Xstrata reveals merger talks with Vale are 'ongoing'

Xstrata has revealed its merger talks with the Brazilian rival Vale are still on, despite rumours last week that the negotiations had hit an impasse. This comes as the mining giant posted a 13 per cent bump in profits in 2007, and predicted its business would not be significantly damaged by a slowdown in the US.

Mick Davis, the chief executive of Xstrata, said at the company's full-year results presentation: "Discussions with Vale are ongoing and may or may not lead to an offer." He added that the talks had not prevented Xstrata from evaluating potential acquisition targets of its own.

This followed speculation last week that talks with Vale were on the verge of collapse as Glencore, which holds a 35 per cent stake in Xstrata, wants an exclusive 10-year marketing deal for the merged group.

Xstrata first confirmed discussions with "industry participants" on 12 December, with interest understood to have come from Anglo American and Vale, formerly known as Companhia Vale do Rio Doce. Vale confirmed talks with Xstrata's management on 21 January.

Xstrata has grown from a medium-sized player to the fifth largest miner in the world by market capitalisation, through an aggressive acquisition strategy.

Mr Davis said yesterday: "Industry consolidation is a trend we foreshadowed some years ago." He added that the trend "has undoubtedly accelerated" since BHP Billiton approached Rio Tinto over a potential merger worth more than $150bn (£75.5bn).

The group boosted profits by 13 per cent from $4.8bn in 2006 to $5.5bn last year, as the price of commodities soared. It proved a record year for its production of ferrochrome, zinc, nickel, platinum and coal.

The share price rose 1 per cent to £40 as Mr Davis talked up a bright future for the group. He said that the impact of a slowdown in the US would have a "muted" effect on the demand for commodities from the emerging marke ts and China.

Mr Davis said: "I believe that the medium-term outlook for commodities is further strengthened by the return to growth of the Western economies over the next two to three years.

"As a result, I remain very confident in the outlook for all of Xstrata's commodities through the medium and long term."

Since the start of 2007, Xstrata has maintained its acquisitive strategy with $6bn worth of bolt-on acquisitions, including its takeover of the western Australian nickel group Jubilee Mines for more than A$3bn (£1.4bn).

It added that as well as scrutinising potential acquisition targets, it has a pipeline of $30bn-worth of organic growth projects, of which $12bn has been approved.

Meanwhile, the Australian miners Oxiana and Zinifex have agreed to a A$12bn merger.