Rio Tinto gains control of Riversdale

Anglo-Australian resources giant Rio Tinto has stamped its control on its $4-billion takeover target, Riversdale Mining of Australia, after securing more than half the shares.

“Rio Tinto’s shareholding in Riversdale today passed 50 per cent and may increase further with the takeover offer remaining open until 20 April 2011,” the group said in a statement. Earlier this week, Rio increased its Riversdale offer to A$16.50 ($17.20) per share from A$16, after topping its target acceptances level of 47 per cent. That valued Riversdale at almost $4 billion.

With this, Tata Steel’s wait for coal from Riversdale’s Mozambique mines is set to get shorter. It is the second-largest shareholder in the Australian miner.

Rio said it would move quickly to start working with the Riversdale team to accelerate the development of the projects in Mozambique.

Riversdale’s key assets in Mozambique are its Benga and Zambeze projects. Tata Steel has a 35 per cent stake in the Benga project and an off-take agreement of 40 per cent of the mine’s output. With an estimated coal reserve of 9 billion tonnes, the mine is expected to go a long way in providing the raw material for Tata’s steel operations in Europe and India.

Rio Tinto Energy Chief Executive Officer Doug Ritchie said, “This is an exciting day for Rio Tinto and Riversdale. The new Riversdale board will reflect our majority shareholding and help clear the way for the development of Riversdale’s assets as quickly as possible.”

Ritchie, along with Matt Coulter, chief development officer - coal, Rio Tinto Energy, and David Peever, managing director of Rio Tinto Australia, have been appointed to the Riversdale board. Additional board appointments are expected to follow. N K Misra is the sole representative of Tata Steel on Riversdale’s board.

Meanwhile, B Muthuraman, non-executive vice-chairman of Tata Steel, told reporters in Delhi that the company continued to maintain its stance on Riversdale. The company maintains that its shareholding in Riversdale is strategic to its quest for raw material integration. After numerous open market purchases over the past two years, it holds a 27 per cent stake in the Australian miner.

Prasad Baji, senior vice-president, Edelweiss Securities, said, “The potential outcome of Rio Tinto taking over Riversdale is that the business will be taken to the next level. With the kind of expertise that Rio has, there is a better possibility of building a better business. Now, we need to await Tata Steel’s role in the development of the projects.”

Next year is crucial for Tata Steel on the raw material front, as its two big-ticket investments, the Benga project for coking coal and the New Millennium Corp joint venture for iron ore, will come on stream. New Millennium Capital Corporation is an 80:20 JV between Tata Steel Global Minerals Holdings, a wholly-owned subsidiary of Tata Steel, and New Millennium Capital Corporation for operating the DSO mining project in Canada. Tata Steel owns 27.4 per cent of New Millennium and is the corporation’s largest shareholder.

In an earlier interview with Business Standard, Chief Financial Officer Koushik Chatterjee had said the first target for the company was to reach 25 per cent raw material integration for Tata Steel Europe.

“Tata Steel Europe’s coal consumption is 12.5 million tonnes,” he had said. If the company wanted to achieve 25 per cent raw material integration, it will need three million tonnes of coking coal, he had said. “Once Riversdale’s Stage-II is done, we will get three million tonnes of coal.”

Rio, too, believes as Riversdale has already received the mining concession for the Benga project, the initial coal export is likely to happen by the end of this year.

An analyst with an international research company, said, “Rio Tinto coming on board is definitely an advantage for Tata Steel. The company has expertise in mining and significance presence in Africa. It would have been very difficult for Riversdale and Tata Steel alone to develop the projects within the specified costs and time.”

Ritchie of Rio Tinto said, “Our long-term development strategy for Riversdale underlines Rio Tinto’s commitment to Africa, where our activities extend beyond our operating mines, including extensive exploration programme and numerous ongoing projects in the region.”