Rio Tinto Ltd/Plc's rejection of a $140 billion all-share offer from BHP Billiton Ltd/Plc is likely to trigger rival bids from resource companies awash with cash from record commodity and stock prices.
A marriage of BHP and Rio would create the world's biggest mining force, capable of controlling the global flow of fleet loads of iron ore, copper, coal and other commodities for industrial use.
Analysts said BHP Billiton's approach may be just the first shot in a battle that could draw in other parties and push up the bidding for Rio above $170 billion.
A host of interested parties, from Chinese oil companies to Siberian nickel miners, have the potential to launch rival offers after massive stock market floats have brought companies excess funds, supplying the capital needed to finance a bid.
If you put together a consortium of Chinese, they could be out there, as well as the Russians, given there's a lot of oil money being generated, said Shaw Stockbroking analyst John Colnan.
Global mining leader BHP said on Thursday it had approached third-ranked Rio with a 3-for-1 share offer, but Rio was quick to rebuff the offer as too low.
The BHP offer was initially pitched at a 14.4 percent premium. Rio shares gained nearly 16 percent to A$130.90 in Australian trade, while BHP fell 1.8 percent, putting Rio about 3 percent above the indicative offer price.
Rio would not say whether it had received other approaches, although analysts said the company's broad range of operations and healthy profit outlook made it an attractive target.
The Rio board was open to other offers and a higher BHP bid, said a source familiar with the deal, who asked not to be named.
Only hours earlier, Rio had mopped up the last of the shares in Canadian aluminum maker Alcan, which it acquired for $38.1 billion after trumping an offer by Alcoa Inc.
Credit ratings agency Moody's said it may put BHP's rating under review for a possible downgrade if a formal offer is made for Rio, reflecting uncertainties about integration risk, regulatory restrictions and financial policies.
The global mining boom means both companies are generating piles of cash, with BHP Billiton expected to post 2007/08 net profit of $15.7 billion, while Rio is expected to post profit of about $7.6 billion.
At current prices, Rio trades at a forward earnings multiple of 17.6 times, and BHP at about 14.3 times.
BHP has not said how it would address potential anti-trust issues, particularly in iron ore where the two companies command 30-35 percent of the seaborne market, say analysts. BHP and Rio mine a combined 277 million tonnes a year and are expanding rapidly. Only Brazil's CVRD mines more.
However, Rio's acquisition of Australian and Canadian iron ore miner North in 2000 raised few alarms with regulators.
Given neither BHP nor Rio sells much into the highly regulated U.S. and European markets, Tim Barker of BT Financial Group said he doesn't see any anti-trust issues.
The scarcity and the difficulty of bringing on new projects, sourcing people, makes these sorts of consolidations attractive, said Denis Donohue, senior portfolio manager of Suncorp Metway Investment Management, which owns shares in BHP and Rio Tinto.
Rio's rich iron ore, coal and copper mines, as well as its ranking as the world's top aluminum maker, would offer diversification from oil for China's PetroChina, which has a market value exceeding that of Exxon Mobil Corp and Royal Dutch Shell Plc combined.
One possibility would be Chinese sovereign funds taking a blocking stake in Rio Tinto, said FW Holst analyst Rob Craigie.
In Russia, the world's biggest nickel miner Norilsk Nickel has said it will look overseas for more assets after completing the largest foreign acquisition by a Russian company.
Norilsk already explores with Rio Tinto in the Russian Far East and with BHP in northwest Russia and western Siberia.
BHP, which merged with Billiton in 2001, almost went bankrupt in the late 1990s after a disastrous foray into copper mining in the United States, which raised the company's penchant for spreading its commodity base far and wide.
Rio is also a combination of a merger, in 1997.
British-based Rio Tinto Co was formed in 1873 to mine ancient copper workings at Rio Tinto near Huelva in Spain. In Australia, Consolidated Zinc was incorporated in 1905 to treat zinc bearing mine waste from the outback.