New empire may look to expand

A formal offer from Glencore is likely to emerge within 26 days - and perhaps as early as next week - after the two companies confirmed that merger talks were under way.

If successful, the merged entity would rely on Australian mines for 33 per cent of its revenue, according to an analysis by UBS.

The merged company would also have 28 per cent of its assets housed in Australia, meaning that thousands of local jobs are potentially affected by the talks that are under way in Europe. Most of those jobs are in Queensland and NSW, where Xstrata has 17 coal mines at present.

Staff at Xstrata coal mines in NSW were given information briefers clarifying the merger situation upon arrival at work yesterday.

While the merger is estimated to create close to $US1 billion worth of cost savings and "synergies", there was no indication yesterday that Australian jobs were at risk. Mid-tier local coal companies, however, could be vulnerable, with the new entity expected to be hot on the acquisition trail in the years ahead.

One analyst said Xstrata's chief executive, Mick Davis, was known to be keen on acquisitions but had been constrained by his company's underperforming share price in recent times.

Xstrata's London-listed shares have fallen 20.2 per cent over the past year, while BHP and Rio Tinto's London-listed shares had fallen by 12.7 per cent and 9.9 per cent respectively over the same period.

The analyst said Mr Davis could renew his acquisitive mood if he stayed on with the new entity. "It would give him a bigger platform and he'd probably reinvigorate some of his M&A aspirations," he said. But a CLSA analyst, James Stewart, said the merger was unlikely to send the share prices of Australian coal stocks soaring, as a busy period of mergers and acquisitions in the sector meant most stocks already had a takeover premium built into their price.