In commenting on yet another report - this time from London's Financial Times - that Vale (formerly CVRD) is in discussion with merchant bankers Lehman Bros on a possible bid for Xstrata, Fairfax analyst John Myer sees a very good fit between the two organisations which would tie in well with Vale's stated expansion plans and give it "substantial new project growth across Latin America.".
"The deal would also add zinc smelting in Spain, Falconbridge's nickel business in North America and a very substantial coal business in Australia which might make a good disposal in time. CVRD acquired Inco last year for $17.4 billion while Xstrata acquired Falconbridge for over C$24 billion.
Putting the two principally nickel businesses together might cause some regulatory issues in North America and could lead to the disposal of some higher-cost nickel production. The combined business would leapfrog in terms of nickel production and could create a dramatic tightening of the nickel market." says Meyer in a client note today.
Meyer also notes that BHP may be having problems in the current credit market to raise around US$70 billion which it may need to help finance a definitive bid for Rio Tinto. "It seems unfortunate for ambitious borrowers that a restriction of credit might hold back their plans but repayment of a $70 billion facility would require significant disposals and the continuation of near peak earnings for some years to come to reduce this level of debt to more prudent levels."
While a sale of its successful oil and gas division could raise much of this sum, Meyer notes though that this division is what sets BHP apart from its peers and a disposal would probably not find favour with the organisation's shareholders.
He also points to stories that Anglo American is in deliberation mode regarding a possible major acquisition and feels perhaps that Alcoa or Freeport may be in Anglo's sights.
Both would make sense for Anglo which is now primarily a base metals company - and would put it back into the incredibly rich Tenke Fungurume copper/cobalt project, which was abandoned by Anglo group company Charter Consolidated many years ago as the Congo was self-destructing, as well as the huge Grasberg copper and gold operation in Indonesia among others.
With Anglo's new CEO, Cynthia Carroll having come out of Alcan, which is now in the Rio Tinto fold, Alcan's major rival - the larger Alcoa - would probably also make a tempting target. It would certainly be a business with which she would be very familiar.
But following the BHP announcement that it would like to take over Rio, suggesting that anything is possible in the merger stakes at the top end of the international mining sector, acquisition rumours and scenarios abound and the stakes are high as the major companies jockey for position. Whether any of these bids will actually materialise, or be successful, time will tell. Meanwhile stock traders, if not long term investors, can probably be assured of plenty of volatility in the sector over the next few months or years as bids are rumoured, implemented or succeed or end in failure.