rio moves on riversdale mining's african coal

Rio moves on Riversdale Mining's African coal assets

The Australian December 06, 2010 12:00AM
Tim Blue and Matt Chambers

RIO Tinto is to make a $3.5 billion takeover play for Africa-focused Riversdale Mining in a move to increase its exposure to coking coal.

Locally listed Riversdale has extensive high-quality coal deposits in Mozambique, which is the subject of intense interest from China and India. The nation is expected to become the world's second-biggest exporter of coking coal after Australia by 2025.

A report in Britain's Daily Telegraph newspaper at the weekend said Rio was in talks to buy Riversdale for about $15 a share, a 90c premium to its closing price on Friday.

UBS is thought to be advising Riversdale on the takeover negotiations while there were rumours that Macquarie was advising Rio.

The move on Riversdale comes after Rio said last month it was looking at a number of possible acquisitions in the "low-single-digit billion" price range.

Booming sales of iron ore have helped to soothe market concerns over Rio's high level of debt and recent forced asset sales.

Rio's head of energy, Doug Ritchie, declined to comment on the report when contacted by The Australian in Mongolia last night. A Riversdale spokesman also refused comment.

There was talk last night any move on Riversdale by Rio could prompt a counter-offer from Brazilian miner Vale, which also has coal interests in Mozambique.

In June, Wuhan Iron and Steel, one of China's biggest steel producers, announced it would spend $US200 million to take an 8 per cent interest in Riversdale.

India's Tata Steel already has a 22 per cent stake in Riversdale and Brazil's CSN has 16 per cent of the company.

Riversdale's coal reserves in two concessions in Mozambique's Tete province are put at more than 13 billion tonnes. They form one of the world's largest reserves of high-quality coal and rival those of the Bowen Basin in Queensland. Tete reportedly has billions of tonnes of both thermal coal, which is used in power plants, and coking coal, which is mixed with iron ore to make steel.

But Rio is unlikely to pursue deals as large as Alcan, the Canadian aluminium giant it bought for $38.1bn in 2007. But its move on Riversdale is a taste of what is expected to be a surge of mining takeovers worldwide next year as the cashed-up sector looks for growth.

A report by Ernst & Young shows cash holdings of the ASX top 100 miners increased by 26 per cent to $31bn in the year to June 30. Total debt fell by more than 40 per cent to $47bn. Net debt has fallen to $16bn, nearly $40bn less than a year ago.

Ernst & Young Asia-Pacific mining & metals transactions leader Paul Murphy said the miners would be under pressure to make acquisitions and bring forward projects, rather than return funds to shareholders.

"Debt funding is still difficult outside the bigger miners, so we expect to see a phase of consolidation in the sector among the small to mid-caps, with active capital management driving activity," he said.


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