Xstrata chief executive Mick Davis says the bid is a fair one

Xstrata, which is listed on the London stock market, offered Aus $6.35 a share for WMC, to be funded through debt.

WMC said the offer "failed to recognise" its current and potential future value but said that it would be willing to consider a higher offer.

A deal would create a diversified mining business with an annual turnover of more than $7.5bn.

Further discussions?

WMC said it had decided not to put the proposal to its shareholders but indicated that it was willing to have further discussions with the Swiss firm.

"Any material improvement in Xstrata's proposal would be given due consideration," WMC said in a statement.

Investors reacted nervously to Xstrata's interest in WMC, sending the firm's shares down 59p, or 6.5%, to 839p.

Xstrata is a market leader in the mining of copper, coal, zinc, chrome and vanadium.

The combination of these two businesses would create a world-class diversified mining group Mick Davis, Xstrata

WMC specialises in the production of nickel, copper, uranium oxide and phosphate fertilizer.

Greater scale

Xstrata said its offer - which values WMC at a premium of 29% to its closing share price on 26 October - was fair.

"Our offer price fully reflects the value of WMC in the current high commodity price environment," said Xstrata's chief executive Mick Davis.

"The combination of these two businesses would create a world-class diversified mining group, with greater scale to compete across global markets and excellent growth potential."

Xstrata bought another Australian company, MIM Holdings, for $3bn in 2003.