Anglo American, Glencore, Rio Tinto: Mining Mergers and Copper
· Members
In just over two years, every big London-listed copper miner except Antofagasta has been in merger talks. BHP approached Anglo American four times and was turned away every time. Rio Tinto and Glencore discussed a combination worth about $260 billion, then gave up after four weeks. The one deal still standing, Anglo American's merger with Canada's Teck Resources, is the only one in which nobody paid a takeover premium.
Watch it play outThree attempts at a mining megadeal, one survivor
BHP approached Anglo American, owner of big copper mines. Its best offer valued Anglo at £38.6 billion.
Anglo turned BHP away. It came back four times and was rejected every time.
Instead, Canada's Teck Resources joined Anglo in an all-share merger at market prices, with no premium.
Rio Tinto and Glencore then discussed a combination worth about $260 billion.
Four weeks later the talks were off. Of three tries, only the deal with no premium survived.
Source: Company statements; Global Mining Review; CNBC; Capital Brief
The prize in all of it is copper. On the London Metal Exchange (LME), where most industrial metals are priced, copper trades at about $14,434 a tonne. That is 45% above last year's average of $9,947 and close to the all-time high of $14,527.50 set early this year. Copper is used in power grids, electric vehicles and data centres, and supply is struggling to keep up.
Watch it play outCopper is 45% above last year's average and close to its record
Last year, copper averaged $9,947 a tonne on the London Metal Exchange.
It now trades at about $14,434, 45% higher. The faint bar is last year. Heights match the prices.
That is close to the all-time high of $14,527.50, set early this year.
Source: LME prices via deVere
This issue explains the deals and what each company owns afterwards. It then compares the four London copper names, Rio Tinto, Glencore, Anglo American and Antofagasta, on copper exposure, valuation and dividends. It ends with our view on which is best placed and whether the takeover premiums sellers want are worth paying. Company results are reported in US dollars and London share prices in sterling, so we convert at about $1.32 to the pound.
The clearest sign of how much investors value copper came recently. Southern Copper, a copper miner controlled by Mexico's Grupo México, briefly overtook Rio Tinto in market value: about $183 billion against just under $180 billion. Yet Rio had generated nearly four times the revenue and more than twice the profit over the past year.
Watch it play outA copper miner with a fraction of Rio's revenue is worth as much
By revenue, Rio Tinto is nearly four times the size of Southern Copper. Circle areas match.
By profit, Rio earned more than twice as much. Southern Copper's circle grows, but stays under half Rio's.
Yet by market value, Southern Copper reached about $183 billion, overtaking Rio at just under $180 billion.
Source: MINING.COM
That gap explains the deal frenzy. A diversified miner trading at an iron-ore valuation can lift its rating by buying copper. A copper owner like Anglo knows it, so it demands a high price.
Why does everyone want copper?
Demand is growing on three fronts while new supply is slow to arrive.
Grids and electrification. The International Energy Agency (IEA) says China's rapid grid investment has been the single largest contributor to copper demand growth recently. It warns that the current pipeline of mine projects points to a potential 30% supply shortfall within about a decade, because of declining ore grades, rising capital costs, few new discoveries and long lead times.
AI data centres. BHP estimates that copper used in data centres will rise about six-fold by mid-century, from around half a million tonnes a year to around 3 million tonnes. Anglo American's latest results note that investors have also been using copper to bet on AI.
US tariffs. Washington is still weighing duties on refined copper imports of 15% from the start of next year, rising to 30% the year after. Traders have shipped metal into US warehouses ahead of a decision, and Comex stockpiles in New York recently hit a record 675,185 tonnes. That leaves less metal everywhere else.
China dominates the other side of the trade. Its smelters refine up to 60% of the world's copper cathodes (the refined metal) and face their worst shortage of raw material, called concentrate, in decades.
Copper trades above analysts' forecast and near its record
Last yr avg$9,947
Forecast$13,169
Now$14,434
Record$14,528
$9,000$11,000$13,000$15,000
Source: LME; Reuters poll; deVere
Iron ore, still Rio's biggest earner, has done little. Rio's half-year results show the benchmark price for iron ore delivered to China averaged $105 a tonne in the first half, up 4% on a year earlier, and ended the half at $99. China buys the ore to make steel. Flat iron ore and soaring copper are why miners' growth plans now centre on copper.
What happened between BHP and Anglo American?
