By Clara Denina and Pratima Desai LONDON, Jan 9 (Reuters) - Rio Tinto would want to keep Glencore's trading division and make it an even more powerful platform to sell commodities if the two can
Rio Tinto Eyes Glencore's Trading Division in Merger Discussions
Merger Talks Between Rio Tinto and Glencore
By Clara Denina and Pratima Desai
Potential Benefits of Glencore's Trading Division
LONDON, Jan 9 (Reuters) - Rio Tinto would want to keep Glencore's trading division and make it an even more powerful platform to sell commodities if the two can strike a deal to create the world's largest mining company, two sources close to the matter said.
Challenges and Regulatory Considerations
Rio Tinto is in early talks to buy Glencore, they announced on Thursday, which could result in a company with a market value of nearly $207 billion.
Impact on Sustainability Goals
Analysts and investors say Rio is focused on getting access to Glencore's copper resources.
Future of Coal Operations
But the sources, who spoke on condition of anonymity because they were not authorised to speak publicly, said Rio was also keen to draw on the expertise of Glencore's trading division.
A $4 BILLION MARKETING BUSINESS?
Goldman Sachs estimates that Glencore's marketing business could be worth $4 billion by 2030. It generated $1.4 billion in adjusted earnings before interest and tax in the first half of last year.
At its peak in 2022, Glencore's trading division, renowned for capitalising on market volatility, earned $6.4 billion from soaring commodity prices caused by supply disruptions after Russia's invasion of Ukraine.
Rio Tinto is first of all a mining company with a more than 150-year-old history, but Bold Baatar, who runs Rio's commercial operations from Singapore, has ambitions to make the company's trading division more active, one of the sources said.
TWO VERY DIFFERENT COMPANIES
Apart from trading coal, oil, liquefied natural gas and metals, Glencore mines coal and produces copper, cobalt and zinc.
Rio Tinto, the world's biggest iron ore producer, has copper, aluminium and lithium assets.
Talks between the two companies have failed in the past and any deal would face regulatory and other hurdles. At the very least, the companies may have to sell some assets to satisfy competition authorities.
Glencore has retained its coal operations, while Rio Tinto exited coal in 2018, in part to boost its ESG credentials.
"Just how Glencore's coal and trading arms fit in with Rio's business model, and push for improved sustainability credentials, are key questions to answer," said Derren Nathan, head of equity research at Hargreaves Lansdown.
Rio does not disclose revenue or profit figures for its trading division.
"How Rio views (Glencore's) marketing business will be interesting. It could either look to keep it...or divest it, likely listing it on a U.S. exchange," Berenberg analyst Richard Hatch said.
"However, we think that security of supply contracts for the marketing business would need to be retained," he said, referring to long-term agreements that guarantee reliable access to raw materials or commodities.
(Reporting by Clara Denina and Pratima Desai; editing by Veronica Brown and Barbara Lewis)
