issue. Glencore CEO Gary Nagle, on the other hand, has been saying behind the scenes for years that a merger with Rio is the most logical deal in the entire mining industry.

Glencore shares opened today's session with an upward gap, while on a weekly basis we can see that the scale of recent increases, counting the RSI dynamics from the last 14 weeks, has raised the entity's value to its highest levels since 2022. This shows that investors are currently willing to pay more for the company's shares in view of the incoming corporate news and future prospects. On the other hand, however, it is worth bearing in mind that with such rapid appreciation, failure to meet expectations could theoretically cause a symmetrically faster downward correction in the company's valuation. Source: xStation