Rio Tinto makes $3.8-bn offer for Riversdale

Riversdale Mining Ltd, developing coal mines in Africa, was halted from trading in Sydney after the Telegraph newspaper reported Rio Tinto Group had raised an earlier A$3.5 billion ($3.49 billion) takeover offer.

Riversdale shares will be halted pending a statement about a “possible control transaction,” the Sydney-based company said today in a statement. London-based Rio submitted a new proposal, the Telegraph newspaper said, without saying what the offer was. Rio may offer about A$16 a share, the Australian newspaper reported, without saying where it got the information.

Buying Riversdale would increase Rio’s production of steelmaking coal as demand for the commodity gains. Coal deals this year have more than doubled to $35 billion. Rio spokesman Bruce Tobin and Bill Kemmery, a Riversdale spokesman, declined to comment.

“Rio are very forward looking,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd said in an interview in Bloomberg’s Melbourne bureau. “Demand is picking up quite strongly, but it is going to get a lot stronger.”

Global deals
Riversdale shares closed at A$16.30 yesterday, up 16 per cent from December 5, the day before it disclosed talks with Rio. Kemmery of Fortbridge Consulting Pty, which handles Riversdale media communications, wasn’t able to provide any further information. Rio gained 1.5 per cent to A$86.70 at the 4.10 pm Sydney time close on the Australian stock exchange.

Global mining deals have more than doubled this year to $137 billion, the highest level since 2007, according to data compiled by Bloomberg. Metal prices, as measured by the London Metals Index which tracks six commodities, have gained 34 per cent in the past six months.

Sojitz Corp, a Japanese trading company, today paid ¥17 billion ($203 million) to raise its stake in Australia’s Minerva coal mine to 96 per cent from 45 per cent, spokesman Yoshikazu Ichikawa said by phone.

Rio held talks with Riversdale for a possible deal at A$15 a share, Riversdale said on December 6. Rio noted the statement, though declined further comment. Rio may need to boost its offer by 25 per cent to A$4.9 billion to win control of Riversdale, Royal Bank of Scotland Plc said in a December 6 report.

Initial premium
The initial proposal was a 16 per cent premium to Riversdale’s average share price over the 20 days through December 3. The average premium for coal-industry deals announced this year is 26 per cent, 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 on November 26. A bid for Riversdale fits with the company’s mergers and acquisitions strategy, Liberum Capital Ltd said this month.

Riversdale’s coal resources in Mozambique total 13 billion metric tonnes, split between the $2 billion Zambeze project and the Benga license, according to the company’s website.

Rio would need to win the support of Riversdale’s major holders, including Tata Steel Ltd, which holds a 24.16 per cent stake and a 35 per cent interest in the Benga project.

Benga may produce about 1.7 million tonnes a year of coking coal and 300,000 tonnes of thermal coal, with first exports expected in the second half of next year.