Brazilian mining giant Vale SA (VALE) dismissed as speculation talk that it may be on the acquisition prowl, even as other big players hash out deals that could reduce Vale's clout in the sector.

The chief executive of the world's largest producer and exporter of iron ore said Thursday his company is closely watching the consolidation that is beginning to take shape.

"A lot of companies want to buy, and a lot of companies want to be bought," said Roger Agnelli, adding that Vale was simply watching the scenario "calmly and patiently."

He said Vale was not interested in making a play for its one-time target Xstrata PLC (XTA.LN) or Anglo American PLC (AAUK), instead focusing on organic projects and resolving the ongoing dispute with China over iron ore prices.

Closely watching from the sidelines and playing the waiting game, however, could leave the iron ore powerhouse out in the cold, industry experts said.

Xstrata's play for Anglo American and an iron ore joint venture in the works between Rio Tinto PLC (RTP) and BHP Billiton Ltd. (BHP) could mean Vale would be left with crumbs at the mergers and acquisitions table if it doesn't get in on the deal-making.

"The greatest consolidation opportunities are vanishing, and if the BHP-Rio Tinto deal is completed, and there's a possible new bid by Xstrata for Anglo, then these will be too big for a takeover by Vale," the Rio de Janeiro-based Ativa brokerage said in a report this week. The result could be Vale losing its relative strength compared to its competitors, Ativa said.

The time may never be better for Vale to duke it out with its mining rivals. The company was sitting on $12.2 billion in cash at the end of the first quarter, with total debt at only 1.0 times earnings before interest, taxes, depreciation and amortization.

Vale's balance sheet is in such good shape in no small part thanks to its failed bid for Xstrata last year, when acquisition price tags were far higher than they are today. The deal would have cost Vale in excess of $80 billion at a time when metal prices were inflated.

The global financial crisis and economic slowdown now has assets more modestly priced. And with Vale's solid position, the company is bound to come up in rumors, Agnelli said.

Vale is "a strong company, with the capacity to make strategic moves in the mining world. But we're quiet, going forward with our investments. We have an enormous portfolio of investments, so we have to proceed calmly," Agnelli said.

Unfortunately, that organic growth may not be enough to allow Vale to continue building its reserve base - especially if other large-scale players are off the market.

A smaller scale in relation to its peers could also undercut Vale's bargaining power with China, the mining company's largest customer.

Iron ore producers are locked in a battle with major Chinese steelmakers over 2009 contract prices, while the benchmark price has been set via deals in Europe, Japan and South Korea.

Chinese steel mills are seeking a 40% reduction in prices for iron ore fines. Vale agreed to a 28.2% decrease in fines and a 44.5% slide in lump ore with heavyweights such as ArcelorMittal SA (MT), South Korea's Posco (PKX) and several Japanese steelmakers.

"This is the price we understand to be the benchmark. Whoever wants to continue operating under long-term contracts, the benchmark has been set for the entire world," Agnelli said.

A little additional leverage via a merger, while likely drawing intense interest from antitrust regulators, could help avoid what's become a complicated negotiating process in recent years.

The economic slowdown, especially in China, caused "a change in behavior during iron ore price talks," Agnelli said. Economic uncertainties and tough negotiations also sparked renewed calls for an iron ore spot market, another area where scale would be an advantage.

While it would be difficult for Chinese steelmakers to move to a spot market system, Vale will sell its ore where demand exists, Agnelli said. Vale is currently selling ore on the spot market, and will continue to do so, the executive added.

"If spot is the market, that's where we are going to go," Agnelli said.

-By Jeff Fick, Dow Jones Newswires; jeff.fick@dowjones.com; 55-21-2586-6085

(John Kolodziejski in Rio de Janeiro contributed to this report.)

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