Rio being a much larger company was no deterrent for Glencore CEO Ivan Glasenberg when his company approached Rio – and was rebuffed – in July 2014.

Under UK law, Glencore is not allowed to make another play for Rio for six months, ruling out a takeover or merger offer until April 2015.

A combination was seen as unlikely – or at the very least difficult – by many, but falling commodity prices have weighed heavily on the share prices of the majors, including Glencore and Rio.

Iron ore and copper – Rio’s two biggest earners – are down 20.8% and 27.5% respectively since July last year, while oil is down by 56.5%.

Glencore is also a major producer of copper and is exposed to oil, but has no iron ore interests.

Based on estimated copper production in 2015 of 1 million tonnes for Glencore and 800,000 tonnes for Rio, Numis Securities said a $US350/t drop in the copper price would result in a $350 million revenue hit for Glencore and a $280 million impact for Rio.

Since news of the potential combination emerged in October, Rio shares are down by less than 6%, while Glencore is down by 27.3% to an all-time low as of yesterday’s close.

Both faced analyst downgrades this week, with Macquarie downgrading Rio to neutral from outperform and S&P Capital IQ cutting Glencore to hold from buy.

Speculation over an impending bid may have supported Rio’s share price somewhat over the period, but nevertheless the gap has widened, making a scrip bid for Rio much tougher.

Rio has a market capitalisation of £52.9 billion in London, while Glencore’s is £31.5 billion.

According to JP Morgan, the gap between the two was at its narrowest since June 2013 the day before news of the approach broke.

No “sacred cows”

Rio CEO Sam Walsh told the company’s London investor day last month that there were no “sacred cows” and Rio was open to approaches, but that any decision by the board would be driven by value.

“If anybody, including Glencore, wants to come and make an offer, that recognises the true value of assets and recognises that there are synergies that would apply to combining the assets, then of course we are going to look at it,” he said.

“We will absolutely look at it.”

But he stressed that the board would not destroy the company’s value in the process just to “quieten comments from the grandstand”

“It’s got to make a value for our business, not just a knee-jerk reaction to quieten somebody down,” Walsh said.

Analysts believe Glencore would have to offer a premium of at least 30% to entice Rio to consider talks.

“We believe Rio would expect a substantial premium to entertain a merger with Glencore, including a cash component, which may make a deal for Glencore too rich to execute,” Macquarie said in October.

“While most Glencore investors would acknowledge the strategic virtues of merging with Rio, the simple question would likely remain – what is Glencore willing to pay to do so?”

A combination of the two companies would likely create the world’s largest mining company.