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UPDATE 1-Rio Tinto in talks on $3.5 bln bid for Riversdale

Published 12/05/2010, 07:11 PM
Updated 12/05/2010, 07:16 PM

* Rio Tinto tentatively offers A$15 a share

* Rio not yet in a position to submit firm bid

* Riversdale shares soar 12 pct

* Other bidders seen likely to enter the fray (Adds analyst comment, details)

MELBOURNE, Dec 6 (Reuters) - Global miner Rio Tinto has made a $3.5 billion bid approach for Africa-focused Riversdale Mining , sending the target firm's shares surging 12 percent and setting up a potential takeover battle.

Rio's move on Riversdale is likely to spark a bidding war, as the company has hard coking-coal projects in Mozambique that could eventually make up 5-10 percent of the global market for the key steel-making raw material.

Riversdale confirmed media reports on Monday that Rio was offering around A$15 a share, which would value the group at A$3.5 billion ($3.48 billion), a 6 percent premium on Riversdale's close on Dec. 3.

Rio had no immediate comment on Riversdale's statement, which sent the smaller miner's shares to a high of A$15.90.

A deal would mark Rio's first significant acquisition since its badly timed $38 billion takeover of Alcan at the height of the commodities boom in 2007, which forced it to sell more than $13 billion worth of assets to help slash debt.

Rio said last week it was on the hunt for small to medium-sized acquisitions worth around mid-single-digit billions of dollars.

Rio would need to pay well over A$3.5 billion to win support from Riversdale's three major shareholders: Tata Steel , Brazilian steelmaker CSN and U.S. investment firm Passport Capital, which together own more than half the company, an analyst said.

"Not only will they have to pay a big premium for it, but there are likely to be other bidders," said CLSA analyst Hayden Bairstow, who has a price target of A$17.50 on Riversdale.

Riversdale stock last traded up 12 percent at A$15.80.

Brazil's Vale is seen as the most likely rival contender, as it already has coal mines in Mozambique. Xstrata Plc , Anglo American and Peabody Energy could also be interested.

BHP Billiton is seen as a less likely contender, as it has its own coking-coal growth options in Australia.

Riversdale's assets include the Benga project and neighbouring Zambezi project in Mozambique with high-quality coking coal used in steel-making.

The company is in the midst of completing an agreement to give China's Wuhan Iron & Steel Corp an 8 percent stake in the company and a 40 percent stake in the Zambezi project, another potential hurdle for Rio.

Riversdale also owns an underground coal mine in South Africa, Zululand Anthracite Colliery.

Macquarie is believed to be advising Rio Tinto, and UBS to be advising Riversdale, The Australian newspaper said. (Reporting by Sonali Paul; Editing by Mark Bendeich)

($1=1.007 Australian Dollar)

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