LONDON, May 4 (Reuters) - UK-listed mining shares surged in early trade on Friday, contributing more than 50 percent to the FTSE 100's (.FTSE) rise, after Merrill Lynch said private equity funds may turn their focus on miners. "Private equity action has been very active globally -- with the notable exception of the mining sector," Merrill analysts Vicky Binns and Duncan Hay said in a report. "This could change quickly once the widely held view that leverage buyouts are too risky in a cyclical industry is challenged, and private equity groups take advantage of the arbitrage between current commodity prices and market consensus. Then it could be Game On!" BHP Billiton (BLT.L) rose 3 percent, Rio Tinto (RIO.L) climbed 4 percent, Anglo American (AAL.L) gained 2.1 percent, Vedanta Resources (VED.L) advanced 2.4 percent, and Lonmin (LMI.L) leapt 4.4 percent. At 0817 GMT, the FTSE 100 was up 0.38 percent. The U.S. investment bank said a private equity bid for BHP Billiton, the world's largest miner, could deliver attractive returns, though it did not suggest it was an imminent target. "We are believers in the 'super cycle' and expect commodity prices to stay above historic averages for years to come. Therefore it seems to us inevitable that private equity attentions will turn to the mining sector," Binns and Hay said. They analysed five BHP Billiton leveraged buyout scenarios, including an asset break-up. "The outcome of this asset break-up analysis is that we believe BHP Billiton's assets could be broken up and sold for $201 billion over the next three years, and this generates a 34 percent IRR (internal rate of return) on equity invested." However, they said smaller miners, such as Freeport-McMoran (FCX.N), Newcrest (NCM.AX) and Alumina (AWC.AX), were more realistic targets, while Anglo American and Rio Tinto were also potential candidates.
