Nov. 4 (Bloomberg) -- Rio Tinto Group’s Cloud Peak Energy Inc. coal unit may raise about $1 billion from an initial public offering in New York and a bond offering, said two people familiar with the matter.

The unit may sell $500 million of bonds, and $500 million of shares, said the people, who declined to be identified because the details of the fundraising haven’t been published. The sale of London-based Rio’s U.S. coal operations to another company instead of the IPO is still possible, the people said.

Rio has announced $7 billion of asset sales since 2007 to help repay debt from its $38.1 billion purchase of Canadian aluminum producer Alcan Inc. Peabody Energy Corp., the largest U.S. coal producer, last month increased its 2009 earnings forecast on higher prices and forecast increased demand.

“There is a market interest for it and they can get a better price for it this way,” Peter Arden, a Melbourne-based senior mining analyst at Ord Minnett Ltd., an affiliate of JPMorgan Chase & Co., said today. “I don’t think they are putting a particularly big price tag on it.”

Rio rose 1 percent to A$63.43 at the 4:10 p.m. Sydney time close on the Australian stock exchange. Rio’s London-based spokesman Nick Cobban declined to comment.

The company agreed in June to raise $21 billion by selling shares and creating an iron-ore venture with BHP Billiton Ltd., after it scrapped a $19.5 billion investment from state-owned Aluminum Corp. of China as the global economy recovered.

An initial sale was the company’s preferred divestment option, Cobban said in August after Rio failed to find a buyer for the unit. Rio shelved the sale of a unit making borates for glass and ceramics in May after failing to get what it called an “acceptable” price.

Four Mines

Rio first lodged a proposal to spin off Cloud Peak with the Securities and Exchange Commission in August 2008. Cloud Peak said in an updated filing on Nov. 2 it would enter into a so- called revolving secured credit facility, and issue senior unsecured notes in two tranches.

Cloud Peak, which includes four mines in Wyoming and Montana, produces thermal coal in the so-called Powder River Basin. The assets are the Spring Creek, Cordero Rojo and Antelope mines and half of Decker mine, according to the filing.

A fifth mine, Jacobs Ranch, was sold to Arch Coal Inc., the second-biggest U.S. producer of the fuel, which agreed in March to pay $761 million. Jacobs Ranch was the biggest within the unit, according to Rio’s Web site.

The four other mines generated $1.24 billion in sales and produced 97.1 million metric tons of coal last year, making Cloud Peak the third-largest U.S. producer, the filing said. The IPO won’t include the Colowyo mine, Cobban said in August.

U.S. IPOs

There have been 57 completed IPOs in the U.S. raising $14.3 billion this year, according to Bloomberg data.

Alpha Natural Resources Inc. was close to purchasing Cloud Peak in May until the U.S. coal producer agreed instead to buy rival Foundation Coal Holdings Inc., said a person familiar with the situation at the time.

The bond and IPO will be managed by Credit Suisse Group AG, Morgan Stanley and RBC Capital Markets, according to the filing.

Rio cut 16,000 jobs and slashed spending after the global recession curbed demand for metals and made planned disposals more difficult. The company agreed the sale of part of its Alcan unit to Amcor Ltd. for $2.03 billion in August.

To contact the reporters on this story: Brett Foley in London at bfoley8@bloomberg.net

Last Updated: November 4, 2009 00:13 EST