Goldman Sachs recently released a research report on Rio Tinto PLC (RIO.US), noting that both Rio Tinto and Glencore have confirmed they are engaged in preliminary discussions regarding a potential merger, possibly structured as a "scheme of arrangement." According to UK Takeover Panel rules, Rio Tinto must announce whether a deal has been reached by February 5, 2026. The firm assigned Rio Tinto a "Buy" rating with a 12-month target price of £71 per share.
What is the rationale behind this potential transaction for both Rio Tinto and Glencore? For Rio Tinto: Firstly, Goldman Sachs believes Rio Tinto is currently in a strong position, possessing an attractive pipeline of growth projects in copper, iron ore, and lithium, with a total of 15-20 projects under development. This supports its industry-leading annual copper-equivalent production growth of 3%-4% over the next decade. However, the firm notes that this growth is concentrated mainly in 2025-2030, while Rio Tinto's copper growth options beyond 2030 have longer lead times.
The new CEO largely met the firm's expectations at the Capital Markets Day (CMD) in December 2025, presenting a "Stronger, Sharper, Simpler" strategy. This includes divesting $5-10 billion in non-core assets (Goldman Sachs estimates it could reach $10 billion)—a significant move considering Rio Tinto operates in over 30 countries and deals with more than 10 commodities; achieving $650 million in annualized cost savings by Q1 2026; and reducing the mid-term capital expenditure guidance by $1 billion to $10 billion annually. These measures are expected to further enhance shareholder returns, with Rio Tinto having maintained a payout ratio of approximately 60% for ten consecutive years.
Given Rio Tinto's robust standing, the timing of its potential merger discussions with Glencore has surprised the market. Furthermore, from an industry perspective, it is rare for a company to execute a major acquisition while simultaneously divesting non-core assets. Investors contacted by the firm generally believe that large-scale mergers and acquisitions in the mining sector over the past 10-15 years have created minimal value for shareholders.
The firm notes that Glencore possesses highly attractive copper growth options for the post-2030 period, primarily concentrated in Chile and Argentina. In contrast, Rio Tinto's options are limited to longer-lead-time projects: the Resolution project in the US (a joint venture with BHP), the La Granja project in Peru (a joint venture with First Quantum), and the early-stage Nuevo Cobre copper project in Chile (in collaboration with Codelco)—with first production from these three projects unlikely before 2035 at the earliest.
Therefore, the firm believes the primary attraction for Rio Tinto lies in Glencore's copper growth project pipeline, which was detailed in Glencore's recent Capital Markets Day. Glencore's copper assets would establish an operational foothold for Rio Tinto in Chile and Peru, and solidify its presence in Argentina. Rio Tinto possesses the technical capability and balance sheet strength to accelerate the development of these projects, particularly in Argentina (Mara, El Pachon projects)—where Rio Tinto has already expanded locally through lithium development this decade.
Acquiring Glencore's copper assets would double Rio Tinto's copper production to approximately 1.7 million tonnes per annum, increasing to around 2 million tonnes per annum by 2030. Beyond this, Rio Tinto's own copper growth options are limited and technically complex (involving greenfield projects and underground mines), whereas Glencore holds several brownfield projects with lower capital intensity, all being open-pit mines. Consequently, beyond the benefits of scale, the firm posits that the core rationale for this potential transaction may be to secure copper growth beyond 2030.
For Glencore: The logic behind any deal reflects its long-held view—reiterated by management during a recent firm event—that industry consolidation and prudent M&A are crucial. Greater scale enhances global influence, attracts investors and talent, strengthens negotiating power with governments, and provides a more robust balance sheet to unlock portfolio flexibility. Glencore would bring its coal business, copper growth options, and synergies from its marketing division, all of which could support the incremental production resulting from a merger.
While not pursuing growth for growth's sake, Glencore believes that, given the industry's poor historical record of capital allocation, consolidation and higher-quality M&A are key to enhancing valuation. Mining companies require larger market capitalizations to remain competitive with fast-growing sectors like technology. An opportunity to merge with Rio Tinto would provide Glencore access to world-class iron ore and aluminium businesses—commodities with high barriers to entry that Glencore has long sought to enter. From a marketing perspective, the iron ore business would also complement its metallurgical coal operations.
What price might Rio Tinto pay? The firm does not comment on valuation for any potential transaction. However, after years of underperformance, Glencore is gradually regaining market trust in its operational execution, which could influence investor confidence in the prospects outlined at its Capital Markets Day. Given Rio Tinto's desire to grow in future-facing commodities (rather than the industrial commodities/coal it has exited or plans to exit), and considering Glencore's complex commodity portfolio and operations across multiple jurisdictions, these factors could be key determinants affecting the acquisition price for parts of the business.
The potential appeal of scaling up through Rio Tinto's high-quality assets could support Glencore's strategic objectives and, if a deal is reached, might influence the mutually agreed price. Discussions between Glencore and Rio Tinto have been intermittent for over a decade, dating back to 2014, and were revived just over a year ago.
As of the close on January 9, Rio Tinto's London-listed shares (RIO.L) traded at a Next-Twelve-Months Enterprise Value to EBITDA (NTM EV/EBITDA) multiple of 5.1x, its Australian-listed shares (RIO.AU) at 6.6x, and Glencore's London-listed shares (GLEN.L) at 6.4x (data from FactSet consensus forecasts). Based on the firm's estimates, the Price to Net Asset Value (P/NAV) for RIO.L is 0.7x, for RIO.AU is 0.8x, and for GLEN.L is 1.1x.
The firm maintains its "Buy" rating on Rio Tinto with a 12-month target price of £71 per share. This target is calculated using a 50/50 weighting of Net Asset Value (NAV) and Enterprise Value to EBITDA (EV/EBITDA), applying a target multiple of 5.5x, which remains unchanged.
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