Anglo shares soar after Xstrata seeks merger talks

LONDON (Reuters) - Shares in Anglo American Plc (AAL.L) jumped as much as 12 percent on Monday after rival Xstrata sought talks about a merger of equals to better compete in a consolidating mining sector.

Anglo shares were up 9.0 percent in London at 1,769 pence at 0720 GMT following Xstrata's approach to Anglo announced on Sunday. Before Monday, Anglo shares in London had underperformed the UK mining index .FTNMX1770 by around 20 percent.

Shares in Xstrata fell 1.2 percent to 673 pence, compared with a 1.5 percent rise in the UK mining index.

"Anglo may well now be 'in play' and the board is likely to have to examine all potential routes to maximize shareholder value," analyst Michael Rawlinson at Liberum Capital said in a note.

Bringing the two firms together would create a group worth $68 billion based on Friday's closing share prices versus BHP Billiton (BLT.L)(BHP.AX) at $144 billion and Rio Tinto (RIO.L)(RIO.AX) at $74 billion.

Xstrata, the world's largest exporter of coal for power stations, said on Sunday it wanted to start talks with Anglo (AGLJ.J) about a merger of equals.

"The combination would create a premier portfolio of operations diversified across multiple commodities and geographies, with enhanced scale and financial flexibility to fund future growth," Sunday's statement said.

Anglo, which owns the world's largest platinum producer, South Africa's Anglo Platinum (AMSJ.J), said in a statement the situation was at a very preliminary stage and declined to give further details.

Anglo is likely to resist the attempt by Xstrata to forge a larger mining group better able to compete with bigger competitors BHP, Vale (VALE5.SA) and Rio, a source close to the situation said on Sunday.

Even if Anglo was not keen about a merger with Xstrata, it would have to seriously examine all M&A possibilities, Liberum's Rawlinson said.

"A whole range of potential suitors may yet come out of the woodwork such as Vale or even a Chinese backed BEE consortium."

BEE is South Africa's Black Economic Empowerment, which seeks to include blacks in the mainstream economy after being excluded during apartheid and has resulted in black investors taking stakes in mining groups.

Xstrata has grown from a small Swiss producer of steel alloys in the late 1990s to the fifth-biggest mining group by market value through a string of acquisitions.

(Reporting by Eric Onstad; Editing by Jon Loades-Carter)