indians circling riv, page-3

'opening shot' for Riverside Barry FitzGerald
December 24, 2010

.RIO TINTO'S well signalled $3.9 billion bid for Riversdale Mining has come under immediate pressure, with expectations the mining giant will have to increase the offer to secure acceptances from key shareholders in the coking coal group.

Suggestions that the strategic nature of Riversdale's Mozambique coal interests could flush out counter bids also put the Rio offer - raised from $15 a share in earlier talks to $16 - on the back foot.

The $16 offer has at least secured Rio a pre-bid agreement, giving it a call option over 14.9 per cent of the target, with Riversdale directors (1.3 per cent) and institutional shareholders (13.6 per cent) providing the stock.

Advertisement: Story continues below Rio also has a matching right in the event of a competing bid and could receive a break fee of $37.8 million should it not win the day.

But the market indicated that Rio would struggle to meet its minimum acceptance condition of 50 per cent, or ward off counter bidders, without an increase in the $16 bid price.

http://www.smh.com.au/business/rios-opening-shot-for-riverside-20101223-196jv.html

Riversdale shares rose 27? yesterday to $16.57. A senior resources analyst at Hartleys, Andrew Muir, said it was likely the Rio bid was the ''opening shot in a bidding war for the company to gain access to the world-class resources of its Mozambique projects''.

He valued Riversdale at $18.80 a share, and ''far more than $20'' once infrastructure (rail, barging and port access) surrounding one Riversdale project (Zambeze) is resolved.

Mr Muir said: ''This bid gives Riversdale credibility that it is sitting on a world-class coal asset. However, we believe the bid undervalues the asset and expect further bids to be forthcoming, with the most likely competing bid to be from Tata Steel [a 24.16 per cent Riversdale shareholder] ?

''Other potential bidders include Xstrata, CSN [a 16 per cent Riversdale shareholder] and possibly Vale, though we see Vale as the least likely due to the presence of [fellow Brazilian] CSN on the register.''

Other potential bidders are Anglo American and Peabody of the US. The US fund manager Passport Capital holds 15.7 per cent of Riversdale.

Coking coal is a raw material for steelmaking. Unlike iron ore, sizeable deposits of high quality are relatively scarce. Australia, mainly through BHP Billiton, dominates seaborne trade in coking coal from its Bowen Basin operations in Queensland.

Australian exports account for about 65 per cent of the seaborne trade (110 million tonnes). Exports from Australia are forecast to grow to 154 million tonnes by 2025. Mozambique could be ranked No. 2 exporter by then, with forecast output of 55 million tonnes, or 18 per cent of the seaborne market.