Xstrata, the London-listed miner, is considering its next move after a A$7.4bn (£3.1bn) bid for Australia's WMC Resources was rejected yesterday.
The companies said that dialogue would continue and many in the market believe a higher offer will follow. The bid for the nickel and copper miner is worth well over half Xstrata's £5.3bn stock market value. It would be a bigger deal than the MIM purchase last year, which doubled Xstrata's size.
WMR also has uranium and fertiliser operations. Its key asset is the Olympic Dam copper/uranium project, which is the third largest copper deposit in the world and the largest uranium deposit.
Michael Rawlinson, an analyst at Cazenove, said in a research note: "WMC is regarded as under managed and the market is consistently disappointed by the incumbent team."
Mr Rawlinson put synergies from the acquisition at roughly $1bn (£555m). He also warned that the transaction could be blocked. "This deal will be very political - WMR being the second largest Aussie miner with a uranium mine," he said.
Commentators questioned the timing of the Xstrata move, as many believe that the company would be buying at the top of the commodity price cycle. Charles Kernot, of Seymour Pierce, said the Xstrata move was unlikely to spark a bidding war. "Some people are questioning whether Xstrata has left it a bit late," Mr Kernot said.
Mick Davis, Xstrata's chief executive, said: "The combination of these two businesses would create a world-class diversified mining group." He added that Xstrata "will remain engaged with WMC". Xstrata said that its offer would be funded through debt - a testimony to the company's strong cash flows, analysts said.
The Australian company said that the proposed offer "fails to recognise the current and prospective value of WMC's assets and the strategic benefits to Xstrata".
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