LONDON (Reuters) - Miner Anglo American (AAL.L) is considering finding a partner for its huge iron ore project in Brazil, including from China, but the move is not a defense against an unwanted merger approach from rival Xstrata (XTA.L), sources familiar with the situation said on Monday 29 June.

Weekend newspaper reports said Anglo, which last week rebuffed a "merger-of-equals" proposal from Anglo-Swiss Xstrata, was plotting a defense strategy by seeking to sell part of its Minas-Rio project.

"Anglo believes it would be a logical step to secure a co-investor for a project of this size," a source close to Anglo told Reuters. "Anglo may have been pursuing this for some time."

Anglo said it declined to comment on media speculation.

No names were mentioned as possible partners, but the source said steel companies, Chinese investors and sovereign wealth funds were all possibilities.

Another source familiar with the situation said no detailed discussions were currently ongoing regarding a possible partner.

Both sources declined to be named.

Anglo concluded a deal last year to pay $5.5 billion for Minas-Rio and 69 percent of Amapa, another Brazilian iron ore project.

Minas-Rio will cost around $3.5 billion to build, but Anglo has previously said that financing was not a problem since it has about $9 billion in cash and loan facilities.

WARY ABOUT CHINALCO?

Newspaper reports citied various possible partners, including China's Chinalco, Japanese trading house Sojitz (2768.T), Gulf Industrial Investment Company, a Bahrain iron oxide pellet producer, and Dubai Natural Resources World, owned by the Emirate of Dubai.

Analyst Michael Rawlinson at Liberum Capital said Anglo would be wary about a link-up with Chinalco after Rio Tinto canceled a $19.5 billion deal with the firm.

"We would expect the board to be cautious on a tie-up at group level with Chinalco given what happened at Rio. We are skeptical on a tie-up with Dubai at MMX since this would not address the project's logistical complexities," he said in a note.

Rawlinson said Anglo was reportedly holding talks with Brazil's Vale (VALE5.SA)(VALE.N), the world's biggest iron ore producer, about assisting on logistical aspects of the project.

Anglo plans to launch the first phase of production at Minas-Rio, which is a high-quality iron ore deposit with an average of 68 percent iron content, in the second quarter of 2012.

The mine is due to produce 26.5 million tonnes per year in the first phase, with a potential to rise to 80 million.

Xstrata put more pressure on Anglo to come to the negotiating table last week by releasing details of its merger proposal, which included cost savings of $1 billion.

Anglo has not formally responded to Xstrata's release of the detailed proposal on Wednesday 24 June, but the source close to Anglo said the firm's stance has not changed from when it publicly dismissed the proposal two days earlier.

Anglo said the idea lacked strategic rationale and that the terms were "totally unacceptable."

By Eric Onstad and Quentin Webb