Global mining group Xstrata, which has coal and alloy operations in South Africa, on Wednesday confirmed reports that it was in discussions with other mining companies.
“Xstrata confirms that its ongoing interaction with other industry participants includes dialogue with a number of parties covering a range of topics of mutual interest such as industry consolidation,” the company said in a statement.
Shares in the world’s sixth-largest resources group have risen sharply over the past few days on suggestions that Anglo American and Brazilian giant Vale, formerly known as CVRD, were considering bids.
The company also confirmed that it had entered into preliminary talks with one or more interested parties.
But it stressed that “none of these very preliminary discussions has resulted in any proposal being made either for or by Xstrata and there can be no certainty that any such proposal will result”.
Xstrata’s statement comes a day after British newspapers reported that the company had asked its advisers to open discussions with potential suitors as takeover fever continues to grip the mining sector.
“Mick Davis, chief executive of Xstrata, has asked his advisers Deutsche Bank and JP Morgan Cazenove to take seriously any interested parties,” the Financial Times reported on Tuesday.
Davis’s stance may have been prompted by news that Vale had hired Lehman Brothers and Merrill Lynch to start work on a potential takeover bid.
Reports also suggested that Xstrata may already have held preliminary discussions with Vale, and that Davis is trying to interest Anglo American in a deal.
“Xstrata is continually reviewing opportunities within the industry with a view to adding value to its shareholders,” the company said.
The Wall Street Journal said on Wednesday that this might be a good time for Xstrata to sell — if it can.
Between 2002 and 2006, Xstrata’s share price rose by 557%, well ahead of the 170% average of BHP Billiton, Rio Tinto and Anglo American.
In the last year, though, Xstrata has trailed the pack — up 56% against the competitors’ average of 74%.
What remains to be seen is whether any of the majors would be willing to fork out the high price attached to any of its smaller rivals amid a commodities boom. ‒ I-Net Bridge