“Most people see the merger as a polite way of saying ‘a takeover by Xstrata’,” he said of the proposal Xstrata has described as a “merger of equals”

Harrington said in broad terms it was going to be difficult to have a hostile takeover situation succeed as one of the major shareholders of Anglo American was the South African government.

He said Xstrata would early on in the process need to get the nod from the South African government, which would probably prefer to be involved with a heavily African-based company rather than a London-listed and Swiss-based miner.

“I think you would have to make an attractive deal. A merger makes it sound like Xstrata is not paying much of a premium here.”

Should Xstrata merge with or take over Anglo, the combined company would hold two-thirds of the massive Cerrejon open cut thermal coal mine in Colombia, which exported 31.36 million tonnes last year.

Xstrata’s South African thermal coal operations produced 22.7Mt last year while Anglo Coal’s operations in the country produce about 22Mt per annum for export and local markets and separately supply 40Mtpa to domestic consumers, with most going to power company Eskom.

Harrington views a possible Xstrata takeover of Anglo operations as a move that would secure most of the thermal coal supply to Europe.

“From a coal perspective, the most important aspect of it is the potential dominance that Xstrata would have in the Atlantic market for thermal coal.”

While the analyst said it was pretty early days, he added there had been speculation a major mining company would go for Anglo for many years, with Xstrata and Vale linked as candidates in the past.

A merger between Xstrata and Anglo would create Australia’s biggest coal producer, with estimates of capacity starting at 80Mtpa.