There are many reasons a RIO takeover of GLEN is not a bad idea.
One is largely a producer; the other, largely a trader. Together, they form a vertically integrated monster that can gouge China to death.
Their suites of reserves match nicely, too. RIO is big in iron ore and aluminium, GLEN in coal and copper.
Any pesky ESG commods could be floated off pronto.
There is also endemic corruption in both businesses, indicating cultural complementarity. Both are adept at bribery, skirting sanctions, and supplying the world’s least worthy nations.
But that last point is a clincher in another sense. RIO is not particularly good at dodging Australian income taxes. GLEN is.
This is where the potential gains come most from any buyout.
It’s almost impossible to judge the proportion of profit GLEN pays in Australia because it does not publish an Australian financial report.
Moreover, it uses.
- Transfer pricing and marketing strategies that cause claimed earnings to be remitted out of Australia.
- In certain years, taxable income is offset by past tax losses.
- Multi-year reporting of taxes and royalties.
- Regional segment results are the main emphasis of Glencore’s global consolidated financial reporting.
GLEN has published recent accounts due to the massive coal boom following the Ukraine War, but this has been to create the appearance that it pays high taxes when it doesn’t. Much of its recent payments have been royalties out of QLD coal.
By contrast, RIO uses some of the same tactics but is constrained by the geographic concentration of its operations in Australia, particularly iron ore, which accounts for about three-quarters of profits.
The upshot is that, according to company announcements, in the decade leading up to 2020, RIO paid more than $52bn in taxes and royalties to Australia, while GLEN paid $11bn. Global revenues were comparable (though not necessarily profits).
GLEN is more globally integrated and born of Marc Rich, global mining’s Gordon Gekko, which makes it more adept at, ahem, the tricks of the trade.
The Australian Treasury should be alarmed about the prospect of RIO integrating with such an entity.
