Canada's £9bn bid battle lifts hopes for Xstrata

Xstrata's ambition to transform itself into one of the world's largest nickel miners with the £10bn-plus acquisition of Falconbridge of Canada appears to be back within reach.

Falconbridge agreed last year to be bought by one of Xstrata's rivals, the Toronto-based Inco, but that deal was in jeopardy yesterday after Inco itself received the mining industry's largest-ever takeover bid.

The bid from Teck Cominco of Vancouver values Inco at C$17.8bn (£8.6bn), one-third in cash and two-thirds in shares. It underscores how the surging prices of base metals has swelled asset values across the mining industry.

It was also taken as a bullish sign in the commodities markets, since it suggests Teck and its lenders see continued strong selling prices for Inco's zinc, copper and nickel output.

Teck said a combination with Inco would create the largest mining company in North America. But it said the deal was conditional on Inco abandoning its acquisition of Falconbridge.

Xstrata shares closed up 111p at 2,365p in London amid hopes it could snatch Falconbridge from underneath Inco's nose. It had paid almost £1bn in August for a 20 per cent stake in Falconbridge, but saw its takeover ambitions thwarted by Inco's agreed bid.

Xstrata listed in London in 2002, promising a string of acquisitions that would turn it into a mining giant with assets across the globe, but has so far managed only one big deal. Falconbridge would add nickel to Xstrata's portfolio of coal and copper, and boost its presence in North and South America, where it has few assets.

Inco wants Falconbridge because it would create the world's biggest miner of nickel, which has doubled in price since 2003. Other base metals are trading at levels not seen since the 1970s because of the economic boom in China. Teck's chief, Donald Lindsay, said nickel was "a good place to be in the next 10 or 20 years".

The value of Xstrata's stake in Falconbridge has almost doubled in the nine months since it was acquired. Mick Davis, Xstrata's chief executive, said he could sell the stake to Inco, but traders in Toronto believe he is likely to make a counter-offer.

Falconbridge and Inco said despite the intervention of Teck Cominco, they remained committed to the combination of their businesses. Inco said it would respond further to the hostile bid when full details are published.