Two and a half years of deal talks in London mining
2 yrs agoBHP's three proposalsLast one £29.34 a share, £38.6B; all rejected
Last yrPlatinum arm demergedValterra Platinum handed to shareholders
Last yrAnglo agrees Teck mergerAll-share, no premium
Last yrBHP's fourth approachDropped days later
This yrRio–Glencore talksEnded after four weeks
NowAnglo Teck awaits ChinaThe last approval outstanding
Two years ago, BHP, the world's largest miner, made three all-share proposals for Anglo. The last was £29.34 a share, valuing Anglo at £38.6 billion (about $51 billion at today's rate), after earlier offers of about £25.08 and £27.53. The catch was the structure. Anglo would first have had to hand its stakes in its South African platinum and iron ore subsidiaries to its own shareholders. Anglo's board said that meant 18 months or more of execution risk, carried mostly by its shareholders. BHP walked away under the UK takeover rules' "put up or shut up" deadline, which forces a bidder to make a firm offer or withdraw.
Last year, BHP came back. Just two weeks before Anglo and Teck shareholders were due to vote, it made a new approach, mostly in shares, when Anglo was worth about $41.8 billion and BHP about $132 billion. Anglo decided the proposal was no better than the Teck deal, and BHP said it was no longer considering a combination.
Anglo's defence has worked so far. Its market value alone is now £43.5 billion, above BHP's final proposal, and shareholders also received Valterra Platinum shares along the way. Most of the gain came from copper prices, not from anything Anglo did. Even so, the board was right to turn down a lowball bid with a complicated structure.
How has Anglo American broken itself up?
Anglo answered BHP with a plan to become a copper and premium iron ore company. Its interim results show how far it has got.
Anglo is shedding four businesses to keep copper and iron ore
Anglo American (Before the break-up) to Already gone (Platinum demerged; coal sold)
Anglo American (Before the break-up) to Being sold (Nickel to MMG; De Beers)
Anglo American (Before the break-up) to Kept (Copper + premium iron ore)
Platinum. Anglo American Platinum, renamed Valterra Platinum, was demerged (spun off to shareholders as a separately listed company) last year. Anglo sold its remaining 19.9% stake soon after.
Steelmaking coal. The first buyer, Peabody Energy, tried to back out last year after a fire at the Moranbah North mine; Anglo is pursuing damages in arbitration. A new buyer, Dhilmar, has agreed to pay up to $3.875 billion, including $2.3 billion upfront. The write-down to that price left Anglo with a $0.9 billion loss for the half.
Nickel. A sale to China's MMG is waiting for clearance from the European Commission.
De Beers. The diamond business is in a formal sale process. It lost a little money at the EBITDA level in the half, and diamond markets remain weak.
What is left is very profitable. Underlying EBITDA (profit before interest, tax, depreciation and amortisation, a common measure of operating cash profit) rose 35% to $4.0 billion in the half. Copper delivered $2.9 billion at a 60% margin, helped by a realised price of 608 cents a pound. Iron ore fell 17% to $1.2 billion. Net debt fell to $8.2 billion, 1.0 times EBITDA.
Make a guess
Spot on.Close, a little low.Close, a little high.Way off, too low.Way off, too high. It was 73%.
About 73%: $2.9 billion of $4.0 billion. Anglo is now mostly a copper company, which is exactly what BHP and Teck wanted.
Source: Anglo American interim results
What does the Anglo–Teck merger mean for shareholders?
The merger terms are simple. Each Teck share becomes 1.3301 Anglo shares. Before completion, Anglo pays its own shareholders a special dividend of $4.5 billion, about $4.19 a share. Afterwards, Anglo holders own about 62.4% of the combined company and Teck holders 37.6%. The company will be called Anglo Teck and keep its main listing in London, but its head office will be in Vancouver. (For more on companies drifting away from London, see our issue on delistings.)
The industrial logic is strong. The companies expect about $800 million a year of pre-tax cost savings, around 80% of them within two years of completion. Teck's Quebrada Blanca mine sits next to Collahuasi, which Anglo part-owns. Processing Collahuasi's higher-grade ore through Quebrada Blanca's plant could add about $1.4 billion a year of EBITDA on average from the end of the decade (on a 100% basis), and about 175,000 tonnes of copper a year. Combined output is about 1.2 million tonnes of copper a year.
Every regulator has approved the deal except China's. Reuters reports that China's competition regulator, SAMR, wants Anglo to commit to a steady supply of copper concentrate to Chinese smelters. Anglo says it is making good progress, and both companies still expect completion within 18 months of the announcement. A supply promise is unlikely to sink the deal, but it would tie up some of Anglo Teck's concentrate, and analysts warn such deals could hasten the closure of Western smelters.
Why did the Rio Tinto–Glencore talks collapse?
Early this year, Rio confirmed preliminary talks about combining with some or all of Glencore. About four weeks later, just before the takeover-rules deadline, it walked away, saying it could not reach an agreement that would deliver value to its shareholders. Glencore said the proposal "significantly undervalued" its business, including its copper assets, and objected to Rio keeping both the chair and chief executive roles. Glencore shares fell between 7% and 11%, and Rio's dipped as much as 2.6%. It was at least the third failed attempt to combine the two in two decades.
