Xstrata seeks merger with Anglo

By Eric Onstad and Kate Holton

LONDON (Reuters) - Xstrata wants talks with mining rival Anglo American about a proposed merger of equals worth about $68 billion (41.1 billion pounds), seeking increased scale and cost synergies, Xstrata said on Sunday.

Anglo is likely to resist the attempt by Xstrata to forge a larger mining group better able to compete with bigger competitors BHP Billiton, Vale and Rio Tinto, a source close to the situation said.

Xstrata, which has a market value of $33 billion, said in a statement it recently sent a proposal to Anglo, worth $35 billion.

The approach by Xstrata, which has regarded Anglo an attractive partner for several years, comes after sector No. 1 BHP agreed on June 5 to combine its Australian iron ore operations with those of Rio in a joint venture.

BHP has a market value of $144 billion, Vale is worth $93 billion and Rio $74 billion.

"Xstrata is seeking to engage with the board of Anglo American regarding a merger of equals that would realise significant value for both companies' shareholders," Xstrata said in a statement.

"The combination would create a premier portfolio of operations diversified across multiple commodities and geographies, with enhanced scale and financial flexibility to fund future growth."

Anglo said in a statement the situation was at a very preliminary stage, but declined to give further details.