MINING groups Vale and Xstrata are inching towards a deal that will create the world’s largest mining group.

Senior banking sources said Vale was close to tabling an offer for Xstrata of £46 a share.

A deal at that price would value Xstrata at £44 billion. Xstrata shares closed the week at £40.

The sources said that while there was no certainty a deal would go through, there was a possibility of a conclusion being reached as soon as this week.

Vale plans to offer a combination of cash and its own shares. Glencore, the metals-trading group that is one of Xstrata’s main shareholders, is understood to be eager to take a greater proportion of shares in the merged company. This is a complication that could yet stall the deal.

Glencore is also said to be keen to secure marketing rights to the combined group’s nickel output.

Analysts say the greater the share element in the offer, the higher the bid price will have to be. Advisers to Vale last week sounded out hedge fund and other investors – including Blackrock and Marshall Wace – about a £46 offer, but some City institutions are holding out for closer to £50.

The combination of Vale, from Brazil, and Xstrata, an international group headquartered and listed in London, would create a powerful group with leading positions in iron ore, nickel, copper and coal. Iron-ore prices are set to jump 70% this year.

Analysts say there would be huge synergies created from combining the two companies. This is why Glencore wants to stay a significant investor, because it believes there is an opportunity for a big rerating.

It is unclear whether Mick Davis, Xstrata’s chief executive, will have a role in the combined company. Davis has built the company through a string of acquisitions and has been one of the most astute readers of the commodity cycle.

The Vale/Xstrata talks are part of a merger mania sweeping the mining sector. BHP Billiton, which will lose its crown as the world’s biggest miner if Vale and Xstrata combine, has launcheda hostile bid for Rio Tinto.

However, the takeover faces an uncertain future. The BHP offer has been rejected by Rio, and faces several competition inquiries before it can proceed.

Elsewhere there is a struggle for control of Norilsk Nickel, the Russian nickels group, between rival oligarchs.

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