Check the claimThree things people get wrong about the Rio–Glencore talks
What is Rio Tinto's strategy under Simon Trott?
Simon Trott took over as chief executive last year. At his first capital markets day he set out a "stronger, sharper and simpler" Rio. It now has three businesses: iron ore, copper, and aluminium and lithium. Rio plans to raise $5 billion to $10 billion from its existing assets by selling non-core units and bringing in partners. It cut planned decarbonisation spending to $1 billion to $2 billion, from $5 billion to $6 billion, and expects capex to fall below $10 billion a year once its big projects are finished. Rio targets copper-equivalent output growth of 3% a year to the end of the decade, about 20% in total. At long-run consensus prices, Rio says EBITDA could be 40–50% higher by then.
The first half was strong. Underlying EBITDA rose 28% to $14.8 billion and free cash flow rose 75% to $3.8 billion. Productivity savings reached a $1.3 billion annual run-rate, against a target of $1.8 billion by year-end. Oyu Tolgoi, Rio's giant underground copper mine in Mongolia, raised output 31%. Simandou, its new high-grade iron ore mine in Guinea, made its first sales. Net debt was $14.1 billion, or 16% gearing (net debt as a share of debt plus equity).
Rio's copper EBITDA rose 84%; iron ore was flat
Iron ore$6.8B −1%
Copper$5.7B +84%
Aluminium & lithium$3.3B +38%
Underlying EBITDA by product group, latest half, change on a year earlier. Group total $14.8B after central costs.
Source: Rio Tinto half-year results
Rio is still mainly an iron ore company. Its results include a sensitivity table: a 10% change in the copper price moves annual underlying EBITDA by about $1.13 billion, and a 10% change in the iron ore price by about $2.34 billion. Try a few combinations.
Iron ore still moves Rio's profit twice as much as copper
Pick a change in copper and iron ore prices
Change in yearly EBITDA−$6.96B−$2.27B$2.42B−$4.69B$0.00B$4.69B−$2.42B$2.27B$6.96B
−$6.96B$6.96B
Rio's published rule of thumb: each 10% move in copper is worth about $1.13B a year and each 10% move in iron ore about $2.34B. Linear approximation; Rio says to use it with care.
A 20% fall in iron ore would cost Rio more than a 20% rise in copper would add. That is the bear case for Rio, and the reason it wanted Glencore's copper.
How is Glencore doing without a deal?
Glencore's half-year report was its best in some time. Adjusted EBITDA rose 86% to $10.1 billion. Its trading arm, which buys, ships and sells commodities, earned $3.3 billion of adjusted EBIT, up 142%, as disrupted energy and freight markets created opportunities. Own-sourced copper output rose 15% to 397,000 tonnes, and Glencore still targets about 1 million tonnes a year within roughly two years. Net debt fell to $10.2 billion, 0.56 times EBITDA.
Copper now earns more than coal for Glencore's mines
Copper$3.05B 52% margin
Energy + steelmaking coal$2.36B
Zinc$0.91B
Nickel$0.23B
Ferroalloys$0.20B
Industrial (mining) adjusted EBITDA, latest half. The trading arm is reported separately.
Source: Glencore half-year report
Coal is the snag for many investors. Margins were 38% in steelmaking coal and 19% in energy coal, against 52% in copper. Many funds avoid coal, which keeps Glencore's valuation lower than its copper alone might justify. Glencore is adding a secondary listing in Sydney to reach Australian pension money, and is returning about $3.5 billion to shareholders this year, including a top-up of 8.5 cents a share and a $500 million buyback.
Is Antofagasta still the purest copper play?
Antofagasta, the London-listed Chilean copper miner, shows what pure copper exposure does. Its half-year results show copper output fell 9% to 285,000 tonnes because of lower grades and a weather-related shutdown at Los Pelambres. Yet EBITDA rose 27% to $2.84 billion at a 63.4% margin.
Spot the red flag
Tap the line you think is the tell.
Spotted it.Not that line. Copper prices did the work. That is the bargain with a pure copper miner: high operating leverage to one price, in both directions.
Source: Antofagasta half-year results
Production guidance for the year was cut to 625,000–655,000 tonnes, from 650,000–700,000. The growth is next year: a second concentrator at Centinela and an expansion at Los Pelambres should add about 30% to output once both are commissioned.
What do London's miners pay in dividends?
All four link dividends to earnings, so payouts rise and fall with commodity prices. The payout ratio is the share of earnings paid out as dividends.
