Rio Tinto rejected a merger approach from smaller rival Glencore Plc to create a $160 billion mining and trading giant in August just as the price of its most profitable product, iron ore, slid towards a five-year low.

The miner said yesterday Glencore had contacted it about a potential merger in July, adding that it turned Glencore down in August and there had been no further contact between the companies on a deal.

A merger would have created the world’s biggest miner, supplanting BHP Billiton.

“The Rio Tinto board, after consultation with its financial and legal advisers, concluded unanimously that a combination was not in the best interests of Rio Tinto’s shareholders,” Rio Tinto said in a statement to the Australian stock exchange.

Rio’s Australian shares jumped as much as 4.7 per cent to a 9-day high of A$60.28 in a weaker broader market after the company issued the statement.

Rio revealed the approach after Bloomberg reported that Glencore had talked to Rio’s top shareholder, Chinese state-owned Aluminum Corp of China (Chinalco), to gauge its interest in a deal. The report, citing people familiar with the situation, said talks with Chinalco took place in recent weeks, and Glencore was also testing the waters with other Rio shareholders, studying financial and regulatory obstacles as it weighed its next steps.

Any bid for Rio would need China’s blessing, as Chinalco owns 9.8 per cent of the company. A Chinalco spokesman in Beijing did not answer telephone calls yesterday, which was a public holiday in China.

Iron ore would fill a gap in Glencore’s suite of commodities, where it already has strong positions in copper, nickel, zinc and coal.

But analysts and bankers saw major hurdles to a deal, saying Rio Tinto shareholders would want a massive premium, China would likely force a merged group to sell some copper and coal assets, and Rio’s conservative culture would clash with Glencore’s aggressively entrepreneurial DNA.

“Overall a deal would have been positive for Glencore and for the sector given the long list of potential rationales, but a rejection is not surprising given the difficulty in agreeing to a price when Rio is trading on the lows of the iron ore price based on our house view,” Citi analysts said.

Speculation has grown around a Glencore bid for Rio as prices of iron ore, which made up 92 per cent of Rio’s first-half profit, have slumped to five-year lows, as the top producers have flooded the market with new supply.

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