Mining giant Xstrata and commodities trader Glencore International have announced they are in talks over a possible merger.
Xstrata shares jumped 10% as it said it had been approached by Glencore regarding a “merger of equals”.
Glencore shares rose 5.4% in London. The company has annual revenues of about $90bn (£56bn).
Earlier reports had suggested that a merger between the two would create a firm with a combined value of $80bn.
However, Xstrata – which has annual revenues of about $30bn – said in a statement that there was no certainty that any offer would be made.
Glencore now has until 1 March to make a formal offer under UK takeover rules.
BBC business editor Robert Peston summed up the deal as: “One trades, one digs, often in poorer countries.”
Charles Cooper, an analyst at Oriel Securities, noted that Glencore would have to offer a “pretty significant” premium for the deal to go through.
For Glenstrata the question is whether the rise in price and increases in demand for copper, iron and coal and all those other feedstocks of the still fast-growing Chinese economy can go on forever.”
This is because Xstrata currently has a bigger market valuation than Glencore, because Xstrata makes its profits from its lucrative mining operations rather than trading commodities.
Xstrata is currently worth about £36.5bn, whereas Glencore is worth £31.5bn.
“If the deal happens, Glencore would go from making its money primarily from its trading arm to a copper/coal company,” he told the BBC. “That would be broadly positive for Glencore’s shareholders.”
The histories of both firms are intertwined.
Glencore already has a 34% stake in Xstrata, which was formed in 2002 when it bought Glencore’s coal assets.
Xstrata mines copper in South America, zinc in Spain, and ferrochrome and vanadium in Australia and South Africa.
Glencore extracts, ships and refines raw materials from coal to corn.
Mr Cooper noted that any deal would probably not face regulatory hurdles – the combined company would still only be the world’s fourth-largest miner.
The Financial Times reported that a deal could be announced as soon as next week, before Xstrata’s annual results on Tuesday.
Glencore raised about £6.8bn in May last year when it floated its shares in London and Hong Kong.
The listing was London’s largest initial public offering.
Glencore is the world’s largest commodities trader, employing about 54,800 people in 30 countries. It made a profit of $3.3bn last year.
It trades metals and minerals, as well as energy and agricultural products, and has benefited from the recent growth in demand for commodities, especially from China.