The multinational mining company Glencore has reportedly talked to Cliffs Natural Resources over its iron ore assets in Australia. The conversation was reportedly preliminary and CEO Ian Glasenberg is currently observing the development.
It was heard earlier this week that British-Australian metal and mining corporation Rio Tinto was approached by Glencore in this year’s July. Glencore wanted to acquire Rio Tinto. If the takeover took place, the conglomerate would have been the largest mining firm in the world.
Glencore doesn’t produce huge volume of iron ore. The company specializes in marketing and handles the trade of iron ore for other miners. Hence if it merges with an active miner like Rio Tinto, its trade would flourish. Some analysts believe Glencore might take a backdoor strategy by closing operational mines or by deferring scheduled expansion.
However, UK Takeover Rules force Glencore to refrain from bidding for Rio Tinto for at least six months. CEO Glasenberg reportedly wants to take all options (other iron-ore assets) open while testing the water for possible takeover of Rio. Thus the rumor of procurement of Cliffs.
Iron-ore price has been sharply falling this year. It is down 40% from previous year’s annual average of $US135/tonne. Iron-ore is now trading at $US80/tonne. This is a key reason behind Rio Tinto’s poor performance.
According to Barclays’ numbers, the trading value of Rio on a 2015 prospective price/earnings multiple is 8.7 times. When it comes to Glencore, it is 10.7 times and 10.8 times for BHP Billiton.
Cleveland based Cliffs hired banks in this year’s August to sell off some of its assets that were based on US. The company also planned to sell its Australian Iron-ore miners so US iron ore miners could be put on the focal point.
People with knowledge in this matter said Cliff’s mining assets in Australia are located in the western part of the country. Sources indicate a number of companies including some stalwart Chinese steelmakers have shown initial interest in purchasing Cliff’s Australian assets.
It’s not surprising therefore, that Glencore is interested to acquire Cliffs’ resources.