Glencore's Restructuring Sets Stage For Mining Mega-Merger

Glencore GLCNF has shifted nearly $22 billion in foreign assets into its Australian subsidiary, Glencore Investment Pty Ltd, effectively doubling its holdings to $42 billion. With this move, management consolidated key assets, including coal mines in Canada, South Africa, and Colombia; the MARA copper project in Argentina; and South African manganese, chrome, and vanadium operations, all under a single jurisdiction.

According to the Australian Financial Review (AFR), this restructuring may lay the groundwork for a future merger with Rio Tinto RIO – rumors of which began circulating in January. The consolidation simplifies Glencore's corporate structure, making it more attractive for such a merger.

"Glencore coal assets would trade at a much higher multiple in Australia than London," Ben Cleary, portfolio manager at Tribeca Investment Partners, said to AFR. "There won't be much reason to go to London other than cricket if Glencore and Anglo get knocked off."

In 2014, Rio Tinto rejected a merger proposal from Glencore, leading to a public standoff between then-CEO Ivan Glasenberg and Rio's leadership.

There's been a bit of a change in tone in recent talks at Rio. Although the outgoing CEO, Jakob Stausholm, has been somewhat reserved, several senior executives, including potential successors, reportedly have a positive outlook on the idea. With Stausholm on his way out, the new leadership could change how Rio views things.

Despite previously shelving plans to spin off its coal division, which accounted for 38% of Glencore's earnings last year, the company has now united all coal operations within its Australian unit.

These assets include the Cerrejón open-pit coal mine in Colombia and the Impunzi thermal coal complex in South Africa. The move may also shield Swiss-based Glencore's more profitable coal operations from regulatory risk and investor scrutiny in Europe.

Glencore has also expanded its operational footprint in Australia, signing a three-year supply agreement with Cobalt Blue Holdings CBBHF on Thursday to provide cobalt hydroxide feedstock for the Kwinana refinery in Western Australia.

Under the terms of the contract, Glencore will supply up to 50% of the refinery's cobalt requirements, commencing once the facility begins commercial operations. The feedstock will be sourced from Glencore's operations in the Democratic Republic of the Congo, specifically from the Kamoto Copper Company and Mutanda Mining SARL.

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