Rio Tinto's (ASX:RIO) chief executive, Jakob Stausholm, expressed no urgency in pursuing major mining sector deals, labeling a potential takeover of rival Anglo American as “all-consuming” for the world’s second-largest mining company.
Stausholm noted that Rio Tinto is now in a stronger position and capable of handling an acquisition, but he cautioned that large deals could disrupt the company after a decade of rebuilding its balance sheet and reputation with governments and local communities.
“There’s a big risk when you do major M&A, not just in the acquisition itself, but it can derail the whole company,” he said.
Regarding a possible approach for Anglo American, Stausholm commented that “such an acquisition could be all-consuming for a company like Rio Tinto,” while refraining from stating whether or not the company was interested.
Rio Tinto has watched its larger Australian rival BHP drive global consolidation efforts to secure more copper supplies, a mineral vital to clean energy.
Two months ago, BHP dropped a £39bn mega-merger attempt for London-listed Anglo American, before agreeing to a $3bn deal for undeveloped mines in Argentina on Wednesday.
Stausholm’s comments on M&A came as Rio Tinto reported reaching an “inflection point” after a “consistent and stable” first-half performance. The company posted a 3% rise in underlying earnings before interest, tax, depreciation, and amortization to $12.1bn in the six months to June 30.
Strong profit performances from its copper and aluminum operations offset a 10% profit decline in its large iron ore division due to a train derailment and a drop in commodity prices.
Stausholm said the group was well-positioned to deliver on several large projects that would drive future growth, including the Simandou iron ore development in Guinea, the Oyu Tolgoi underground copper mine in Mongolia, and its Rincon lithium plant in Argentina.
Rio Tinto has focused on smaller moves, such as buying out Oyu Tolgoi’s minority shareholders and investing in renewable energy. Stausholm emphasized that any deals must add value but did not rule out larger M&A activities entirely.
Stausholm maintained a cautious approach, stating that while Rio Tinto has room to expand in copper, the market for assets is “a little bit heated,” and the company is unwilling to pay the high prices sellers expect. “It’s not an easy market to buy into,” he said.
Lithium is another area of interest for Rio Tinto, which received a boost after its Jadar project in Serbia regained its permits last month. Prices for this key electric car battery material were red-hot in 2022 but have since collapsed, reducing valuations of producers.
“Could we add more [lithium projects]? Absolutely,” said Stausholm. “But obviously I don’t want to add more assets than what my team are able to develop.”
Rio Tinto expects iron ore shipments to rise in the second half of the year after a slow start. Stausholm anticipates robust demand from China as green energy, infrastructure, and industrial demand offset weakness in the country’s property sector.
The outlook for other metals appears stronger, with underlying aluminum earnings up 38%. Stausholm described demand for aluminum, crucial for electric vehicles, as “relentless” and slightly stronger than copper.
Lachlan Shaw, an analyst with UBS, noted that Rio Tinto’s future growth projects were progressing well, but an unchanged dividend payment of $1.77 a share — equivalent to half its profit — appeared slightly soft.
Stausholm remained confident about the Resolution copper mine in Arizona, developed with BHP, proceeding despite public opposition from some indigenous groups and environmentalists. “We are making real progress there,” he said, though he declined to specify a timeline.
On the analyst call, he dismissed requests from an activist investor to unify its dual corporate structure and move the primary listing to Sydney, citing tax costs, the lack of valuation benefit, and no current impediments to conducting stock-based M&A.
