Xstrata eyes £41bn Anglo merger

Mining firms have been hit by falling demand for metals

The mining giant Xstrata has approached its rival Anglo-American about the possibility of a merger.

Xstrata's chief executive has written to Anglo's board, and says a union of "these two world-class companies" was "highly compelling".

Industry observers suggest a merger would make sense because of the vast cost savings that could be made.

This would help compete against the Rio Tinto and BHP Billiton, who have agreed a joint venture.

That deal was struck after Rio scrapped a planned tie-up with Chinalco, a state-controlled Chinese company.

Recession impact

Anglo and Xstrata both have coal mines and infrastructure in Australia and South Africa, while analysts say there was also potential for saving money in their copper mining operations.

The combined firm would be worth about £41bn based on their stock market value on Friday.

Anglo confirmed it had received an approach and said the situation "was at a very preliminary stage" adding there was no certainty that any transaction would be forthcoming.

The Sunday Times said that Anglo was likely to resist the tie up, saying its chief executive Cynthia Carroll believed the firm was better financed than Xstrata and could generate a better return for its investors as a separate entity.

Mining firms have been hit by falling demand for metals amid the downturn.

They have also had problems raising cash because of the credit crunch, which last year led Xstrata to abandon its £5bn bid for its rival Lonmin.