Mining may enter super-consolidation: Xstrata CEO

By Simon Gardner

SANTIAGO (Reuters) - The global mining industry may be heading into a period of super-consolidation as mergers and acquisitions intensify, but governments should avoid discouraging investment with tax hikes, Xstrata Copper (XTA.L) CEO Charlie Sartain said on Thursday.

"The volume of mining deals in recent years has actually been staggering, the M&A transactions," Sartain told the CESCO/CRU copper conference in Chile. "We may well be entering an era of super-consolidation. We'll see what pans out during the course of the next two years."

Xstrata was until recently in the sights of Brazilian mining giant Vale (VALE5.SA) RIO.N, which was eager to buy its rival for its vast copper empire. A deal to buy Xstrata would have been one of the biggest ever takeovers, worth up to $90 billion.

"If we have a look at last year, there was an increase by 70 percent in the M&A transactions in the mining industry to more than 1,700 deals across the industry, which represented a transaction volume of around $160 billion," Sartain said.

Xstrata has in a few short years expanded from a $500 million company to a $70 billion behemoth.

However, governments should be careful not to kill the golden goose by increasing taxes and royalty demands, Sartain warned.

"Mining taxes and royalties do provide a very important source of income for governments," he said. "In Peru and Chile we know that the mining sector contributes somewhere between 20 and 30 percent of total fiscal revenue.

"Governments at all levels need to also ... recognize the importance of not falling into the trap of taking expedient ... policy decisions that would introduce new taxes or royalties that might take advantage of a price rally in the short term but risk chasing off substantial investments."

Sartain said this week Switzerland-based Xstrata was rethinking its expansion in Argentina, after the government there imposed stiff export duties affecting some of the world's largest mining companies.

(Reporting by Simon Gardner; Editing by Walter Bagley)