Stocks to Watch RIV ? African-based Riversdale Mining has rallied to a record high, have nearly tripled over the last 13 months to $16.70 from $5.74, making it the best performer in the S&P/ASX 200 Energy Index. Riversdale Mining (RIV) is a coal miner with mines and assets in one of the world?s richest coal region, Mozambique. With a surge in coal demand from Asian countries including China, India, Coal prices have soared in the past year, with prices tipped to rise further in the coming year as China, India growth spurs strong demand for coking coal used in steel furnaces. Coking coal is a raw material for steelmaking. Unlike iron ore, sizeable deposits of high quality are few, relatively scarce. GMP metallurgical coal price forecasts Unit US$/tonne CY10E CY11E CY12E Hard coking coal 190 325 375 Riversdale has 13 billion tonnes in coking and thermal coal reserves in its Benga and Zambeze projects in Mozambique and a massive land position in Moatize, the world?s next major coal region. RIV?s high coke strength means it has the potential to be a tier 1 hard coking coal operation. 13 billion tonnes hard coking coal, under current price about US$225 per tonne, worth US$2.9 trillion, wealth can compare a country. Furthermore, the 13 billion tonnes reserves base is likely to rise, as Riversdale has only explored a third of the acreage covered by the projects. Riversdale is forecasting an initial run of 1.7 million tonnes of coking coal per year starting in 2011, rising to 20 million tonnes by around 2016. Given RIV?s strong potential, it will be one of the mining shares to watch in coming months. RIO TINTO'S currently takeover offer $16 for every Riv?s share signalled $3.9 billion bid 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. Two major shareholders told Dow Jones Newswires on December 6 that they would be unlikely to sell out for less than $20. 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. I believe the bid undervalues the asset and expect further bids to be forthcoming, with the most likely competing bid to be from INTERNATIONAL Coal Ventures Ltd (ICVL). In December, 2010, ICVL has hired Citibank to advise on a counter-bid to Rio Tinto?s $3.9 billion offer for Riversdale Mining. "We have appointed Citibank. The merchant bank will submit its report in the next two weeks, based on which we will take a call on counter-bidding for Riversdale," chairman C.S. Verma told reporters. ICVL is a joint venture between five state-run Indian companies -- Steel Authority of India, NTPC, NMDC, Rashtriya Ispat Nigam and Coal India. If the Indian consortium decides to go ahead, it will have to up Rio Tinto's offer price. India's expanding economy has led to a surge in construction activity and ramp up in power generation capacity, boosting demand for coal. Indian state-run and private companies are scouting for assets in Africa, Indonesia, and Australia to secure coal supplies. The country's coal demand is expected to rise to 713.24 million tonnes next financial year beginning April 1, when supply will likely be 629.91 million tonnes. 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 coking coal market. Rio is keen to catch up to rival BHP Billiton's superior position in coking coal. RIO may have to again sweeten its offer to woo a Riversdale shareholder register that includes India's Tata Steel and Brazil's Cia Siderurgica Nacional. Stocks to Watch RIO - RIO TINTO has increased its multibillion-dollar bid for Riversdale Mining. If RIO?s bid succeeds, it wills double its current resource & reserves portfolio. Currently RIO mayor Resource base is in the Pilbara, ~19.2 BT iron ore resource & reserve. Riversdale has 13 billion tonnes in coking and thermal coal reserves and a massive land position in Moatize, the world?s next major coal region. Current hard coking coal price about US$225 per tonne compare with iron ore price about $167.59/tonne. Furthermore, the 13 billion tonnes reserves base is likely to rise, as Riversdale has only explored a third of the acreage covered by the projects. If succeeds, RIO will also double its company size, currently MC ~$37.8B in near future, 1-5 years, to $80 ? 100B capital size, similar to current BHP.
RIV Price at posting:
$16.86 Sentiment: Buy Disclosure: Held
