GLENCORE AND Xstrata have launched merger talks to create an $88 billion commodities trading and mining giant with the financial muscle to sweep up some of its biggest rivals.

The all-share merger, which could be formally announced as soon as Tuesday, would upturn the global natural resources industry by combining the world’s largest trading house with one of the biggest miners.

The merger plan marks the culmination of a five-year push to combine the two companies by Ivan Glasenberg, the South African billionaire who runs Glencore.

The deal comes less than a year after the trading house floated, raising $10 billion and turning its top executives into billionaires overnight.

The merger would shake up the mining sector in a similar fashion to the multibillion-dollar combination of BHP and Billiton in 2001 that triggered a decade of consolidation in the industry. The combined company would be the world’s fourth largest mining group by market capitalisation, behind BHP Billiton, Vale of Brazil and Rio Tinto.

“This is the deal the whole market has been waiting for,” said Christopher LaFemina, mining analyst at Jefferies bank.

Observers said the merger would in the medium term give “Glenxstra” the financial firepower to bid for rivals, such as Anglo American and ENRC, or oil and agriculture groups.

“The deal would give both companies the fire-power to go big,” said a source familiar with the merger discussions. “The companies would be able to do any deal they want.”

In order to overcome resistance from Xstrata, Mr Glasenberg is prepared to accept the role of deputy chief executive of the combined entity, with Mick Davis, his counterpart at Xstrata, becoming the new chief executive, people familiar with the talks said.

Both men have reputations as uncompromising executives who have gone from being school friends in South Africa to formidable business rivals.

The stock market welcomed the deal, with both companies’ share prices rising strongly. Xstrata spiked 9.9 per cent, while Glencore rose 6.9 per cent. – Copyright The Financial Times Limited 2012