Mr Argus told Fairfax Media on Wednesday he backed the aggressive expansion strategies of BHP and Rio Tinto. His support was echoed by one of Rio's biggest shareholders, the Australian Foundation Investment Company, whose managing director Ross Barker said the miner was well managed and expressed doubts about the rationale of a deal.

Glencore chief executive Ivan Glasenberg has attacked Rio and BHP repeatedly over their rapid increases in iron ore production, saying it would add to over-supply and further push down prices, which have plunged 40 per cent this year.

It is understood Glencore hopes to win support among Rio shareholders for a $182 billion merger by casting doubt about Rio's management and expansion strategy.

But Mr Barker said the Glencore boss makes "a very resistible argument".

"We have confidence that the management of Rio will not make unwise decisions," he said.

AFIC ranks as the ninth biggest shareholder in Rio, and the sixth biggest in BHP. Mr Barker said Rio and BHP - which together make up about 11 per cent of AFIC's investment portfolio - were well placed to continue to deliver profits and pay dividends despite the iron ore price plunge.

Although Mr Barker is yet to see the exact terms of Glencore's proposal, he said he did not "like these resource companies taking on a lot of debt" or being "diluted with lower quality assets".

Rio shocked the market on Tuesday when it revealed Glencore had put an informal merger offer in July, which its board rejected the following month as "not being in the best interest of shareholders".

Mr Argus said Rio Tinto and BHP were "in a sweet spot" as the world's lowest cost producers of iron ore and had a competitive edge thanks to their dramatic expansion programs.

"If Glencore and Glasenberg want to influence the market, they will have to pay for it," he said.

"I think BHP and Rio are in a sweet spot, and if someone wants to take them out, they've got to pay dearly in a premium."

Mr Argus, who chaired BHP for a decade, said Mr Glasenberg would probably face opposition to a merger from the dual-listed Rio's London investors. During Mr Argus' reign BHP tried a merger with Rio Tinto and later failed to execute an iron ore joint venture between the companies.

"He (Glasenberg) has got a big job ahead of him, influencing shareholders in London, given that they didn't react last time to a very generous offer made by BHP Billiton," Mr Argus said.

"And he also has to influence the shareholders down here (Australia), and I'm not sure he is going to be able to do that without paying a premium for a low-cost producer."

Pengana Capital global head of resources Tim Schroeders said Rio's strategy to increase production by 25 per cent to 360 million tonnes a year made "sound commercial sense" and there was little to be gained for Rio shareholders from a merger with Glencore.

Rio, BHP and Glencore rank among Pengana's five biggest holdings.

The only benefit of a deal for Rio shareholders seemed to be diversifying away from its heavy reliance on iron ore, Mr Schroeders said.

"Do you really want to diversify through Glencore?" he said. "Rio can do that itself, there is no need to have a marriage of convenience with Glencore."

Mr Argus supports Rio and BHP's strategies to dramatically increase iron ore production.

He said both miners were well-positioned to cater to movements in demand, unlike at the turn of the century when the industry was ill-prepared for the China juggernaut.

"It is all about supply and demand. And this time, they (Rio and BHP) are low cost producers, they have got the supply and they will be able to move with any developments that happen in China, India and elsewhere," Mr Argus said.

Mr Schroeders said there was "a compelling investment argument" for Rio and BHP's expansions.

"They are leveraging off existing infrastructure, making rates of return still well above their average cost of capital and winning market share back at the same time," he said.

"That is the advantage of having tier one, bottom of the cost curve assets, and that is something that Ivan Glasenberg doesn't have a lot of."

The iron ore majors, a group that includes Rio, BHP, Fortescue Metals Group and Brazil's Vale, are rapidly increasing production amid a supply glut and dramatic price falls for the commodity.

Rio shares fell 1.6 per cent to $59.09 on Wednesday, after rallying strongly on the previous day because of the takeover talk.