Rio Tinto PLC (RIO) has held talks with Riversdale Mining Ltd.
(RIV.AU) about a A$3.55 billion takeover but hasn't submitted a
formal offer, the target said Monday, sparking a 15% jump in
Riversdale shares.
Riversdale, which has 13 billion tons in coking and thermal coal
resources in its Benga and Zambeze projects in the southern African
country of Mozambique, said Rio hadn't been in a position to submit
a takeover proposal but had mooted a A$15 a share indicative
takeover price.
Rio Tinto said it had no additional comment on the matter.
The indicative takeover price was quickly outstripped by the
rise in Riversdale's stock to A$16.21, while two major shareholders
told Dow Jones Newswires they would be unlikely to sell out for
less than A$20.
"It's very difficult to find companies that are well-endowed
with this sort of commodity in this sort of quantity in the mining
game. It's two-thirds of the battle to find something that large,"
said Clive Donner, managing director of LinQ Resources Fund
(LRF.AU), Riversdale's fourth-biggest shareholder.
"The market's telling us that A$15 isn't the right price. We
think this thing is worth A$15-A$20 a share, so at A$15 it's on the
low side."
Another major shareholder said in an email to Dow Jones that he
would be unwilling to sell out for less than A$20 a share, which
would put a A$4.73 billion price tag on the company's equity.
Andrew Gardner, an analyst at MF Global in Sydney, said
Riversdale should be valued at A$17-A$18 a share on the quality of
its assets alone, but the presence of major steelmakers as
shareholders could drive the valuation higher.
Tata Steel Ltd. (500470.BY) and Companhia Siderurgica Nacional
(CSNA3.BR), or CSN, hold respectively 24% and 13% of Riversdale
shares, while Wuhan Iron & Steel Co. (600005.SH), or Wisco,
entered a memorandum of understanding with the company which would
give them 8% of the company in return for a US$800 million
investment in the Zambeze project.
In a statement, Tata Steel said the company considers its stake
in Riversdale a "valuable strategic investment". Tata added that it
is monitoring the situation and will take appropriate action "as
deemed necessary".
The statement further added that Tata Steel continues to be
interested in developing Riversdale's mining assets.
Booming prices for coking coal, a high-quality variety of coal
used with iron ore in steelmaking, have driven competition for
assets between traditional mining companies and steel companies in
recent years.
Platts mid-volatile coking coal at Queensland ports rose US$10 a
metric ton Friday to US$214/ton excluding sea freight costs.
Steelmakers are looking to take stakes in mines and mining
companies to ensure security of supply and reduce their dependence
on traditional miners such as Rio.
ArcelorMittal (MT), the world's biggest steelmaker, last month
offered C$433 million for Canadian iron ore explorer Baffinland
Iron Mines Corp. (BIM.T), while the Wall Street Journal reported
the company had looked at buying coal miner Massey Energy Co.
(MEE), a top-five U.S. producer.
Analysts say Rio's slim 6.4% premium to the company's closing
price Friday would be unlikely to convince Tata and CSN.
Rio Tinto PLC has held talks with Riversdale Mining about a
A$3.55 billion takeover, but hasn't submitted a formal offer.
Riversdale, which has 13 billion tons in coking and thermal coal
resources in its Benga and Zambeze projects in the southern African
country of Mozambique, said Rio hadn't been in a position to submit
a takeover proposal, but had mooted a A$15 a share indicative
takeover price.
An analyst, who didn't want to be named because he wasn't
authorized to speak to the media, said Rio's offer would likely now
provide a floor under Riversdale shares.
"I think they will trade above that for the foreseeable future.
The question for Riversdale is how much of a risk you estimate for
the projects starting up," he said. "If you value it as working as
well as Riversdale says, it's worth a lot more than A$15 a share,
and the fact that Rio's interested suggests the coal quality is
good and the infrastructure issues can be overcome."
Coking coal is in strong demand as emerging economies engage in
construction booms. However, supplies are limited, with two-thirds
of global seaborne trade coming from Australia. Mozambique is
expected to become the second-largest producer of the commodity
within the next 15 years.
MF Global's Gardner said the offer could flush out other parties
interested in Riversdale's assets. Multinational miner Vale SA
(VALE) is often mentioned as a suitor for the company, although
Gardner said its extensive adjacent holdings, and the fact that CSN
is a major customer, would likely rule it out.
Riversdale has also said it would consider entering a joint
venture with a diversified miner over its Tete East project. Anglo
American PLC (AAL.LN) and BHP Billiton Ltd. (BHP) would fit the
bill, although Gardner thinks an Indian steelmaker would be most
likely.
A 120-day memorandum of understanding over developing its
Zambeze project that the company entered with Wisco earlier this
year ran out more than six weeks ago as the Chinese company waited
on regulatory approvals, but a spokesman said Riversdale was still
committed to advancing the deal.
-By David Fickling, Dow Jones Newswires; +61 2 8272 4689;
david.fickling@dowjones.com
(Prasenjit Bhattacharya in New Delhi Bureau contributed to the
article.)
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