iron ore creates takeover targets

You can't tell me that ARH isn't coming under the radar with the huge reserves at the Pilbara's jewel in the crown site at Balmoral.

Speculation that BHP Billiton would make a play for Rio Tinto has been around for months, and the bid has confirmed what analysts like Mr Heffernan have been thinking: that high demand for commodities will make mining companies juicy targets for corporate takeovers.

"The interest is there, Rio has said no at this stage; it's a cat and mouse game in this sort of environment, I think," he said.

"But look, really with the huge demand for the things that Rio produces, like iron ore by countries like China and South East Asia and other developing economies, the demand for resources is just going to keep growing apace, as I see it.

"And so well-credentialled resources stocks like Rio, for example, are going to be frontline of any merger and acquisition activity that might take place over the next few years."

BHP Billiton isn't taking the rejection lying down. In a statement, it says it intends to discuss its proposal with Rio Tinto. But analysts say BHP may have to increase its bid, given the share price bounce it has created.

Peter Richardson is a commodities strategist from Creighton Capital. He says BHP is not likely to give up the chase, and as the world's biggest miner, its power in the industry could see off other competitors interested in Rio Tinto.

"Obviously in the past there's been suggestions that Xstrata or even Anglo American might be interested," he said.

"And it is a feature of particularly contested bids in the mining sector recently that we have seen an initial approach put companies in play which do not necessarily result in the initial bidder ending up as the final victor.

"But there would be a hard act to see off, I think, BHP, given its firepower in financial te