Goldman Sachs Group, Inc.: Rio Tinto plc Sponsored ADR (RIO.US) acquires Canada's Alcan, significantly increasing copper mine production after 2030.

Goldman Sachs Group, Inc. recently released a research report on Rio Tinto plc Sponsored ADR (RIO.US), stating that Rio Tinto plc Sponsored ADR and Glencore have both confirmed and are in early discussions about a potential merger through an "agreement arrangement". According to the UK Takeover Panel rules, Rio Tinto plc Sponsored ADR must announce whether a deal has been reached by February 5, 2026. The firm has given Rio Tinto plc Sponsored ADR a "buy" rating with a 12-month target price of 71 pounds per share. What is the rationale behind this deal for Rio Tinto plc Sponsored ADR and Glencore? For Rio Tinto plc Sponsored ADR: Firstly, Goldman Sachs Group, Inc. believes that Rio Tinto plc Sponsored ADR is currently in a strong position, with attractive growth project reserves in the copper, iron ore, and lithium mining sectors, with 15-20 projects in development. This supports its industry-leading 3%-4% annual copper production volume growth over the next decade. However, the firm notes that most of the growth is concentrated in the years 2025-2030, with a longer growth cycle for copper mining options after 2030. The new CEO at Rio Tinto plc Sponsored ADR met the firm's expectations at the Capital Markets Day (CMD) in December 2025, presenting a strategy of "stronger, sharper, simpler", including plans to divest non-core assets worth $50-100 billion (Goldman Sachs Group, Inc. estimates it could reach $100 billion) - considering Rio Tinto plc Sponsored ADR's operations in over 30 countries involving over 10 commodities; achieve annualized cost reductions of $650 million by the first quarter of 2026; and reduce mid-term capital expenditure guidance by $1 billion to $10 billion per year. These measures will further enhance shareholder returns, as Rio Tinto plc Sponsored ADR has maintained a payout ratio of around 60% for the last ten years. Given Rio Tinto plc Sponsored ADR's strong position, the timing of the potential merger with Glencore has surprised the market. Additionally, from an industry perspective, few companies have been able to complete large corporate acquisitions while divesting non-core assets, and investors contact by the firm generally believe that over the last 10-15 years, large mergers in the mining industry have created minimal value for shareholders. The firm notes that Glencore has attractive copper mining growth options after 2030, mainly concentrated in Chile and Argentina. While Rio Tinto plc Sponsored ADR only has the long-cycle Resolution project in the United States (a joint venture with BHP Group Ltd Sponsored American Depositary Receipt Repr 2 Shs), the La Granja project in Peru (a joint venture with First Quantum), and the early-stage NuevoCobre copper mine project in Chile in collaboration with the Chilean National Copper Corporation (Codelco) - the first production from these three projects may not be realized until at least 2035. Therefore, the firm believes that the appeal for Rio Tinto plc Sponsored ADR lies in Glencore's copper mining project reserves - which Glencore has recently disclosed in detail at its Capital Markets Day. Glencore's copper assets will establish operational bases for Rio Tinto plc Sponsored ADR in Chile and Peru, and footholds in Argentina. Rio Tinto plc Sponsored ADR has the technical capabilities and balance sheet strength to accelerate the development of these projects, especially in Argentina (Mara, El Pachon projects) - where Rio Tinto plc Sponsored ADR has already expanded locally through lithium mining development this decade. Acquiring Glencore's copper assets will double Rio Tinto plc Sponsored ADR's copper production to around 1.7 million tons per year, increasing to approximately 2 million tons per year by 2030. Furthermore, Rio Tinto plc Sponsored ADR itself has limited and technically complex copper mining growth options (greenfield projects, underground mines), while Glencore has multiple low capital intensity brownfield projects, all of which are open-pit mines. Therefore, in addition to the benefits of scale effects, the firm believes that the core of this potential transaction is likely to be the copper mining growth after 2030. For Glencore: The logic behind any transaction reflects its long-standing belief - the management reiterated at the firm's recent meetings that industry consolidation and prudent mergers and acquisitions are crucial. Larger scale can enhance global influence, attract investors and talent, strengthen negotiating power with governments, and provide a stronger balance sheet to release portfolio flexibility. Glencore will bring its coal business, copper mining growth options, and synergies from its marketing department, all of which can support the incremental capacity brought by a merger. Although not simply growth for the sake of growth, considering the industry's previous poor capital allocation track record, Glencore believes that integration and higher-quality acquisitions are key to enhancing valuation, and mining companies need larger market capitalization to remain competitive with rapidly growing industries like technology. The opportunity to merge with Rio Tinto plc Sponsored ADR will give Glencore a world-class iron ore and aluminum business, both commodities with high entry barriers that Glencore has long sought to enter. From a marketing perspective, the iron ore business can complement the metallurgical coal business as well. How much consideration could Rio Tinto plc Sponsored ADR pay? The firm does not express an opinion on the valuation of any transaction, but Glencore, after years of poor performance, is gradually regaining market confidence in its operational execution capabilities, which could affect investor confidence in its prospects presented at Capital Markets Day. Considering Rio Tinto plc Sponsored ADR's desire to achieve growth in the future oriented commodities (not the industrial-use commodities/coal it has exited or plans to exit), and Glencore's business involving multiple jurisdictions and a complex commodity portfolio, this could be a key factor affecting the purchase price of certain business segments. The potential attractiveness of expanding scale through Rio Tinto plc Sponsored ADR's high-quality assets could support Glencore's strategic goals, and if a deal is reached, it could influence the price agreed upon by both parties. Discussions between Glencore and Rio Tinto plc Sponsored ADR have been ongoing on and off for over a decade, dating back to as early as 2014 and restarting over a year ago. As of the close on January 9, the future 12-month enterprise value/EBITDA for Rio Tinto plc Sponsored ADR's London-listed shares (RIO.L) is 5.1 times, for Rio Tinto plc Sponsored ADR's Australian-listed shares (RIO.AU) it is 6.6 times, and for Glencore's London-listed shares (GLEN.L) it is 6.4 times (data from FactSet consensus forecasts). According to the firm's estimates, RIO.L's price/net asset value (P/NAV) ratio is 0.7 times, RIO.AU is 0.8 times, and GLEN.L is 1.1 times. The firm maintains a "buy" rating for Rio Tinto plc Sponsored ADR with a 12-month target price of 71 pounds per share, calculated with a weighted average of net asset value (NAV) and enterprise value/EBITDA at 50% each, with a target multiple of 5.5 times.