Resource-rich Brazil is in the crosshairs of world mining giants as they race to uncover new deposits to feed red-hot demand for metals from fast-growing economies such as China.

Analysts say the possible mining sector takeover of Rio Tinto by BHP Billiton would boost competition for CVRD on its home turf in Brazil, where some of the world’s richest iron ore reserves are located.

Brazil-based mining sector consultants said on Monday such a tie-up was good for new projects and unlikely to trigger antitrust restrictions in the world’s second-largest iron ore exporting country after Australia. CVRD, in its turn, is the world’s No. 1 iron ore exporting firm.

BHP, the world’s biggest mining house, mapped out its plan on Monday to acquire rival Rio Tinto, signalling it was ready for a long fight despite Rio Tinto’s rejection last week of its $140 billion takeover proposal as too low.

Both Rio Tinto and BHP Billiton are expanding or seeking to expand their iron ore operations in Brazil.

“A merger of this magnitude could open up an enormous portfolio of possibilities and the search for synergies,” said Cyro Cunha Melo Filho of PriceWaterhouseCoopers.

“We believe Brazil could become a priority area for investments by these companies should they merge, in the search for new development areas,” he said.

Rio Tinto and BHP officials in Brazil were not available for comment, while CVRD officials refused to comment on the bid. Few analysts believe CVRD may try to buy Rio Tinto.

Market sources also noted the potential merger could boost new joint investments in Brazil in preference to Australia, where the two companies’ iron ore output is now focused, due to Australia’s declining iron ore reserves.

Eduardo Vale of mining consultancy Bamburra said that iron ore mining in Brazil by companies other than CVRD has in recent years suffered due to lack of scale and fragmentation.

“However, new projects are now becoming viable thanks to higher iron ore prices. There is room for growth,” he said, referring to the recent entry of new players in Brazil’s iron ore mining scene, including MMX, Mhag Mineracao, London Mining and steelmaker Cia Siderurgica Nacional

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“And we could be in for more surprises yet,” Vale said.

BHP Billiton is a joint venture partner with CVRD in Brazil’s Samarco iron ore mining and pelletizing concern, which is due to start up a third 7.6 million tonnes a year pelletizing plant in the Espirito Santo state next March.

Samarco’s capacity will then rise to 21.6 million tonnes per year of pellets, mainly for export, and a further pelletizing capacity expansion may be considered if demand continues strong, according to company officials.

Consultant Jose Mendo of J.Mendo Consultoria added that BHP Billiton is “making considerable efforts to open new (iron ore) mining fronts in Brazil”. It is prospecting for iron ore in Bahia and Minas Gerais states, but none of these prospects has yet reached the development stage, the consultants said.

Rio Tinto Brasil’s commercial director Eduardo Rodrigues recently confirmed the company will expand its iron ore mine Mineracao Corumbaense in Corumba, west Brazil, from 2 million tonnes per year to 10 million tonnes per year. It is also seeking partners for a steelmaking project there, he said.

But CVRD is still streets ahead with its iron ore output slated to reach 300 million tonnes in 2007 and to grow to 450 million tonnes a year by 2012.

Australia’s declining iron ore reserves are another potential booster to competition in Brazil. Australian mineral research institute CSIRO plans to spend nearly $90 million in 2007-08 on technology that may help reverse the decline.

“The country’s declining ore grades are increasing our overseas export competition,” said CSIRO Director Peter Lilly.

China, the world’s biggest iron ore importer, sourced 38 percent of its import requirement from Australia, 24 percent from Brazil and 23 percent from India in January-July of this year, according to data from Goldman Sachs JBWere.

But analysts say Brazil’s market share in China may grow as new high-grade mine capacity in Brazil comes on-stream.

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