Anglo American –
a merger target for
Xstrata
 
London, England — MININGREVIEW.COM — 22 June 2009 – Shares in global mining and natural resources giant Anglo American plc – one of the world’s largest mining companies – jumped as much as 12% today after rival Xstrata sought talks about a merger of equals to better compete in a consolidating mining sector.
 
Reuters reports that Anglo shares rose 9.0% in London at 1.769 pence at 0720 GMT, following the announcement yesterday of Xstrata’s approach to Anglo. Before today, Anglo shares in London had underperformed the UK mining index by around 20%. Shares in Xstrata fell 1.2 % to 673 pence, compared with a 1.5% rise in the UK mining index.

“Anglo may well now be ‘in play’ and the board is likely to have to examine all potential routes to maximise shareholder value,” Liberum Capital analyst Michael Rawlinson said in a note.

Bringing the two firms together would create a group worth US$68 billion (R544 billion) based on Friday’s closing share prices versus BHP Billiton at US$144 billion (R1 150 billion) and Rio Tinto at US$74 billion (R592 billion).

Xstrata – the world’s largest exporter of coal for power stations – said on yesterday it wanted to start talks with Anglo about a merger of equals. “The combination would create a premier portfolio of operations diversified across multiple commodities and geographies, with enhanced scale and financial flexibility to fund future growth,” the Xstrata statement said.

Anglo – which owns the world’s largest platinum producer, South Africa’s Anglo Platinum – said in a statement that the situation was at a very preliminary stage, and declined to give further details.

“Anglo is likely to resist the attempt by Xstrata to forge a larger mining group better able to compete with bigger competitors BHP, Vale and Rio,” a source close to the situation said.

“Even if Anglo was not keen on a merger with Xstrata, it would have to seriously examine all M&A possibilities,” Liberum’s Rawlinson stated. “A whole range of potential suitors may yet come out of the woodwork such as Vale or even a Chinese-backed BEE consortium.”