Xstrata unveils £2bn bid for MIM Holdings

Xstrata, the mining group that listed in London last year, has gained the "support" of the Australian Prime Minister for its £2bn acquisition, announced yesterday, of the country's MIM Holdings.

The deal, which comes with a £900m deeply discounted rights issue, requires clearance by the Australian government. Mick Davis, Xstrata's chief executive, called Australia's leader, John Howard, yesterday.

Trevor Reid, Xstrata's finance director, said the call was a matter of "courtesy". "This is a large company in Australia, which has emotional attachment," he said, adding that Mr Howard would not be the politician actually ruling on the deal.

Two years ago the Australian Government shocked international investors by blocking Shell's proposed acquisition of Woodside Petroleum. Mr Reid said that there was "no indication" the Australian authorities would intervene in the MIM transaction.

Xstrata will pay for MIM in cash, partly financed by a three for two rights issue at a 50 per cent discount to the company's closing share price on Friday.

John Meyer, an analyst at Investec, said: "I'm surprised by the size of the discount. It's a bit of a giveaway. Quite extraordinary."

Xstrata's biggest shareholder, Glencore, which has a 40 per cent stake, is committed to taking up its rights in full, for which it will be paid a 7.5m US dollars (£4.8m) fee. The rest of the rights issue will be underwritten by JP Morgan and Deutsche Bank, which will earn fees of some £14m.

Mr Reid said: "Once we decided to go down the rights issue route, it was priced to insure there is no doubt that we'll get the cash.... This is a big issue at a difficult time. We wanted to make damn sure."

Xstrata is paying a 38 per cent premium to MIM's stock price in November, when the takeover talks were revealed. The acquisition allows Xstrata to diversify geographically, away from South Africa, and brings it new products. MIM's products include copper, thermal and coking coal, gold, zinc, lead and silver, all of which will add to Xstrata's portfolio of thermal coal and zinc. Last year, MIM made a loss, before interest, of $30m on sales of $1.1bn.

Mick Davis said: "It [the acquisition] doubles the size of the company. It was the logical next step...to build a diversified mining company. We're still a long way off the big three, but at least we're now a company of real scale."

Xstrata shares closed up 11 per cent at 540p, though traders said this was mostly as a result of short covering. It is not thought that there will be a counter-bid.