May 21 (Bloomberg) -- ArcelorMittal, the world's biggest steelmaker, may offer at least A$4.2 billion ($4 billion) for Australia's Macarthur Coal Ltd. to secure supplies as prices for raw materials surge.

Macarthur rose 7.8 percent in Frankfurt trading after Luxembourg-based ArcelorMittal said it paid A$631 million for a 14.9 percent stake. Macarthur said today a potential rival bidder pulled out of talks.

ArcelorMittal may acquire Brisbane-based Macarthur, the world's biggest maker of pulverized coal used by steelmakers, to increase its self-sufficiency in coal beyond 15 percent after prices of the steelmaking raw material tripled this year. Australia is the largest exporter of coal used to make steel.

``I would assume they will go for full control,'' Andrew Keen, an analyst at Sanford C. Bernstein in London who has an ``outperform'' recommendation on ArcelorMittal, said today by phone. ``This could become a hotly contested situation because a lot of people have very deep pockets at the moment.''

Macarthur climbed 91 cents to close at 12.52 euros ($19.72) in Frankfurt. The shares advanced 8.1 percent to A$19.86 in Sydney, giving the company a market value of A$4.2 billion. The stock, which is trading at 79 times estimated earnings, has risen 50 percent since the company said April 21 it was approached about a possible transaction.

Investment Approval

ArcelorMittal rose 0.8 percent to close at 64.04 euros in Amsterdam. It paid an average of A$19.96 a share for its stake, less than the 15 percent holding that would require approval from Australia's Foreign Investment Review Board. It's now Macarthur's third-biggest shareholder.

The steelmaker, led by billionaire Lakshmi Mittal, bought a 4.3 percent stake from Macarthur's largest shareholder and founder Ken Talbot and the balance from private investor Nathan Tinkler, the company said in an e-mailed statement. Talbot didn't return calls seeking comment.

Global steelmakers are trying to lock in long-term raw- material supplies. Nippon Steel Corp. wants to invest in Cia. Vale do Rio Doce's $1.4 billion planned coal mine in Mozambique, the company said yesterday. Macarthur Coal's pulverized coal is used by steelmakers as a cheaper alternative to coking coal.

``There's very few steel mills actually globally that have much sufficiency in coking coal,'' Andrew Driscoll, a Hong Kong- based analyst at CLSA Ltd., said today in Singapore.

Self Sufficiency

In January, ArcelorMittal paid OAO Severstal, Russia's largest steelmaker, $720 million for three mines to boost its coking coal supplies. Buying Macarthur would take ArcelorMittal's coal self sufficiency to about 20 percent, compared with the 45 percent coverage it has in iron ore, another key raw material, Bernstein's Keen said.

A coal producer may pay as much as A$24.25 a share, or A$5.1 billion, for Macarthur, taking into account potential annual cost savings of A$20 million, UBS AG said in a report yesterday.

There have been $57 billion mining and energy takeovers this year in Australia, compared with $29 billion in 2007, according to Bloomberg data. Xstrata Plc, which was reported by the Wall Street Journal on May 2 to be in talks with Macarthur, bought Australian coal producer Resource Pacific Holdings Ltd. for A$1.1 billion this year.

Macarthur Chairman Keith De Lacy didn't return calls seeking comment and Xstrata spokeswoman Claire Divver declined to comment. Macarthur is being advised by JPMorgan Chase & Co.

Potential Acquirers

Xstrata, Anglo American Plc and Vale may benefit from buying Macarthur, Sophie Spartalis, an analyst at Macquarie Group Ltd., said last month. Other possible acquirers include Noble Group Ltd. and Citic Group, Macarthur's second-largest shareholder, which is backed by the Chinese government, UBS analysts led by Sydney-based Glyn Lawcock said.

Citic declined to comment on a Dow Jones report today that it's in talks to sell its 20 percent stake in Macarthur. A potential buyer has approached Citic and the company would sell ``if the price is right,'' Dow Jones said, citing an unidentified person familiar with the situation.

``We do not comment on media speculation,'' Chen Zeng, managing director of Citic Australia Pty Ltd., said in a phone interview from Melbourne today. ``Our stake in Macarthur is a strategic and long-term investment.''

``Citic in our view holds the key to whether any potential corporate action turns hostile,'' UBS said.

Macarthur produces 35 percent of the global supply of pulverized coal from two mines, Coppabella and Moorvale, in Australia's Queensland state

Prices of coking coal will stay at records next year because of rising demand for steel and as higher costs delayed the construction of new mines, Macquarie Group Ltd. said in a May 5 report. The price of pulverized coal will be $245 a ton, up 63 percent from its previous estimate of $150 a ton, the bank said. Macarthur received between $67 and $68 a ton for pulverized coal in 2007, the company said in February.

To contact the reporters on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net; Brett Foley in London at bfoley8@bloomberg.net

Last Updated: May 21, 2008 13:03 EDT