rio bids for riversdale @ $16.50, page-6

The Australian December 22, 2010 12:00AM Riversdale Mining being chased by Rio Tinto Source: The Australian
RIO Tinto is expected to make a $3.8 billion friendly takeover bid for Riversdale Mining as part of its plans to increase coal production.
As revealed on The Australian online yesterday, Rio is understood to have bid about $16 a share for Riversdale, boosting a previous $15-a-share proposal.

The offer, expected to be endorsed by Riversdale, is slightly below the $16.30 at which Riversdale shares were selling before they entered a trading halt.

But the deal is likely to be presented as a premium to the $14.10 at which Riversdale was trading on December 3, the trading day before the company revealed the earlier $15-a-share offer from Rio.

A month earlier, the stock was trading at $11.

Both Riversdale and Rio were tight-lipped on the proposal, refusing to speak until the final documents were exchanged.

Riversdale told the stock exchange that it was requesting a trading halt "pending an announcement about a possible control transaction".

Dual-listed Rio is expanding again after its acquisition plans were crippled by the effect of the global credit freeze on $US40bn of debt it racked up in the 2007 acquisition of Alcan.

Riversdale has two big coking coal projects in Mozambique, which is tipped to become the second-biggest coking coal exporter after Australia in the next 15 years. The two projects are Benga, which is expected to produce 6 million tonnes a year of coking coal, along with thermal coal, out of a total of 20mtpa of coal (before processing), and the much bigger Zambeze project.

According to Riversdale, Zambeze has the potential to eventually produce about 90mtpa of coal. This would include about 27mtpa of coking coal if it produces at similar ratios to Benga.

Added to Rio's current coking coal production of 7.5mtpa, this would make Rio a big player in export coking coal. BHP Billiton, with about 60mtpa, is the world's biggest producer.

In light of the potential size of Zambeze, and an expected shortage of coking coal, analysts say there is a good chance that a counterbidder might emerge. Xstrata, Anglo American and Vale have been touted as such.

Anglo American is seen as the most likely because Vale already owns Mozambique coking coal assets -- making it a less favourable option for the government -- and Xstrata has concerns about the need to build a power station in Mozambique.

Chinese state-owned companies are unlikely to bid because of Chinalco's relationship with Rio.

Riversdale's biggest shareholder is Indian steelmaker Tata, which has a 24 per cent stake.

A group of five Indian state-owned companies, known as ICVL, have already said they are investigating a bid for Riversdale.

There is no indication of Tata, or Riversdale's other two big shareholders having agreed to sell into the takeover or securing offtake deals.