Riversdale Mining Ltd., an Australian developer of coal mines in Africa, said it held talks with Rio Tinto Group on a potential A$3.5 billion ($3.46 billion) takeover proposal.
“The company has had discussions with Rio Tinto concerning a possible transaction at the corporate level for indicative consideration of A$15 per Riversdale share,” the Sydney-based miner said today in a statement. Its stock jumped to the highest price in a decade.
“We note the statement,” Rio Tinto spokeswoman Karen Halbert said today by telephone, declining to comment further. Riversdale’s biggest holder, India’s Tata Steel Ltd., said it will continue to monitor the situation regarding its “valuable strategic investment.”
Coal deals this year have more than doubled after imports by China, the biggest consumer, surged fivefold in 2009. Walter Energy Inc. bid C$3.3 billion ($3.28 billion) for Western Coal Corp. last month, while Nathaniel Rothschild’s Vallar Plc agreed to buy stakes in Indonesia’s PT Bumi Resources and BT Berau Coal Energy to build one of the world’s largest coal producers.
Riversdale’s coal resources in Mozambique total 13 billion metric tons, split between the $2 billion Zambeze project and the Benga license, according to the company’s website.
“Riversdale has very large resources in Mozambique,” said Grant Craighead, managing director of Sydney-based research company Stock Resource. “The challenge for Rio is finding assets big enough to make a material difference to the company and this fits that criteria.”
Riversdale rose 16 percent to A$16.31 in Sydney trading, the highest close since March 2000. Rio advanced 0.9 percent to 4,456.5 pence at the 4:30 p.m. close in London, after retreating 0.5 percent in Sydney.
The proposed bid is a 16 percent premium to Riversdale’s average share price over the 20 days through Dec. 3. The average premium for coal-industry deals announced this year is 26 percent, according to data compiled by Bloomberg.
Rio is studying small-to-medium-sized acquisitions that are likely to be in the low “single-digit billion dollar range,” Chief Financial Officer Guy Elliott said Nov. 26. A bid for Riversdale fits with the company’s mergers and acquisitions strategy, Liberum Capital Ltd. said today in a note to clients.
Rio would need to win the support of Riversdale’s major holders, including Tata, which owns a 24.16 percent stake and a 35 percent interest in the Benga project.
“Tata Steel views Riversdale Mining as a valuable strategic investment and continues to be interested in developing the tenements of the company,” the Mumbai-based company said today in an e-mailed statement. “Tata Steel will continue to monitor the situation and will take appropriate action as deemed necessary.”
Benga may produce about 1.7 million tons a year of coking coal and 300,000 tons of thermal coal, with first exports expected in the second half of next year, according to Riversdale’s website. Coking coal is used by steelmakers and thermal coal fuels power plants.
Rio produced 7.5 million tons of hard coking coal from its operations in Australia’s Queensland state in 2009, according to a Jan. 14 statement. The company’s production growth in coking coal is estimated by Liberum at 12 percent over the next three years, meaning “this approach would hold strategic merit,” the brokerage said.
Rio, based in London, already has nine thermal coal mines in Australia and the U.S., one coking coal operation in Australia and two other mines that produce both types. Two thermal mines are under development, according to its website.
“While discussions with Rio Tinto are ongoing, there is no certainty that Rio Tinto or any other party will proceed with any proposal,” Riversdale said in the statement. “Rio Tinto advised the company that it is not in a position to submit a proposal for the acquisition of the company.”
Riversdale is valued at 13 Australian cents for every metric ton of coal resources, the company said in September. That compares with an average of A$3.03 for selected transactions from December 2007 to August 2010, it said.
Yanzhou Coal Mining Co.’s A$3.5 billion takeover of Felix Resources Ltd. last year cost A$5.22 a ton, according to Riversdale.
Not ‘Takeover Proof’
Riversdale’s top three shareholders together hold 50.6 percent of the company, according to Bloomberg data. That may not make them “takeover proof,” Credit Suisse Group AG said in May, noting that Peabody Energy Corp.’s bid for Macarthur Coal Ltd. would have allowed holders to retain their stakes. The deal didn’t succeed.
Mary Beth Grover, a spokeswoman for U.S. hedge fund Passport Capital LLC, Riversdale’s second-largest holder, declined to comment. A Sao Paulo-based press officer for Brazilian steelmaker Cia Siderurgica Nacional SA, the third-largest holder, also declined to comment.
Other potential suitors include Vale SA, the world’s biggest iron ore exporter, which has existing operations in Mozambique, UBS AG said today in a report. A Vale press officer in Rio de Janeiro declined to comment.
Riversdale is already in talks with Wuhan Iron & Steel Corp. on a potential $800 million investment by the Chinese steelmaker for a 40 percent stake in the Zambeze project and 8 percent of Riversdale. Discussions are continuing after a deadline for an agreement expired, Riversdale said Oct. 27.
Contract coking-coal prices climbed this year as the global economic recovery spurred competition between steelmakers in Japan and China. Prices may be “strong” in the short term because of a supply shortage, Stock Resource’s Craighead said.
Rio has repaired its balance sheet after debt ballooned 19-fold following its $38.1 billion purchase of Alcan Inc. in 2007. The company had net debt of $12 billion as of Aug. 5. Its biggest revenue unit is iron ore, which accounted for 28 percent of sales last year. Aluminum is the second-biggest earner.