BHP Billiton Ltd. (BHP), the world's largest mining company, is in talks to buy Brazilian iron-ore producer Ferrous Resources Ltd., said two people with knowledge of the matter.

No final decision has been made on a transaction, which could fetch about 2 billion pounds ($3.2 billion), said one of the people, who declined to be identified as the process is private. Discussions have taken place in the past few weeks in Melbourne, where BHP is based, after negotiations with a Chinese suitor broke down, one of the people said.

BHP is examining whether to build a 3.7 billion-reais ($2.1 billion) iron-ore project in Brazil, the second-largest exporter of the material, which may complement Ferrous's operations, one of the people said. BHP and competitor Rio Tinto Group are tapping new sources of production to feed surging demand in developing nations such as China, the biggest user of iron ore.

David Fuller's view Australia's two biggest mining companies have finally learned to deploy more of their cash for takeovers in a down market rather than at tops.

Both BHP and Rio hold treasure troves of assets in the ground and mostly in politically stable regions of the globe. There share prices have been hit hard this year on China related global growth concerns.

This is understandable but I regard them as growth rather than cyclical shares. We are very likely to see plenty of additional infrastructure building in the decades ahead, in both growth economies and also to modernise the west.

I regard both BHP and Rio as cheap at today's prices and they pay dividends of 3.3% and 2.2% respectively. However for maximum diversification in the mining sector the BlackRock World Mining Trust (BRWM LN) (monthly, weekly & daily) remains my top choice due to management experience and the current discount to NAV of over 18%.

Interestingly, Rio and BHP are BRWM's top two holding by weighting, in that order. Since all three are still in downtrends, we do not yet have confirmation that they have bottomed, although that can only be seen with hindsight. We know that they can recover very quickly in a rising market, as we last saw following their 2008 lows. Subscribers who share my long-term bullish views on the sector, and particularly those for whom liquidity can be a problem, may prefer to accumulate before the next uptrend is apparent. All three of these instruments are in my top-ten personal long-term investment portfolio.