Mumbai: Mining giants Companhia Vale do Rio Doce (Vale) of Brazil and Xstrata Plc of Switzerland are in talks, aiming to emerge as a new metals and mining behemoth, reports citing regulatory filings said.

A combination of Vale and Xstrata, which took over Canada's major nickel producers Inco and Falconbridge respectively, is expected to bring enough clout to face the challenges posed by other resource sector giants amidst a sell-off in global markets caused by fears of a US economic recession.

In a statement issued to the Brazilian stock market regulator, Vale confirmed that it was in talks with Xstrata about a potential takeover, but said the discussions had not produced any material results.

Vale issued the clarification after local newspaper reports said it was considering a potential takeover of Xstrata that could be worth $90-billion.
 
A successful deal would create the world's largest nickel producer and save nearly $500-million in annual costs.

Vale, which is looking for its largest acquisition yet, is also likely to make a deal with Xstrata to acquire aluminium assets once controlled by Canada's Alcan.

Vale, which is targeting to overtake BHP Billiton Ltd. and become the world's largest mining company, has its eye on other major acquisitions as well.

Vale, which lost out to Rio Tinto Plc in the $38-billion all-cash bid for aluminum producer Alcan, is looking for a second chance to acquire Alcan's assets. (See: US antitrust regulator approves Rio Tinto's acquisition of Alcan)

Mining major BHP had in November approached Rio Tinto with an unsolicited $130-billion takeover bid. If BHP follows through with a winning offer for Rio Tinto, it would have to sell some or all of the Alcan assets to address antitrust concerns.

In that case, Vale is likely to be back in the fray for Alcan.

Vale, based in Rio de Janeiro, is already the world's largest iron ore miner and second-biggest nickel producer.

Vale took over Inco last year for $19-billion, while Xstrata seized control of Falconbridge, Inco's local rival in Sudbury, for $24-billion. (See: Xstrata in fray for Falconbridge - outbids Inco)

Xstrata is said to have held talks with both Vale and British mining major Anglo-American PLC before the Christmas holidays.

A deal with Vale, however, would need the support of Xstrata's largest shareholder, Swiss metals trader Glencore International AG, which owns a 35-per-cent stake. Xstrata delivers all of its nickel to Glencore, which then sells the metal.

Another constraint is that Vale would have to address Brazilian government so-called "golden shares" rules that aims to protect a company from unwanted takeovers.