BHP Billiton could buy Rio Tinto;analysts say

Shares in Rio Tinto PLC and BHP Billiton Ltd surged yesterday as a second investment bank supported the possibility that the mining giants could be the latest subjects in a market bursting with acquisition speculation, Associated Press reported.

An analyst at Citigroup published a note saying Australia's BHP, the world's biggest miner, could afford the more than $82 billion needed to take out its smaller, London-based rival Rio Tinto, the AP report said. Rio Tinto's strong cash flow could also make it an attractive target for private-equity firms, Citigroup analyst Clarke Wilkins said in the report dated Friday. " But we think BHP Billiton is a much more likely bidder given synergies and nationalistic control issue of Australian assets," the report said.

Rio Tinto's American Depositary Shares rose $8.36, or 3.2%, to $270.49 in early trading Monday on the New York Stock Exchange. The ADSs of BHP climbed 65 cents, or 1.3%, to $52.28, the report said. Merrill Lynch analyst Vicky Binns last week said in a report a private-equity tilt at BHP could deliver "attractive returns." Mining companies have previously been considered out of the realms of a buyout bid, given their unpredictable returns and large market capitalization.

"Private equity action has been very active globally -- with the notable exception of the mining sector," Binns and analyst Duncan Hay said in their report. "This could change quickly once the widely-held view that leverage buyouts are too risky in a cyclical industry is challenged, and private equity groups take advantage of the arbitrage between current commodity prices and market consensus. Then it could be Game On!"