BHP Billiton agrees to buy WMC Resources for £3.8bn

Xstrata has given up its pursuit of rival mining group WMC Resources, after a knockout bid from BHP Billiton.

Xstrata has given up its pursuit of rival mining group WMC Resources, after a knockout bid from BHP Billiton.

BHP won a recommendation from the WMC board overnight on Monday for a A$7.85-a-share bid, valuing WMC at A$9.2bn (£3.8bn). However, the offer is still below the top end of the valuation range of A$8.04 a share arrived at by Grant Samuel, a firm of independent valuation experts appointed by the WMC board.

Although BHP has won a recommendation for its offer, rival bids could be forthcoming. Possible predators include Rio Tinto, Anglo-American, the French nuclear group Areva and Cameco. Xstrata said it would not be increasing its offer of A$7 a share, having pursued WMC for several months.

Chip Goodyear, the chief executive of BHP, justified trumping Xstrata with a 12 per cent premium by pointing to WMC's uranium reserves. He believes these will prove increasingly valuable as demand for nuclear energy increases. "Our offer price is based on our normal valuation methodology using our standard pricing protocols and reflects WMC's considerable expansion potential," Mr Goodyear said.

The deal gives BHP a stronger position in the copper and nickel markets, metals which have seen a strong run in their prices in the past 18 months. Mr Goodyear believes demand for the commodities will continue to be strong because of continuing economic growth in China and south-east Asia.

BHP is understood to have had a team of 60carry out due diligence on WMC's assets, focusing on the company's Olympic Dam, which is the world's fourth-largest copper mine but has underperformed while controlled by WMC. BHP believes there is substantial hidden value in the asset.

The deal will make BHP the world's second-largest copper producer and the third-largest nickel supplier.