Xstrata bid for Lonmin to revive mining deals

By Eric Onstad - Analysis

LONDON (Reuters) - Xstrata's (XTA.L) $10 billion (5 billion pounds) swoop to buy Lonmin (LMI.L) is a vote of confidence in the prospects for platinum and other metals that may spur another wave of consolidation among miners.

Widespread gloom about weak global growth that has pounded platinum prices in recent weeks failed to put off Xstrata, which on Wednesday unveiled a cash offer for Lonmin, the world's third ranking producer of the precious metal.

"I think it's very important for the sector because it's a very good piece of evidence the industry itself thinks that, following this very substantial fall we've had, there's good value around," said analyst Asa Bridle of Seymour Pierce.

The mining index .FTNMX1770, which includes four of the top five major mining groups, has shed 30 percent of its value since touching a peak on May 19.

Xstrata, which has built a mining empire in a matter of a few years on a string of takeovers, is regarded as a shrewd operator and its latest move may prompt others to act.

It may tilt perceptions to regard current battered share prices as bargains rather than the start of a down cycle after successive years of bullish growth.

"Stronger for longer is still the name of the game," Xstrata Chief Executive Mick Davis told a conference call, expressing confidence that strong demand from China will keep underpinning commodity prices in coming years.

Anglo American (AAL.L), the only big mining group that has shied away major deals, could find itself the renewed target of merger speculation, analysts said.