Rio Tinto has told shareholders a deal with BHP Billiton to create a £150 billion mining giant could be possible if the current offer is improved.

Rio’s management has been telling shareholders why it believes the existing BHP offer, worth £62 billion, undervalues the company.

According to shareholders, Rio’s management is not ruling out the prospect of a merger with its Anglo-Australian rival but it is holding out for a better deal.

“They said nothing about ruling themselves out of a deal with BHP,” one shareholder said, “but it will take another offer from BHP and then we will get discussions.”

The world’s sixth-largest steelmaker, Tata of India, said the proposed merger would not be damaging to its business.

Chinese, European, Korean and Japanese steelmakers have all expressed concern that a BHP-Rio deal would lead to an increase in the price of iron ore. Jointly, BHP and Rio would control about 36 per cent of the world’s iron ore reserves.

B. Muthuraman, Tata Steel’s managing director, said: “It is a natural thing to happen. It is good for the commodity industry, which has had serious cycles over the past 25-50 years. It is time, I think, that the steel industry as well as the commodity industry consolidate assets.”

Backing from Tata, which bought Anglo-Dutch steelmaker Corus earlier this year, will be a boost to BHP’s campaign to win support for the deal.

However, analysts pointed out that India’s steel companies are less reliant on imported iron ore than other Asian countries and the steel producers could still try to derail the bid.

China’s opposition to the deal has led to speculation that it could take a blocking stake in Rio to maintain a broader supply base. BHP and Rio provide much of the raw materials that are being used to fuel the Chinese economic boom.

Tom Albanese, Rio’s chief executive, outlined the company’s growth prospects to shareholders this week. He said the three-for-one share offer from BHP would destroy value for Rio investors.

Ray Chantry, an analyst with Baillieu Research in Australia, said yesterday: “The CEO of Rio Tinto is on a whistle-stop tour visiting major shareholders of both companies with a clear message that the initial approach . . . was totally inadequate.”

BHP appears to be waiting Rio out, hoping that shareholders put pressure on the company to begin talks.

A two-day BHP board meeting in Australia ended yesterday with no indication from the company that it would change strategy or increase its offer.

Lodestone

— Rio Tinto’s share price has risen 34 per cent to £56.40 since BHP Billiton’s interest became known three weeks ago

—BHP’s three-for-one share offer values Rio at about £62 billion but analysts predict that the price may need to go over £70 billion before Rio is willing to discuss a takeover

—Rio Tinto’s share of the global iron ore market is 22 per cent, BHP has 14 per cent and the Brazilian miner CVRD has 38 per cent

—BHP had a turnover of $47.4 billion in 2006/07 and posttax profits of $13.4 billion. Rio’s 2006 revenue was $25.5 billion and net profit was $7.4 billion

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