Rio Tinto has formalised a bid for Australia based Riversdale Mining at what is believed to be pitched around $16 a share.
Riversdale, which will make an announcement by December 23, said earlier this month it was in talks with Rio Tinto Ltd about a takeover offer which would value it at $3.5 billion, or $15 per share. It also hinted it was talking to other suitors. Shares in the Mozambique coal miner were placed in a trading halt this morning as the two parties thrashed out non-monetary terms, including pre-bid agreements that would prohibit Riversdale from soliciting rival bids.
The new bid price of around $16 compared to an original $15 informal offer rumoured in London several weeks ago, valuing Riversdale at almost $3.8 billion.
Riversdale's share register is dominated by three investors: India’s Tata Steel, Brazilian steelmaker Companhia Sidurgica Nacional and US fund manager Passport Capital. The three own 56 per cent of Riversdale combined.
Riversdale is developing as a diversified mining financier, with its major operation the Zululand anthracite colliery in South Africa.
Last week, a consortium of five state-run Indian firms, including Steel Authority of India and NTPC also said they were considering a bid for Riversdale and would make a decision by the end of the month. Analysts have said Xstrata, Anglo-American, Vale, and Peabody Energy could also emerge as rival bidders.
Investors said Rio Tinto may still have to look at a joint venture rather than a full takeover to get a deal past Riversdale's major shareholders, which include India's Tata Steel which owns about 24 per cent, Brazilian steelmaker CSN and US Investment firm Passport Capital.
"Rio are really long on thermal coal but short on coking coal so this would propel them into the big league over time into coking coal," Constellation Capital Management analyst Peter Chilton said. “Rio would need to win the support of Riversdale’s major holders, including Tata Steel Ltd., which holds a 24.16 percent stake and a 35 percent interest in the Benga project”.
Benga may produce about 1.7 million tons a year of coking coal and 300,000 tons of thermal coal, with first exports expected in the second half of next year, according to the company’s website. Coking coal is used by steelmakers and thermal coal fuels power plants.
Riversdale has hard-coking coal projects in Mozambique that could eventually make up 5-10 per cent of the global market for the key steel-making raw material. Riversdale’s coal resources in Mozambique total 13 billion metric tons, split between the $2 billion Zambeze project and the Benga license, according to the company’s website.
Coal prices have soared during the past year, with prices tipped to rise further in 2011, as Chinese growth spurs strong demand for coking coal, used in steel furnaces.
If Rio Tinto was successful in its takeover bid for Riversdale would increase Rio’s production of steelmaking coal as demand for the commodity gains. Coal deals this year have more than doubled to $35 billion. Rio spokesman Bruce Tobin and Bill Kemmery, a Riversdale spokesman, declined to comment.
“Rio are very forward looking,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd. said in an interview in Bloomberg’s Melbourne bureau. “Demand is picking up quite strongly, but it is going to get a lot stronger.”
Riversdale shares closed at A$16.30 yesterday, up 16 percent from Dec. 5, the day before it disclosed talks with Rio. Kemmery of Fortbridge Consulting Pty, which handles Riversdale media communications, wasn’t able to provide any further information. Rio gained 0.9 percent to A$86.19 at 12:37 p.m. Sydney time on the Australian stock exchange.
Global mining deals have more than doubled this year to $137 billion, the highest level since 2007, according to data compiled by Bloomberg. Metal prices, as measured by the London Metals Index which tracks six commodities, have gained 34 percent in the past six months.
Sojitz Corp., a Japanese trading company, today paid 17 billion yen ($203 million) to raise its stake in Australia’s Minerva coal mine to 96 percent from 45 percent, spokesman Michio Nakayama said by phone.
Rio is studying small-to-medium-sized acquisitions that are likely to be in the low “single-digit billion dollar range,” Chief Financial Officer Guy Elliott said. A bid for Riversdale fits with the company’s mergers and acquisitions strategy, Liberum Capital Ltd. said this month.
India asked International Coal Ventures Ltd., comprising state-run metal and energy companies, to consider bidding for Riversdale, Arup Roy Choudhury, chairman at India’s biggest power producer NTPC Ltd., said Dec. 14.Steel Authority of India Ltd. and Coal India Ltd. own about 28 percent each in International Coal Ventures, while NTPC, NMDC Ltd. and Rashtriya Ispat Nigam Ltd. hold about 14 percent each.
According to a report, other potential suitors include Vale SA, the world’s biggest iron ore exporter, which has operations in Mozambique.
Riversdale is already in talks with Wuhan Iron & Steel Corp. on a potential $800 million investment by the Chinese steelmaker for a 40 percent stake in the Zambeze project and 8 percent of Riversdale. Discussions are continuing after a deadline for an agreement expired, Riversdale said Oct. 27.
Riversdale is valued at 13 Australian cents for every metric ton of coal resources, the company said in September. That compares with an average of A$3.03 for selected transactions from December 2007 to August 2010.
Rio produced 7.5 million tons of hard coking coal from its operations in Australia’s Queensland state in 2009, according to a Jan. 14 statement. The company’s production growth in coking coal is estimated by Liberum at 12 percent over the next three years, meaning “this approach would hold strategic merit,” the brokerage said.
Rio already has nine thermal coal mines in Australia and the U.S., one coking coal operation in Australia and two other mines that produce both types. Two thermal mines are under development, according to its website.