The merger would create a coal-focused natural resources company, with existing production and interests in exploration and development projects across the world.
Polo says it would be prepared to make an offer for the entire share capital of Caledon, paying 11.4 of its own shares for every Caledon share. The merger is subject to due diligence and other customary conditions.
Neil Herbert, executive chairman of Polo, said: “The transaction will provide all Polo shareholders with a renewed focus and direct exposure to the coking and thermal coal markets through 100 per cent ownership of the Cook mine and the Minyango project.”
Both companies are AIM listed.