Xstrata confirmed talks about an all-share union which, based on current market values, would create a London-listed entity worth £68 billion ($107.6 billion).

"Xstrata plc confirms that it has received an approach from and is in discussions with Glencore International plc regarding an all-share merger of equals which may or may not lead to an offer being made by Glencore for Xstrata," it said Thursday, Feb. 2. "There can be no certainty that any offer will be made."

Shares in Xstrata, of Zug, Switzerland, were up 97.5 pence, or 8.7%, in early trading in London at 1,217 pence, valuing its equity at £36.6 billion.

Glencore, of Baar, Switzerland, rose 20.75 pence, or 4.8%, to 452.50 pence, for a market value of £31.4 billion.

The talks center on arguably the most significant mining-sector transaction since BHP Billiton Ltd.'s year-long attempt to buy Rio Tinto Group for around $135 billion, which ended in November 2008. Xstrata then in October 2009 pulled an unsolicited, $90 billion-plus "merger of equals" proposal for Anglo American plc, while in November 2010 BHP Billiton's attempt to buy fertilizers maker Potash Corp. of Saskatchewan for $39 billion hit a Canadian government roadblock.

A Glencore/Xstrata merger looks less problematic given the companies' shared history and Glencore's large shareholding.

The two sides have been expected to merge for several years, having parted company in March 2002 when Xstrata, led by CEO Mick Davis, bought South African and Australian mining assets from Glencore for $2.5 billion and simultaneously held a London and Hong Kong initial public offering.

Merger expectations increased when Glencore shed its partnership structure by holding an IPO in London and Hong Kong last May.

Glencore sold shares in London, the location of its primary listing, at 530 pence. Glencore is 15.7%-owned by CEO Ivan Glasenberg.

BlackRock Inc. is Xstrata's No. 2 shareholder after Glencore, with 5.98%, according to Xstrata's website.

In March 2008 Xstrata rebuffed a proposal from the larger Cia. Vale do Rio Doce of Brazil, mainly because of Glencore's opposition.

It's not clear who Glencore and Xstrata have lined up for advice, though Glencore's law firm is Linklaters LLP and Morgan Stanley and Citigroup Inc. had lead roles in Glencore's own IPO last May, with Credit Suisse Group assisting. A Deutsche Bank AG team including Brett Olsher is a regular adviser to Xstrata plc, whose law firms include Freshfields Bruckhaus Deringer LLP.

Xstrata has also turned to J.P. Morgan & Co. for M&A advice in the recent past.

Both Deutsche Bank and J.P. Morgan are corporate brokers to Xstrata and all four banks - Citi and Morgan for Glencore; and Deutsche Bank and J.P. Morgan for Xstrata - were reported to have been working on a similar merger of the two companies two years ago.

At the time, Goldman, Sachs & Co. was also said to have had a role assisting Glencore, while Credit Suisse Group was also rumoured to be involved.

The advisers either declined to comment or could not immediately be reached.