Financial News

LONDON (ShareCast) - Consolidation rumours are rife in the mining sector following reports that Xstrata (LSE: XTA.L - news) 's merger approach to rival Anglo American (LSE: AAL.L - news) has alerted Chinalco and Brazil's Vale to the possibility of gatecrashing the party.

Anglo American flatly rejected Swiss-based Xstrata's merger approach on Monday, but rumours soon emerged that Rio Tinto (LSE: RIO.L - news) 's erstwhile partner Chinalco may be mulling a rival offer.

Unconfirmed reports claimed that Chinalco, the Chinese state-run aluminium producer which missed out on a $19.5bn investment in Rio Tinto earlier this month, would be willing to pay as much as £22.00 a share for its rival.

Vale, whose bid for Xstrata collapsed in March last year, is also said to be eyeing a substantial investment in Anglo.

Consolidation speculations aside, there were also reports today that Anglo may sell its building materials unit Tarmac.

Meanwhile, Xstrata released more details of its proposal offer, claiming that a merger could result in over $1bn of pre-tax synergies by the third full year after completion.

"We remain convinced of the undeniable logic for a merger of equals between Anglo American and Xstrata," said chief executive Mick Davis.

"It is regrettable that Anglo American's Board rejected this proposal without any engagement with Xstrata, just days after receiving our approach. "

"I feel sure that, in time, Anglo American's board will want to examine comprehensively the merits of this transaction for its shareholders," he added.

Anglo described the terms of Xstrata's merger approach as "totally unacceptable" on Monday, adding that the proposals lacked "strategic merit".