Rio Tinto aims to return 40–60% of underlying earnings through the cycle, and paid 50% at the half: 211 cents a share, up 43%.
Glencore pays cash distributions, adds top-ups when it has surplus capital, and buys back shares.
Anglo American pays 40% of underlying earnings. Its interim dividend more than tripled to 23 cents.
Antofagasta paid 35% of underlying earnings: 30.1 cents, up 81%.
On trailing payments, Rio's dividend yield is about 4.3%, against roughly 2.2% at Glencore, 1.6% at Antofagasta and 0.7% at Anglo.
Miners matter less to the FTSE 100, the index of London's 100 largest companies, than they used to. The FTSE Russell factsheet puts basic resources, mostly miners, at 8.41% of the index, against 19.28% for banks and 10.43% for energy. Over the past year, though, the four copper names' share prices have risen between 37% and 61%. The FTSE 100's total return over the twelve months to the factsheet date was 22.8%.
Which London miner is cheapest for its copper?
Here is how they compare on the latest close. EV/EBITDA divides enterprise value (market value plus net debt) by trailing EBITDA. The forward P/E divides the share price by expected earnings for the next year.
The more copper a miner has, the more you pay for it
EV / EBITDAForward P/E
51015202530x0
7.1x11.2x
RioEV / EBITDA7.1xForward P/E11.2x
8.2x12.3x
GlencoreEV / EBITDA8.2xForward P/E12.3x
10.2x28.1x
AngloEV / EBITDA10.2xForward P/E28.1x
10.2x25.0x
AntofagastaEV / EBITDA10.2xForward P/E25.0x
RioGlencoreAngloAntofagasta
Trailing EV/EBITDA and forward P/E at the latest close.Source: StockAnalysis (S&P Global Market Intelligence)
Copper is 73% of Anglo's EBITDA and 39% of Rio's
Anglo American73%
Glencore mining47%
Rio Tinto39%
Glencore group30%
Copper EBITDA as a share of the total, latest half. Glencore shown with and without its trading arm. Antofagasta is almost all copper, with gold and molybdenum as by-products.
Source: Company half-year results; Yield Theory calculations
The pattern is clear: the higher a miner's copper share, the higher its multiple. Rio (7.1 times EBITDA, 11.2 times forward earnings) is priced like an iron ore miner. Glencore trades at 8.2 times trailing EBITDA, but only about 6.3 times its own illustrative full-year EBITDA of $19.7 billion at current prices, once its £94.7 billion enterprise value is converted to dollars. Anglo and Antofagasta both trade at about 10.2 times, with forward P/Es of 25 to 28. Those prices assume copper stays high.
Are takeover premiums for miners justified?
A takeover premium is the extra a buyer pays over the market price to gain control, and it has to be earned back through cost savings or better management. In mining that is hard, because the buyer is mostly paying for ore bodies at today's commodity prices. The record here is telling. Anglo's board turned down £38.6 billion and is now worth more. Glencore refused terms it said undervalued its copper, and its shares fell. The only deal that survived involved no premium and a clear operational payoff from linking two adjacent mines.
Our view: a premium is justified only where assets physically fit together, as Quebrada Blanca and Collahuasi do. Paying a large premium for copper exposure at a price near its record means paying top-of-cycle prices for a cyclical asset. Rio's discipline in walking away from Glencore was right, even if the market would have liked the copper.
What could go wrong?
Copper's price is partly propped up by US tariff stockpiling, and Glencore's chief executive has argued that a tariff decision, either way, could cool prices. China could attach costly conditions to Anglo Teck. Iron ore, still Rio's biggest earner, depends on Chinese steel output. Mines flood, freeze and lose grade, as Antofagasta's cut guidance shows. And dividends tied to earnings fall as fast as they rise.
Our read
Rio Tinto is the best placed of the four for most investors. It has the lowest valuation, the highest dividend, a balance sheet with room to spare, and copper growth from Oyu Tolgoi that the market barely prices in. The risk is iron ore, so size the position knowing a 20% fall in the ore price would take about $4.7 billion off annual EBITDA.
Glencore is the value play for those who can own coal. Its trading arm, rising copper output and Sydney listing give it several ways to close the gap with copper-heavy peers. It is also the most likely target if consolidation resumes.
Anglo American is now a copper company at a copper price, and the Teck deal is a good one. But at 28 times forward earnings, much of the merger value is already in the share price, and China's conditions are the next test.
Antofagasta is the cleanest copper exposure in London, and next year's 30% volume growth is real. At 25 times forward earnings it is a bet on copper staying above $14,000, not a margin of safety.
On premiums: be wary of any bidder paying a large premium for copper at these prices, and wary of owning the bidder.
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