Rio Tinto may have to lift offer to win major Riversdale Mining shareholders
December 06, 2010 2:57PM
Matt Chambers - The Australian
RIO Tinto's potential $3.5 billion bid for Riversdale Mining might not be enough to convince major shareholders, say analysts.
Riversdale shares soared to a record high today after the coalminer this morning confirmed a report in today�s The Australian it is in ongoing discussions about a takeover bid with Rio.
But the company said Rio had not yet submitted a formal bid.
Riversdale, which has 13 billion tonnes in coking coal resources in Mozambique, said talks have centred on an indicative consideration of $15 per Riversdale share, or $3.5bn.
But analysts say Rio's proposed slim 6.4 per cent premium to the company's closing price Friday of $14.10 would be unlikely to convince steelmakers Tata Steel and Companhia Siderurgica Nacional, or CSN, which together hold around 38 per cent of Riversdale's equity, should it formalise its offer.
"I would see a value of $17-$18 a share, based on about $8 a share for Benga," said Andrew Gardner, an analyst at MF Global in Sydney. "But if there was a bidding war, the Indian (steelmakers) have got a keen interest in this, so it could go higher."
One major shareholder said in an email to Dow Jones he would be unwilling to sell out for less than $20 a share, which would put a $4.73bn price tag on the company's equity.
Another analyst, who didn't want to be named, 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.
"If you value it as working as well as Riversdale says, it's worth a lot more than $15 a share, and the fact that Rio's interested suggests the coal quality is good and the infrastructure issues can be overcome," he said.
Riversdale chairman Michael O�Keeffe said Rio has advised the company it is not yet in a position to submit a proposal. �While discussions with Rio Tinto are ongoing, there is no certainty that Rio Tinto or any other party will proceed with any proposal for the acquisition of Riversdale.�
A company spokesman would not comment further on the statement, or why Rio had not been able to submit a bid.
Riversdale shares soared $2.13, or more than 15 per cent, to a high of $16.23 as the market bet Rio or another party, such as Brazil�s Vale, would make a higher bid.
The acquisition would increase Rio�s exposure to coking coal. The big miner is now more heavily exposed to thermal coal.
While Mozambique is not a huge coking coal producer, it is tipped to become the second-biggest exporter after Australia by 2025.
Last week, Rio chief financial officer Guy Elliott said the company was looking at a number of possible acquisitions in the �low-single-digit billion� price range.
He said there were opportunities for the company in most of its businesses, although iron ore chief Sam Walsh subsequently ruled out takeovers of Australian iron ore businesses.
The talks come as coking coal mines in Queensland, the world�s biggest exporter, are being hit by rains that threaten to push the cost of coking coal higher.
Steelmakers such as Tata, CSN, and China's Wuhan Iron & Steel, or Wisco, which entered a memorandum of understanding to develop Riversdale's Zambeze project earlier this year, are also looking to take stakes in mines and mining companies to ensure security of supply and reduce their dependence on traditional miners such as Rio.
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