Miners are cash rich from record commodity prices

Under the terms of the deal, Rio Tinto, which is listed on both the London and Australian stock exchanges, will pay $101 for each Alcan share.

The deal comes a few months after Alcan rejected a $27bn hostile takeover bid from US miner Alcoa on the grounds that it undervalued the firm.

Alcoa said on Thursday evening that it would not return with a higher bid.

Its chairman and chief executive Alain Belda said that at the price Rio Tinto was paying, "we have more attractive options for delivering additional value to shareholders".

Record metal prices have prompted growing consolidation in the industry.

Rio Tinto's offer represents a premium of 65.5% to Alcan's all-time high closing share price of $61.03 on 4 May before Alcoa's unexpected bid.

That is going to put the rocket under a number of leading resource stocks, not just Rio, not just Alcan, but all the majors Ted Leschke, Shaw Stockbroking Rio Tinto's share price

"This transaction will enable Rio Tinto's shareholders to benefit from the favourable demand fundamentals of the aluminium sector and the synergies and enhanced development opportunities which the combination of our businesses will deliver," said Rio Tinto chief executive Tom Albanese.

'Vote of confidence'

Before the announcement, shares in Rio Tinto on the Australian exchange surged to record highs amid speculation that the world's second-largest mining firm was going to confirm the friendly takeover deal.

Its shares peaked at an all-time high of 105.19 Australian dollars before trading in its shares in Australia was halted pending the announcement.

The new company will be called Rio Tinto and have its headquarters in London. The group's aluminium business, however, will carry the name Rio Tinto Alcan, with headquarters in Montreal.

Alcan's current chief executive Dick Evans will lead the combined group.

Market observers viewed the deal as a vote of confidence that the cycle of consolidation has further to run.