Rio Tinto has not ruled out Anglo American bid: report

Rio Tinto (ASX: RIO; LSE: RIO) reportedly considered a bid for Anglo American (LSE: AAL) in recent months and the second largest miner has not dismissed the possibility of acquiring a portion or the entirety of the company, now a target of BHP (ASX: BHP).

According to the Australian Financial Review, Rio Tinto’s management “has not ruled out making a play for part or all of the mining group and continues to study the day-to-day situation.”

While Rio Tinto has a smaller market capitalization than rival BHP — A$180 billion (US$118.8 billion) versus A$218 billion (US$144 billion) — the company is large enough to make an all-share offer for some or all of Anglo American.

Unlike BHP, Rio already has an operation in South Africa, having bought Richards Bay Minerals from BHP itself in 2012.

It also has a presence in the diamond market, which could assist in the management of Anglo’s diamond unit, De Beers.

Another point in Rio’s favour is that, as Anglo American, it has a main listing in the United Kingdom, which could potentially simplify any potential transaction.

In terms of copper, Rio Tinto is still working on the expansion of its Oyu Tolgoi copper mine in Mongolia. It also has a 30% stake in the Escondida mine in Chile, the world’s largest copper operation, controlled by BHP. It otherwise has limited options to increase production of the coveted orange metal, demand for which is expected to boom during the energy transition.

Other than the Oyu Tolgoi factor, Rio’s planned copper output increase will be driven by an ongoing expansion in Utah and global exploration efforts, including a partnership with Chile’s state-owned miner Codelco, the world’s largest copper producer.

A point of contention would be Anglo’s steelmaking coal assets, as Rio Tinto is highly unlikely to want after successfully exiting the coal business in 2018.

Dealmaker on the sidelines

Another player reportedly considering throwing its hat in the ring is Glencore (LSE: GLEN), which is already a partner of Anglo American in Chile, each of whom have a 44% stake in the vast Collahuasi copper mine.

The Swiss miner and commodities trader is in the midst of acquiring 77% of Canadian miner Teck Resources‘ (TSX: TECK.A, TECK.B; NYSE: TECK) coal unit for US$6.9 billion, which may deter it from further major investments. The company is known for not usually letting potential obstacles stand in the way of an opportunity to add volume and expand its trading business.

BHP’s proposal required Anglo to divest its stakes in Anglo Platinum (Amplats) and Kumba Iron Ore in South Africa as a precondition.

“Unlike BHP, Glencore could benefit from keeping Kumba and marketing iron ore, and Glencore may face less political pushback in South Africa, especially if it were to propose a straightforward all-share deal that does not include Kumba and Amplats demergers,” Jefferies analyst Christopher LaFemina said in a research note on April 29, where he assessed different takeover scenarios for Anglo American.

The Baar, Switzerland-based firm could also be interested in buying Anglo’s Australian steelmaking coal operations.

Both Rio Tinto and Glencore are likely to keep monitoring whether BHP’s approach is successful in separating some of Anglo’s assets from the rest of its operations, allowing them to pick those up as opposed to the entire company. 

BHP has until May 22 to make a formal bid for Anglo American.