Anglo American, Xstrata mull merger

Shares in mining company Anglo American PLC jumped nearly 5 percent on Monday after Anglo-Swiss rival Xstrata PLC made a preliminary approach seeking a merger. Xstrata's shares dropped almost 7 percent.

Anglo American confirmed the move made by Xstrata over the weekend, saying the "situation is at a very preliminary stage and there is no certainty that a transaction will be forthcoming."

Xstrata, which last year failed in a bid to take over another rival, Lonmin PLC, said on Sunday that a merger of the two companies was "highly compelling" and would lead to substantial cost savings.

Bringing the two companies together would create a group worth $68 billion based on Friday's closing share prices, ranking the combined company behind BHP Billiton and Rio Tinto.

Mining companies have been hit by a slump in demand in recent months, leading Xstrata to make last year's hostile 5 billion pound ($8.9 billion) takeover approach for Lonmin.

After fighting off the bid, Lonmin announced plans to suspend some of its mining operations and reduce its work force to adapt to a drop in demand for platinum caused by a downturn in sales of jewelry and cars.

Anglo owns South Africa's Anglo Platinum, the world's largest platinum producer. Xstrata is the world's largest exporter of coal for power stations.

"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," Xstrata said in a statement on Sunday.

Anglo American shares closed up 4.6 percent at 1,698 pence ($27.75), while Xstrata's stock dropped 6.7 percent to 635.10 pence on the London Stock Exchange.