Rio Tinto Group and Glencore have held early stage talks about combining their businesses to create a behemoth to rival longstanding industry titan BHP Group.

The discussions took place as recently as late last year but are not currently active, according to people familiar with the matter, who asked not to be identified discussing private information. Rio Tinto is the world’s second-biggest miner, with a market value of about $103-billion at the close of trading in London on Thursday, while Glencore was valued at about $55-billion. BHP is worth about $126-billion.

A potential combination of the two companies would rank as the largest-ever mining deal, but any transaction would be complex and face multiple potential hurdles. While Glencore has large copper assets at a time when the world’s biggest producers are all seeking to expand in the metal crucial to the energy transition, it also owns a massive coal business that would likely be unattractive to Rio. The larger miner’s chief executive has repeatedly expressed wariness about mega deals, and the two companies have vastly different cultures.

Representatives for both Rio and Glencore declined to comment. Rio’s shares in Sydney fell as much as 1.8% in early trading on Friday. Glencore rose as much as 3.4% at the open in London.

The mining industry has been galvanized by a wave of dealmaking in the past couple of years, driven largely by a desire by the biggest producers to expand in copper — a metal central to the world’s decarbonization efforts.

Both Glencore and Rio own some of the best copper mines in the world. However, Rio — like BHP — still depends heavily on iron ore to drive its profits, at a time when China’s decades-long construction boom is drawing to an end and the iron ore market appears headed for an extended period of weakness.

HISTORY REPEATS
Glencore, which previously proposed a merger with Rio in 2014, has been one of the most aggressive dealmakers in the sector. Its former CEO Ivan Glasenberg, who spearheaded the earlier approach to Rio, still owns almost 10% of the company.

“It’s funny how history repeats itself,” said RBC Capital Markets analyst Ben Davis. “Especially since they’ve gone on very different paths since then.”

In the decade since, Rio Tinto has sought to pivot away from fossil fuels. It has exited coal mining completely and instead sought to grow its copper and lithium businesses. Glencore by contrast has added more coal, including buying mines from Rio.

Glencore made an unsuccessful bid to buy Teck Resources Ltd. in 2023 but settled instead for the smaller company’s coal unit. BHP last year tried to buy Anglo American in a $49-billion deal — forcing Anglo to accelerate an overhaul of its business as part of its defense strategy — before eventually walking away empty handed.

Central to the wave of deals sweeping the sector is copper. The biggest miners are desperate to bulk up in a commodity favored by investors, but existing mines are getting older and lower grade, while new ones are hard to find and expensive to build.

Buying Glencore would give Rio a stake in the Collahuasi mine in Chile, one of the richest deposits, that the company has coveted for more than a decade. Anglo’s share in the same mine was a major lure for BHP’s takeover proposal last year, while Bloomberg has previously reported that Rio made offers to both Glencore and Anglo for their stakes in the mine during the 2015 commodity slump.

A combination of the two companies would create the number-one copper miner, according to Bloomberg Intelligence analyst Grant Sporre.

CLEAR HURDLES
Yet there are also very clear hurdles. Glencore is the world’s biggest coal shipper and the company recently decided against spinning off the highly profitable unit after feedback from its investors. It mines nickel and zinc, commodities Rio doesn’t, and has copper and cobalt mines in the Democratic Republic of Congo — a difficult place to operate that Rio has long avoided.

Glencore also operates one of the world’s biggest commodity trading businesses — buying, selling and shipping huge volumes of metals, coal and oil.

A combination with Rio would raise questions about Glencore’s coal mining assets, which is a business that Rio exited several years ago. Glencore is also the world’s biggest shipper of thermal coal and a top producer of coking coal. Any merger could also draw antitrust scrutiny from regulators.

One of the most obvious hurdles is the clash of cultures between the two companies. Glencore is renowned as a hard-driving, swashbuckling business that made its name as a commodity trader before getting into mining. The company listed in 2011 under former boss Glasenberg, before he handed over to Gary Nagle, a South African trained accountant who rose through the ranks of the company, making his name in running coal mines and trading the fuel they produced.

Rio has been wary of M&A — haunted by two disastrous top-of-the-cycle deals more than a decade ago — but has cautiously returned in recent years. The company bought out a copper miner for $3.1-billion, acquired a lithium project in Argentina and last year agreed a $6.7-billion deal to buy Arcadium Lithium.

CULTURAL CHANGE
Yet Rio CEO Jakob Stausholm has remained publicly skeptical about big transactions and the potential for a shareholder backlash. He said just last month that investors would likely see the downside of mega deals to get more copper.

Rio has also undergone a radical cultural change as it seeks to move on from the destruction of an ancient Aboriginal site in Australia that ultimately cost both the CEO and chairman their jobs.

Under Stausholm, the company has sought to rebuild its reputation and sought to tackle head on issues surrounding bullying, sexual harassment and racism at its mines. Glencore has also faced its own reputational challenges, after paying over $1.5-billion in recent years to resolve a series of investigations into bribery and corruption around the world.

Both companies have large cornerstone shareholders. After Glasenberg, the second-largest shareholder in Glencore is Qatar’s sovereign wealth fund, while Aluminum Corp. of China holds over 14% of Rio Tinto, according to data compiled by Bloomberg.

The talks also came with Rio riding high. The company has an unrivaled growth plan compared to most of its rivals, with copper, iron ore and lithium projects all coming on stream in the near future.

“It’s not obvious what the motivation for Rio is at this point given the strategic divergence between the two companies,” said Davis. “For Glencore it potentially gives their big shareholders an exit route.”