The mining industry is experiencing a surge in merger activity.

• The merger between Rio Tinto and Glencore would be the largest in the mining industry's history.
• Despite widespread doubts among analysts regarding the benefits of a Rio Tinto-Glencore merger, they cited a lack of synergies and differences in coal assets and corporate culture as reasons for their skepticism.
• According to Dominic O'Kane and his team at JPMorgan, the bank's belief that 2025 would be marked by significant mergers and acquisitions, particularly among U.K.-listed mining companies and global copper producers, is already becoming a reality.

The mining industry is expected to have a busy year of mergers and acquisitions, fueled by rumors of a possible partnership between Rio Tinto and Glencore.

According to Bloomberg News, Rio Tinto and Glencore are reportedly in early-stage merger talks, although the status of these discussions is unclear.

According to a source familiar with the matter, Glencore approached Rio Tinto late last year about the possibility of combining their businesses. However, the talks were brief and are no longer active, Reuters reported on Friday.

Rio Tinto and Glencore both declined to comment when contacted by CNBC.

The merger between Rio Tinto and Glencore, two of the world's largest mining companies, would be the largest deal in the mining industry's history.

The combined market value of the two firms would be approximately $150 billion, surpassing the longstanding industry leader, worth about $127 billion.

The Rio Tinto-Glencore merger was met with skepticism from analysts, who cited limited synergies, Rio Tinto's complex dual structure, strategic divergences over coal, and cultural differences as obstacles to a successful deal.

Maxime Kogge, equity analyst at Oddo BHF, said via telephone to CNBC that he believes everyone is a bit surprised.

Kogge stated that they have limited overlapping assets, but there are opportunities to add copper to create a larger group with synergies.

Energy transition demands are expected to increase, prompting global mining giants to consider mega-mergers to maintain their market position.

Due to its use in various applications such as electric vehicles, wind turbines, solar panels, and energy storage systems, among others, copper, a highly conductive metal, is projected to face shortages.

According to Oddo BHF's Kogge, it is currently challenging for large mining companies to launch new projects, as evidenced by Rio Tinto's long-delayed and contentious Resolution copper mine in the U.S.

Kogge stated that the copper project is highly promising and could potentially be one of the largest in the world. However, it faces numerous challenges, and acquiring another company could significantly speed up the expansion into copper.

"A deal is not attractive to me because it goes against what all these groups have previously attempted."

In 2019, BHP put forth a $49 billion takeover bid for Anglo American, but the deal fell through due to problems with its construction.

Some analysts predict that another unsolicited offer for Anglo American may occur in 2025, according to JPMorgan.

M&A parlor games

According to Dominic O'Kane at JPMorgan, the bank's "high conviction view" that 2025 would be characterized by mergers and acquisitions (M&A), particularly among U.K.-listed miners and global copper companies, is already becoming a reality just two weeks into the year.

The Wall Street bank's analysis of the mining sector revealed that the current economic and risk management environment favored mergers and acquisitions over organic project development.

JPMorgan analysts predicted that the latest speculation would soon bring Anglo American back into the spotlight, specifically regarding the merits and probability of another combination proposal from BHP.

In 2023, BHP acquired OZ Minerals, strengthening its copper and nickel holdings before pursuing Anglo American.

Ben Davis at RBC Capital Markets, who led the team of analysts, stated that it is uncertain whether negotiations between Rio Tinto and Glencore will result in a straightforward merger or necessitate the division of specific components of each company.

The M&A parlor games that emerged after merger talks between BHP and Anglo American will likely intensify.

Although Glencore had discussed a potential merger with Rio Tinto's key shareholder Chinalco in July 2014, the news of the deal still caught analysts at RBC Capital Markets off guard, as they published a research note on the matter on Thursday.

The acquisition of Anglo American by BHP may have spurred discussions between Rio Tinto and Glencore, with Rio Tinto aiming to increase its copper exposure and Glencore seeking a way out for its major shareholders.

It's possible that there is a deal structure that could keep both sets of shareholders and management happy, even though we wouldn't expect a straight merger to occur as we believe Rio shareholders would view it as favoring Glencore.

Copper, coal and culture

Wen Li, the analyst at CreditSights, led a team that raised concerns about strategic alignment and corporate culture in relation to speculation over a potential merger between Rio Tinto and Glencore.

Analysts at CreditSights suggest that Rio Tinto may be interested in Glencore's copper assets, as it aligns with Rio Tinto's focus on sustainable, future-facing metals. Furthermore, Glencore's marketing business could offer synergies and expand Rio Tinto's reach.

"Any merger with Rio Tinto would require careful structuring to prevent unwanted asset overlaps, as their lack of interest in coal assets due to recent divestments suggests," they stated.

Analysts at CreditSights noted that Rio Tinto was recognized for its traditional methods and emphasis on maintaining stability, while Glencore had gained a reputation for taking risks and pushing boundaries in its operations.

Analysts at CreditSights warned that a merger could face challenges due to cultural differences, which could impact integration and decision-making.

The potential implications of this materializing could be broader for mega deals in the metals and mining space, which could put BHP/Anglo American back in play, according to them.

— CNBC's Ganesh Rao contributed to this report.