rio in talks to buy riversdale, page-18

Riversdale Mining (RIV) is a coal miner with mines and assets in one of the world?s richest coal region, Southern Africa.
RIV boasts two major hard coking and thermal coal projects in Mozambique and a massive land position in Moatize, the world?s next major coal region.
Coal miners have been among the shares to buy in recent months, following a surge in demand from Asian countries including China.
RIV recently confirmed the hard coking coal potential at its Zambese Coal Project in Mozambique.
According to RIV, Zambese?s high coke strength means it has the potential to be a tier 1 hard coking coal operation.
RIV expects to complete the project?s feasibility study in 2010.
Given Zambese?s strong potential, RIV will be one of the mining shares to watch in coming months.

RIVERSDALE Mining is inviting bids from global miners for up to 50 per cent of a major coking coal deposit in Mozambique.

The miner is looking for the partner as it prepares to sign off on a binding $US800 million deal with a Chinese steelmaker for an adjacent project.

It shows how miners are seeking to take advantage of a global demand boom for coking coal - a key ingredient in steelmaking - by attracting partners with mining expertise or the ability to build infrastructure such as ports to accelerate new mine developments.

Interest in resource-rich southern Africa has intensified because it faces markets in China and India, where rapid urbanisation has prompted a surge in steel imports. It also reflects a growing appetite for risk among investors, as the region has suffered from political instability in recent years.


Riversdale chairman Michael O'Keeffe said developing the Tete East licenses in Mozambique - estimated to contain at least 5 billion tonnes of coking coal - on its own would leave it overstretched because it already has the neighboring Benga and Zambeze developments in the pipeline.

"It would be physically impossible for a company of our size to do three projects," Steve Mallyon, managing director, told Dow Jones Newswires.

"We will bring in a big mining house to come in and be part of the process," said Mr O'Keeffe. "We will look at 50-50 (shares) and they will manage it."

The company said it would consider asset swaps with miners and would be interested in breaking out of southern Africa and moving into other bulk products, identifying hematite iron ore as an option.

"We don't have spare cash to go and just buy anything, but we may be in a position to trade 50 per cent of Tete East for something that's really nice that should generate us good cash flow," Mr O'Keeffe said.

Although there is no urgency to do a deal with a miner, Mr O'Keeffe said Riversdale needs to complete a pre-feasibility study for Tete East over the next three years or risk losing the licenses under the terms of its agreement with the government of Mozambique.

Shares in Riversdale have nearly doubled over the last 12 months to $10.79 from $5.74, giving the Sydney-based company a market value of $2.61 billion.

Riversdale expects to produce the first coking coal from the 4-billion-tonne Benga project in the second half of next year and is moving to convert June's preliminary agreement with China's state-owned Wuhan Iron and Steel Corp., or Wisco, to invest in the neighboring Zambeze project into a binding deal.

Wisco has completed due diligence on the investment, which will see it take a 40 per cent stake in the Zambeze mine and a minority share in the Australian miner for $800 million, Mr O'Keeffe said.

But Wisco - the parent of Shanghai-listed Wuhan Iron & Steel Co. - has not met a 120-day deadline to formally sign off on the binding agreement, meaning there is technically potential for a rival to come in and trump the Chinese company's offer.

However, Mr O'Keeffe said the negotiations were "in good faith" and approvals from China's government, including from the State-owned Assets Supervision and Administration Commission, were now seen as formalities.

"We have something the whole world wants, and that makes it easier to negotiate with people," he said.

The Chinese approvals were on track to be completed within 30 days, he said. The deal will also require support from Australia's Foreign Investment Review Board.

Mallyon said Zambeze's reserves are currently estimated at 9 billion tonnrs of hard coking coal, but this is likely to rise, as Riversdale has only explored a third of the acreage covered by the project.

GMP metallurgical coal price forecasts
Unit US$/tonne CY10E CY11E CY12E
Hard coking coal 190 325 375

The Mozambican Government is firmly committed to encouraging foreign investment in developing Mozambique?s fledging mining industry. A new mining and geological policy has been implemented with the existing legislation, which improve the country?s competitive position in the region. All applications for exploration and mining rights have to be addressed to the Minister of Mineral resources and Energy for processing by the National Directorate of Mines.
Corporate income tax is set at 35%, with a 50% reduction allowed for the first ten years from the start of production. The government has set out the following incentives:
? Exploration and development expenditures may be accumulated and carried forward until the first year of production.
? A choice of depreciation rates
? Exemption on import duties for all equipment, materials and subcontractors.
? Exemption of the dividend withholding tax, normally levied at 18% for ten years.
? Exemption from Sales Tax, duties and taxes on mineral exports.
The following royalties are payable to the state:
All mineral production ? 3%, excepting precious metals ? 5%, Gemstones ? 6% and diamonds ? 10%

Despite the global economic downturn, Mozambique?s real GDP growth is forecast to remain strong at 4.8% in 2009 and 5.2% in 2010;