Fitch cautious on mining merger

RATINGS agency Fitch said yesterday it would not raise its credit rating on a combined group made up of Anglo American and Xstrata, despite widespread approval from analysts.

Anglo, led by chief executive Cynthia Carroll, turned down Xstrata’s nil-premium “merger of equals” last week, slamming its “lack of strategic merit,” and saying the terms of the deal were “totally unacceptable”.

But industry experts backed the merger, welcoming the £1bn synergies Xstrata says it can make.

Combined, the companies would create a global mining group worth more than $40bn (£24bn).

But Fitch said both companies’ existing credit profiles were under pressure, and that it forecasts their operating performances will be weak over the next years, because commodity prices will be slow to recover.

It also raised concerns that a tie-up, if led by Xstrata boss Mick Davis, would be of a higher risk, because of Davis’ reputation for aggressive acquisitions.

Meanwhile, it is understood that Anglo has entered into talks with Dubai Natural Resources World about a partnership to develop its Brazilian iron ore assets. The talks come after discussions with unnamed Chinese groups.

Anglo is looking for a partner for its Brazilian assets, and is seeking to build its strength as it fends off the Xstrata bid.

Anglo is understood to be looking for around £2.1bn of investment to develop the MMX-Minas Rio project.

It bought the South American project last year, and is now studying plans to sell off part of its stake to raise the money it needs to start production there.