China Shenhua Energy (1088.HK:) (601088.SS), the country's biggest coal miner, plans to bid for a key stake in the coal unit of Rio Tinto, a newspaper reported on Monday.

Global mining giant Rio (RIO.AX) (RIO.L) is looking for bidders for its 76 percent stake in Australia's Coal & Allied Industries (CNA.AX), which runs three operations in New South Wales, the South China Morning Post reported on Monday, citing unnamed sources.

The unit is worth about $3.72 billion, the report said.

Analysts say the news is still too vague, but could be a good move for Shenhua as it seeks to secure assets beyond China.

Many coal companies are trying to cut costs right now, but Shenhua still has an ample cash position, said Michelle Leung, an analyst who covers Shenhua for CIMB.

Actually the news didn't disclose how much reserve the coal is going to provide or the quality of the coal. There are many uncertainties, Leung added. It could help to diversify as a source of resources. This is a good strategy for them to go overseas for long-term reserves.

China Shenhua is also pushing Rio Tinto for more assets to be included in the sale, the report said. The firm's chairman Chen Biting had previously said Shenhua was looking for acquisitions in Mongolia, Indonesia, and Australia, the Morning Post said.

As of 0335 GMT on Monday, Shenhua's Hong Kong-listed shares were down roughly 4.1 percent, underperforming the benchmark Hang Seng Index's 1.4 percent loss, in what brokers said was a response to the commodity price slump.

Shenhua's Shanghai shares had slid 0.36 percent, underperforming the Shanghai Composite Index's .SSEC 0.24 percent gain.

Shares in Coal & Allied, a highly illiquid stock due to Rio's majority stake, were not being traded on Monday.

Other likely bidders for Rio's 76 percent stake in Coal & Allied Industries include Mitsubishi of Japan and Switzerland's Xstrata (XTA.L), the South China Morning Post said.

Rio Tinto is lumbering under the weight of its debt load, brought on by its $38 billion buy of aluminium producer Alcan last year. It has already cut its forecast iron ore production estimates for 2008 and 2009 to around 175 million tonnes and 180 million, respectively.

Rio is axing 14,000 jobs, cutting capital expenditures by more than half, and seeking buyers for a host of core and non-core assets after bigger rival BHP Billiton (BHP.AX) (BLT.L) ended its $66 billion unsolicited takeover bid in November.

Bankers and analysts say the world's largest miner BHP, Brazil's Vale (VALE5.SA), Xstrata, and China's aluminium giant Chinalco, parent of Chalco (2600.HK) (601600.SS), are all eyeing Rio's diverse collection of assets.

(Editing by Jacqueline Wong)

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