By Brett Foley

May 2 (Bloomberg) -- Glencore International AG is studying a merger with Xstrata Plc that would create a mining and trading group valued at 55 billion pounds ($84 billion), the Sunday Telegraph reported, without saying where it got the information.

Advisers are working on a two-stage proposal where Glencore, the world’s biggest commodities trader, would merge with Xstrata in a “reverse takeover” and then reduce its stake in the enlarged group to below 40 percent, the newspaper said. Glencore owns 34.4 percent of Xstrata, it said.

Xstrata management, led by Chief Executive Officer Mick Davis, would retain control of the combined company, the Telegraph said. Xstrata, based in Zug, Switzerland, is the world’s biggest producer of coal burned by power stations.

Goldman Sachs Group Inc. is working with Xstrata alongside Deutsche Bank AG and JPMorgan Cazenove Ltd. while Morgan Stanley and Citigroup Inc. have been putting together Glencore’s proposal, the Sunday Telegraph said. Credit Suisse Group AG may also advise on a deal, the newspaper said.

Investors in Glencore’s bonds, including First Reserve Corp. Government of Singapore Investment Corp. and Zijin Mining Group Co., would consider a deal if something is put forward, the Sunday Telegraph said.

Xstrata spokeswoman Claire Divver and Glencore spokesman Marc Ocskay both declined to comment when contacted by Bloomberg News by telephone today.

To contact the reporter on this story: Brett Foley in London bfoley8@bloomberg.net

Last Updated: May 2, 2010 08:08 EDT