ArcelorMittal, the world's top steel maker, has paid $604 million for a 15 percent stake in Australia's Macarthur Coal, setting up a possible bidding war for the miner and pushing its shares up 14 percent.

Soaring coal prices, driven by tight supply and voracious demand from fast industrialising China and India have put Australia's mining sector in play amid a global resources grab.

Arcelor paid about A$630 million for the 14.9 percent stake it bought on the market, or about A$20 per share, a 9 percent premium to Macarthur's closing price on Tuesday.

ArcelorMittal is a very large coal consumer and is looking to vertically integrate. There is a lot of motivation for them to launch a full takeover for Macarthur, said Mark Pervan, a senior commodities analyst at the Australian & New Zealand (ANZ) Bank.

With reports of CITIC and Xstrata also circling the company, that will put a lot of pricing tension on the stock since this could potentially lead to a bidding war.

Macarthur said Arcelor had approached it about a transaction. It gave no further details, but said it was already in talks with another unidentified group.

Private investor Nathan Tinkler, who owns a 10.4 percent stake in Macarthur, was the likely seller, The Australian newspaper reported on Wednesday. A trade of 22.09 million shares at A$20 a share was completed after the Tuesday close.

Macarthur could not be immediately reached for comment.

Shares in Macarthur, which have jumped nearly 62 percent since April 18 after it said it was in takeover talks with an unnamed group, were up 12.9 percent at A$20.75 by 0445 GMT, after hitting a life high of A$20.98.

Shares of other potential Australian mining targets Centennial Coal Ltd and Felix Resources Ltd also gained.

China's state-owned CITIC Group, which owns 19.9 percent of Macarthur, is considering a bid to raise its stake in the coal miner in a deal estimated to be worth $830 million, the South China Morning Post reported earlier this month.

The paper said Switzerland-based mining giant Xstrata Plc was also in takeover talks with Macarthur's founder Ken Talbot, who has been selling down his stake of around 24 percent.


Macarthur, which supplies more than a third of the world's pulverised coal used in steel making, holds a 73.3 percent stake in each of two mines in eastern Australia capable of yielding around 6.5 million tonnes of coal prized by steelmills and power generators annually.

It's an extraordinarily inflated price if you consider the company's immediate production profile, but it's an okay price if one assumes coal prices will stay high and Macarthur will be able to double its output, said a Sydney-based analyst who declined to be identified.

Macarthur currently produces about 4 million tonnes of coal a year, but some analysts said it could more than double its output by 2012 following the expansion of the Dalrymple Bay coal port in Queensland.

Arcelor's move reflects a global trend where steel producers are seeking to secure raw materials in a tight market and contain rising costs, after a tripling in coking coal prices this year.

Smaller miners are also selling stakes to obtain funding amid difficult capital markets.

South Korean steel maker POSCO last month said it would invest $200 million to take a 13 percent stake in a South African manganese mine, while Arcelor spent $133 million on a 16 percent stake in coal explorer Coal of Africa Ltd.

Australian coal miners, benefiting from sky-high prices, are also vying to control larger portions of the export market, while China has an ever-increasing presence in the local sector.

Xstrata in March paid A$1.09 billion for another Australian coal miner, Resource Pacific, and has spent billions of dollars more buying other outback miners.

Macarthur has appointed JP Morgan as its financial adviser. ($1=A$1.05) (Editing by James Thornhill & Ian Geoghegan)

(c) Reuters 2008. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.