June 23 (Bloomberg) -- Xstrata Plc’s move to merge with Anglo American Plc may spur other offers and reignite interest from Vale SA, more than a year after the Brazilian company ended talks to create the world’s largest mining group.

Xstrata’s proposed 21.7 billion-pound ($35.7 billion) “merger of equals,” which was rejected yesterday by London- based Anglo, seeks to combine coal, copper and zinc mines across Africa, Latin America and Australia. The bid may spur Vale into action, said mining analysts Nick Hatch at ING Groep NV in London and Paul Cliff at Nomura Securities Co. Ltd.

“We think Xstrata makes more sense for Vale than Anglo does,” Cliff said in a telephone interview in London. “Xstrata have said they want to participate in M&A, whether as predator or prey. The reality is that Xstrata have also put themselves in play with their approach.”

Xstrata’s proposal, the biggest transaction announced in Europe this year according to Bloomberg data, may spark consolidation among mining companies as they compete for access to resources while commodity demand rebounds. Vale raised 18.4 billion reais ($9.1 billion) in a July share sale, which Chief Executive Officer Roger Agnelli said would fund acquisitions and expanding existing projects.

Xstrata, Vale Gain

Anglo dropped 46 pence, or 2.7 percent, to close at 1,652 pence in London following its rejection of the approach after the market closed yesterday. That valued the company at 21.7 billion pounds. Xstrata rose 4.8 pence, or 0.8 percent, to 639.9 pence, valuing it at 18.8 billion pounds.

Vale gained 26 centavos, or 0.9 percent, to 30.19 reais in Sao Paulo trading, its biggest gain since June 10.

A Vale spokeswoman based in Rio de Janeiro, who declined to be named because of company policy, said the company “doesn’t comment on market rumor” when asked whether it’s considering an approach for Anglo or Xstrata. Claire Divver, a spokeswoman for Xstrata in London, and James Wyatt-Tilby, an Anglo spokesman, both declined to comment.

Vale Chief Financial Officer Fabio Barbosa said in April last year negotiations with Zug, Switzerland-based Xstrata were “dead.” The deal would have allowed Vale to leapfrog Melbourne-based BHP Billiton Ltd. to become the largest mining company and cut costs by combining adjacent nickel operations in Canada and the French-controlled island of New Caledonia.

Glencore Demands

Talks broke down because of demands from Glencore International AG, Xstrata’s biggest shareholder, Agnelli said in March last year.

Vale sold shares in July, before commodity prices tumbled as a global economic crisis curbed industrial metals demand. Metals have rebounded this year on speculation an economic recovery would see increasing consumption from emerging economies including China. Copper has risen 55 percent this year while nickel and zinc gained 24 percent.

Increasing commodity prices may fuel mining M&A. BHP made a hostile offer for London-based Rio Tinto Group, the world’s third-largest mining company by market capitalization, in February 2008, five months before copper and aluminum prices peaked in London.

“An ambitious Vale wishing to increase its geographic diversification is likely to be able to swallow either” Xstrata or Anglo, Hatch wrote yesterday in a note.

BHP-Rio Venture

BHP agreed earlier this month to pay Rio $5.8 billion to create an iron-ore joint venture between the two companies’ mines in Western Australia’s Pilbara regions. Rio also announced it would sell $15.2 billion in shares to help pay debt, the second-largest issue this year after HSBC Holdings Plc. Xstrata raised 4.1 billion pounds in a 2-for-1 rights offer in March. Anglo and ArcelorMittal, the world’s largest steelmaker, have raised funds this year selling bonds.

“There is now some regained confidence that the market has probably bottomed out,” Dominic O’Kane, an analyst with Liberum Capital Ltd., said by telephone from London. “M&A is back on the agenda.”

Xstrata CEO Mick Davis has led $27 billion of acquisitions in six years to add copper production in Chile, nickel mines in Canada, coal in Australia and platinum in South Africa.

Mining companies such as Xstrata are seeking growth to reach “critical mass,” which gives them bargaining power, said Craig Pheiffer, general manager of investments at Absa Asset Management Private Clients in Johannesburg.

Still, takeovers may fail to gain approval from shareholders or lose support as commodity prices decline. Xstrata abandoned a hostile bid for platinum producer Lonmin Plc in October after prices for the precious metal plunged.

“I don’t think that M&A in the mining sector has ever ended or will ever end,” said Tim Goldsmith, global mining leader for PricewaterhouseCoopers LLP based in Melbourne. “Mining is a wasting asset. To grow in the sector, you have got to explore or develop or acquire.”

To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net; Carli Lourens in Johannesburg at clourens@bloomberg.net

Last Updated: June 23, 2009 16:55 EDT