Xstrata today admitted it is in talks with a potential suitor, which could conclude in an offer for the world's fifth largest minng group.

Xstrata, which has been linked recently with the Companhia Vale do Rio, the Brazilian giant, said that it was in very preliminary discussions with a number of parties, but so far no proposal has resulted from the early conversations.

The company said: "Xstrata confirms that its ongoing interaction with other industry participants includes dialogue with a number of parties covering a range of topics of mutual interest such as industry consolidation."

Shares in Xstrata lost 78p, falling to £36.60 in early trading.

Meanwhile, BHP Billiton said today that it is considering possible next steps, including continuing discussions with shareholders in its attempt to persuade Rio Tinto's board to engage in talks about a £70 billion merger.

BHP repeated its view that a merger between the two companies would unlock substantial value and was logical and compelling. BHP's shares fell by 40p to £16.32 this morning.

The Australian-based mining group, led by Marius Kloppers, will brief analysts in London this morning, two days after Rio Tinto, its target, said that it would appeal to the Takeover Panel to order BHP to "put up or shut up".

A spokesman for BHP said that the company had been contacted by the Takeover Panel but it had yet to submit its response. He added that its proposal needed to be considered in terms of relative values, rather than absolute values.

In a statement, Mr Kloppers argued that a merger between the two companies was in the interests of both sets of shareholders. He told analysts: "It’s a little mystifying to us that we are unable to talk about a transaction.”

Mr Kloppers dismissed Rio Tinto's claims that the proposal undervalued Rio and its prospects. He said: "This statement is clearly at odds with the market's assessment of the relative value of the two companies before our announcement and with the material and sustained relative outperformance by BHP Billiton since the formation of the BHP Billiton DLC in 2001."

In outlining the relative superior value of BHP, Mr Kloppers said that BHP’s market capitalization has grown at an annual compound rate of 37 per cent since the company's formation in 2001, compared with Rio’s 29 per cent growth rate.

BHP's production growth per annum, at 8 per cent a year, has also exceeded Rio Tinto's at 4 per cent a year.

He said: "Just as BHP Billiton undertook a range of timely initiatives to establish our outperformance, so it has also taken the initiative to propose a combination of these two companies.

"Our proposal would unlock material additional value and enhance the future prospects of the combined company to continue our strong performance in relation to other resource companies, for the benefits of both shareholders."

Rio Tinto said that it saw "nothing new" in BHP's comments. Its shares fell 2.7 per cent to £55.23 in early trading.

BHP's renewed push for Rio Tinto comes after the London-based company's repeated attempts to dismiss the proposal and its determined refusal to engage in talks with its rival mining group.

Last week Tom Albanese, Rio's chief executive, said that the proposed merger was "dead in the water".

If the Takeover Panel steps in to arbitrate between the two companies, it is likely to demand that BHP makes a firm offer within six to eight weeks or walks away from Rio.

Once the Takeover Panel's window expires, BHP will be restricted from bidding again for Rio for six months — although it can insist on conditions to the withdrawal, which would allow it to make another bid if, for instance, another potential suitor made an approach to Rio.

If a merger between BHP and Rio went ahead it would be the second-biggest corporate takeover after Vodafone’s $203 billion buyout of Mannesmann in 2000. UBS has said that BHP could afford to put a further $27 billion in cash into the offer on top of a promised $30 billion share buyback.

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