UPDATE 3-ENRC considers buying Kazakhmys, shares jump

(Adds details, comments from industry source, updates shares)

By Eric Onstad

LONDON, March 12 (Reuters) - Kazakh mining group Eurasian Natural Resources (ENRC.L) said it is considering buying rival Kazakhmys (KAZ.L), sending Kazakhmys shares surging and boosting the firm's market value to a peak of $17.3 billion.

Kazakhmys' shares raced up 23 percent on Wednesday to a life high of 18.90 pounds, the largest one-day rise in the stock since it entered the FTSE 100 .FTSE index in October 2005.

It closed 15.9 percent stronger at 17.80 pounds, against a 3.7 percent rise in the UK mining index .FTNMX1770.

ENRC, which is itself due to enter the FTSE 100 index later this month, said it held discussions with Kazakhmys as it explored possible strategic opportunities following its London flotation in December.

"One of the opportunities that is at the early stages of being evaluated is a potential combination of its business with that of Kazakhmys," a statement said.

"Whilst there has been informal dialogue with Kazakhmys, no formal proposal has been made by ENRC and there can be no certainty that a formal proposal will be made."

Shares in ENRC -- the world's biggest producer of ferrochrome and the sixth-largest iron ore exporter by volume -- shed 3.2 percent to 9.49 pounds, giving it a market value of $24.6 billion. The shares have nearly doubled since the IPO price of 5.40 pounds in December.

FRAGMENTED

A London analyst who declined to be named said the move to combine the two firms -- both former state firms that were privatised -- was not surprising.

"The Kazakhstan mining industry is quite fragmented at the moment, so they are playing a consolidation game, bringing all the assets together," he said.

Earlier this year, investors bet that Kazakhmys would make a takeover move on ENRC after it bought a 14.6 percent stake in the firm, the analyst said. But as ENRC's shares ramped up, it got the potential firepower for a share-based bid.

An industry source who declined to be named said the statement might be premature since the UK Takeover Panel requires firms to reveal when there have been any discussions of possible mergers, even at very informal levels, following sharp share movements.

"It's clear any deal between these two companies would have to be agreed and this statement does not give any indication that ongoing talks are in the frame," the source added.