* BHP may eye more M&A deals, but move cautiously
* Could look at takeovers in potash, oil, copper
* Rio might look at possible modest deals after cutting debt
By Eric Onstad
LONDON, June 19 (Reuters) - Miner BHP Billiton will push for more acquisitions after sealing an iron ore venture with Rio Tinto, while funds from the deal and a linked rights issue could prompt Rio to dip its toes back into M&A.
Analysts and industry sources said that BHP would move circumspectly and Rio aim for smaller deals after the two industry heavyweights agreed earlier this month to link up iron ore mines in Australia and Rio set a $15.2 billion rights issue.
"On a number of fronts, for both Rio and BHP, this deal is likely to open up a few more opportunities," said an investment banker, who declined to be named.
Investors applauded the iron ore venture since BHP ended up with billions of dollars in potential synergies it sought during its failed hostile bid for the whole of Rio without having to take on Rio's debt and underperforming aluminium business.
"With this deal, BHP's preoccupation about a bigger deal with Rio goes away and perhaps it could proceed on some of those other situations which it may have been holding back on until it knew where it was going," said the banker.
And once Rio completes its rights issue, it will have enough cash to slash its heavy $39 billion debt load and may be able to take advantage of some cheap takeovers during the downturn.
BHP may be looking at takeovers to expand in potash, petroleum or copper, but will retain its strict criteria to only buy top-notch mines.
Some investors have been quoted as saying that BHP, the world's biggest mining company, should rush to take advantage of its low debt stance to snap up takeovers, but analysts said this was unlikely.
"I think (CEO) Marius Kloppers has made clear that he won't let himself be pressured into simply spending money because they have a stronger balance sheet than their peer group," said Rebecca O'Dwyer at Investec Securities in London.
POTASH, OIL?
A BHP spokesman declined to comment on possible takeovers, referring to previous statements by the company that it was only interested in large, low-cost "Tier 1" assets.
Investors said that they welcomed BHP's careful approach, which could mean that no deal may be imminent.
"I understand why they are quite cautious. If you look at Rio's Alcan acquisition, I think the probability of BHP getting involved in a business like that is very low and I actually like that," said Barend Ritter, senior portfolio manager at Sanlam Investment Management in Cape Town, which owns BHP shares.
Rio officials acknowledge they overpaid for aluminium producer Alcan when they bid $38 billion in cash in 2007 at the peak of the commodities cycle.
BHP said in a recent presentation on its website it prefers "basin plays" and gave two examples -- iron ore mines in Australia's Pilbara region and potash in Canada.
BHP is already developing the Canadian Jansen project in potash, a key component in fertiliser, and analysts say adding a takeover would create a sizeable profit centre for the group.
"An acquisition of one of these giant potassium groups... would ideally round out BHP Billiton's already diversified portfolio by giving it exposure to the durably lucrative field of agricultural yields, where the group has little presence," said analyst Luc Pez of Oddo Securities in Paris.
Two possibilities are Canada's Potash Corp. of Saskatchewan and U.S.-based Mosaic Co., the No. 1 and No. 3 in the sector, he added. They have market values of $28.3 billion and $20.6 billion respectively.
Analysts say BHP also wants to grow its oil business -- speculation has centred on Australia's Woodside Petroleum Ltd as a possible target -- but valuations in the sector have rebounded along with the oil price. Woodside has a market value of $22.8 billion.
"Given where E&P (exploration and production) companies traded earlier this year, late last year, I wouldn't have been surprised if they had done something there," said Ritter. "But I believe a lot of that has changed with the oil price, I think that opportunity is no longer that attractive at this stage."
RIO BACK IN SADDLE?
With Rio's financials looking healthier, it could be on the prowl as well -- for smaller deals.
"Its balance sheet is shored up and while I don't think they're going to be pulling the trigger on big acquisitions, Rio can start to think business development in a more positive manner," the banking source said. "They may tidy up a few things, do a few smaller, sub-$1 billion type deals."
A hedge fund manager said Rio or BHP may be interested in Australia's Prominent Hill copper mine, the only remaining asset of OZ Minerals, which said on Wednesday it got $1.35 billion after selling most of its assets to China's Minmetals.
The Australian government blocked Minmetals' original plan to buy the whole of OZ Minerals, saying Prominent Hill was near a sensitive military facility, so Minmetals came back with a revised proposal that excluded the mine.
"OZ Minerals, that makes total sense as an add-on because it is a pure play copper," said the hedge fund manager, who declined to be named.
"It has a strong balance sheet and shareholders don't really care about staying in and taking the M&A acquisition risk. They would much rather have the cash managed by Rio or BHP." (Editing by Sitaraman Shankar)