UPDATE 2-Australia's Zinifex on lookout for acquisitions

(Recasts, adds chairman's comment and analyst reaction)

By Victoria Thieberger

MELBOURNE, Nov 26 (Reuters) - Australian zinc miner Zinifex Ltd ZFX.AX said on Monday it is prepared to go hostile in an aggressive search for acquisitions as it aims to diversify outside of zinc and expand its copper mining interests.

Zinifex has a war chest of about A$1.7 billion ($1.5 billion) from the spin-off of its zinc smelting interests into a joint venture with Belgium's Umicore (UMI.BR: Quote, Profile, Research, Stock Buzz) earlier this year to create Nyrstar (NYR.BR: Quote, Profile, Research, Stock Buzz), the world's biggest zinc producer.

"We would like not to be a zinc-only company, and copper would be the first prize," Chairman Peter Mansell told reporters after the annual shareholders meeting. The company earlier said rising costs would send its operating profit below last year's level.

Merger and acquisition activity in the mining sector has been spurred on by BHP Billiton's (BHP.AX: Quote, Profile, Research, Stock Buzz) (BLT.L: Quote, Profile, Research, Stock Buzz) proposed offer for rival Rio Tinto (RIO.AX: Quote, Profile, Research, Stock Buzz), worth around $140 billion when it was announced.

Mansell declined to put a number on how many deals were under serious consideration, but said the spin-off of Nyrstar had freed up a lot of people to examine growth opportunities.

"The trend is towards diversification and Zinifex is no different from anybody else," said a Sydney-based mining analyst who asked not to be named.

"They are taking the same road as Oxiana, spreading their profit base outside of just one or two commodities," he said, referring to fellow Australian miner Oxiana Resources Ltd. OXR.AX.