Brazil's Vale in talks to buy Xstrata in mining mega-deal

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By Steve Goldstein
January 21, 2008

LONDON (MarketWatch) -- Brazil's Vale on Monday said it was in talks to buy Anglo-Swiss mining group Xstrata, but warned a deal would be difficult to pull off in current market conditions.

Vale (RIO) said it's been maintaining a "dialogue" with Xstrata management, though the discussions have not "produced any material result yet."

The statement isn't a big surprise, as Xstrata had already said it was holding talks with other mining firms. Speculation had centered around Vale and Anglo American as would-be partners.

Should Vale and Xstrata merge, two firms worth roughly $150 billion would be coming together.

Vale said Monday it continues to analyze other options, involving different mining assets, but those talks also haven't come to fruition.

It's talking to banks to fund any takeover deals, and said "the current conditions prevailing in the global financial markets may constrain the realization of a major strategic move."

In Brazilian trading, Vale fell 5.8%, while Xstrata shares dropped over 5% in London, as both suffered from concerns about dampening worldwide economic growth.

Separately, Rio Tinto shares fell sharply as traders re-assessed the prospects that BHP Billiton would improve its three-for-one stock swap proposal.

Rio Tinto shares dropped 6.7% and BHP fell 7%.