Xstrata in massive merger talks with Anglo American, report says - comment on this story

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The mining group Xstrata has approached its rival Anglo American about a £41bn merger that would create one of the world's leading natural resources companies, England's The Sunday Telegraph reports.

By Mark Kleinman and Louise Armitstead

Mick Davis, Xstrata's chief executive, is understood to have written to the board of Anglo last week to propose opening discussions about a deal. It was unclear last night whether Anglo had made a formal response to the approach. Goldman Sachs and UBS, the investment banks, are advising it on the situation. Deutsche Bank and JP Morgan Cazenove are advising Xstrata.

Xstrata has not yet outlined the terms on which it believes a deal would be acceptable to Anglo, but the companies' market capitalisations – Anglo is valued at £21.3bn and Xstrata at £20bn – suggest that a merger of equals is plausible amid intense speculation about a fresh wave of mining industry consolidation.

Xstratra's subsidiary, Xstrata Nickel, operates mines, mills and a smelter in Greater Sudbury. Earlier this year, it cut more than 600 local workers and shut down other operations, citing low nickel prices and demand.

However, The Sunday Telegram is reporting that analysts believe a merger of the two companies would make sense because of the vast cost synergies potentially available to a combined group.

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Anglo has also been rocked by a boardroom row over the appointment of a new chairman. Some directors of the company opposed the appointment of Sir John Parker, the respected industrialist, because they wanted a South African to take the helm.

Headhunters have now drawn up a shortlist which is understood to include several European executives.

Securing a merger with Mr Davis's group would enable Sir Mark Moody-Stuart, the outgoing chairman of Anglo, to depart on a high note, although Ms Carroll has argued that Anglo can generate better returns for its investors by remaining independent.

The approach to Anglo comes weeks after Rio Tinto, its larger rival, scrapped a planned tie-up with Chinalco, a state-controlled Chinese company, in favour of a joint venture with BHP Billiton.

Anglo and Xstrata declined to comment last night. Glencore could not be reached for comment.

Additional reporting by Peter Taylor of The Telegram.