China may buy a stake in London-listed Xstrata in a move to block a Brazilian ore company from taking over the Swiss-UK copper and nickel producer, mining industry sources said yesterday.
City analysts said the potential Chinese move is designed to cool the merger frenzy in the metals and mining sector. Melbourne-based BHP Billiton is trying to take over rival Rio Tinto and there has been speculation of other possible mergers.
The Chinese may buy a major stake in Xstrata after they teamed up with the US aluminium group Alcoa on Friday to purchase a 9% holding in Rio Tinto.
The state's China Development Bank, which also reached a deal yesterday to work on developing new mines with South African-based Anglo American, is concerned that a headlong rush to forge a few gigantic mining groups would further boost commodity prices for China, the biggest buyer of metals, analysts said.
"China has a strong interest in preserving a diversified and competitive mining industry," Sempra analyst John Kemp said in a note.
"Senior leaders are clearly worried about the industry's rapid consolidation, and the risk it will tilt the balance of market power even further in the direction of a handful of mining majors."
The China Development Bank is believed to have held talks with Swiss commodities trader Glencore about possibly buying its 34.6% stake in Xstrata worth $14bn (£7.1bn).
Several investors from Asia, Europe and South America have approached Glencore about buying its stake in Xstrata.
Anyone buying Glencore's major holding in Xstrata could block a possible takeover of Xstrata by Brazil's Vale, which has said it was considering such a move.
Controlling shareholders of Vale, the world's biggest iron ore producer, last week approved a study of a takeover bid for Xstrata to see if its viable.
Meanwhile, Vale has dropped Merrill Lynch as one of its two lead advisers after the bank chose not to help finance its $90bn bid for Xstrata.
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