THE Brazilian mining giant Vale has taken a decisive step towards a bid for rival Xstrata by lining up a $50 billion (£25 billion) financing package from a powerful group of global banks.

Fabio Barbosa, Vale’s finance chief, flew to London last week and met up to 12 banks. HSBC is leading a consortium thought to include Santander, BNP Paribas, Lehman Brothers, Credit Suisse and Citigroup.

Meanwhile, Vale’s chief executive, Roger Agnelli, met Luiz Inácio “Lula” da Silva, the president of Brazil, to get the final go-ahead. The government controls nearly 53% of Vale’s stock. Agnelli is thought to have flown to London on Friday to help push the deal forward.

Vale – formerly CVRD (Companhia Vale do Rio Doce) - is the world’s largest mining group after BHP Billiton.

BHP is planning a bid for rival Rio Tinto, and Vale is keen to match it with a move on Xstrata. If both deals materialise, two mining titans will be created, each with large global positions in crucial resources, including iron ore, copper, coal and aluminium.

Their concentration of market power has caused consternation in China, which relies on imported materials to fuel its economic growth.

Under a deadline imposed by City regulators, BHP has until February 6 to make a formal bid or walk away. Rio has rejected the current BHP approach, which values it at about £70 billion, as too low.

Tom Albanese, chief executive of Rio Tinto, was in Beijing this weekend to discuss the situation with Wen Jiabao, China’s prime minister.

Albanese also met the heads of Baosteel, China’s biggest steel-maker, and major Chinese state banks. It is understood Albanese was invited to make the trip by the Chinese, who have in the past expressed their reservations about a tie-up between BHP and Rio. A combined company would control nearly 40% of China’s iron-ore imports.

One source close to the Vale-Xstrata talks said: “There is a real sense of urgency in Vale, particularly to get the financing organised in case markets get worse.

“There is also an added incentive to try to organise financing before the deadline for BHP to bid for Rio Tinto on February 6, again just in case the banks are tied up.”

Vale, which is being advised by Lehman, has been working on due diligence for several weeks.

On Monday, Vale confirmed that it had held discussions with Xstrata’s management, other mining companies and investment banks about possible opportunities and support for “growth initiatives”. Xstrata is advised by JP Morgan Cazenove.

Insiders said that an offer of between $42 per share and $44 was contemplated, valuing Xstrata at $42 billion.

It is likely to be a cash-and-paper deal, with key Xstrata shareholder Glencore International taking on the majority of shares offered in return for its stake of almost 35% in Xstrata.

Sources close to Glencore said senior directors had had exploratory talks to sell its stake in Xstrata with others, including Russia’s Rusal and the Chinese. Meanwhile, bankers acting for Xstrata have considered merger options with others, notably Anglo American, but are thought to believe a deal with Vale is the best option.

But some sources close to Vale cautioned that the Brazilian political establishment still posed a serious threat to the deal.

One said: “The company advisers are being told to get on with it, but in Brazil there are big hurdles. The government is under pressure to ensure Vale stays Brazilian and also that the jobs are protected.”

The mining industry has seen a frenzy of deals in the past year. Swiss-based Xstrata has gobbled up Canada’s Falconbridge for $20 billion and Vale acquired Inco in a $17 billion deal. Freeport bid $26 billion for Phelps Dodge to form the world’s largest copper miner, while Russia’s Norilsk Nickel elbowed Xstrata out to buy Canada’s Lionore.

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