Anglo-Australian miner Rio Tinto is finalizing a $3.8 billion takeover bid for Africa-focused Riversdale , according to two sources, upping an earlier offer as it seeks to gain key coking coal supplies amid soaring demand from India and China.
A formal bid for Mozambique-based Riversdale Mining could spark a bidding war by drawing out other suitors wanting access to what is expected to be the world's second-largest coal exporting market in coming years. A group of state-run Indian firms has said it is looking at Riversdale and other major mining companies are also interested, sources have said.
Rio Tinto was locked in talks with Australian-listed Riversdale's board over an A$16 per share takeover offer but a final deal has not yet been completed because of some last minute wrangling over price, one source familiar with the matter said Wednesday.
An announcement was expected either later Wednesday or Thursday, one source said, confirming media reports that Rio Tinto had offered around A$16 per share for Riversdale. The sources could not be identified as they were not authorized to speak to the media.
An A$16 per share bid would be a 13.5 percent premium to Riversdale's close on December 3 before news of Rio's interest was announced, but lower than its last trading price of A$16.30.
Shares of Riversdale, which said earlier this month it was talking to Rio about a A$15 per share offer, were placed in a trading halt on Tuesday after newspaper reports about a new offer.
There was some speculation Rio may offer up to A$16.50 but one of the sources said on Wednesday the price was closer to A$$16.00.
Spokesmen for both Riversdale and Rio Tinto declined to comment.
Rio, the world's No. 2 iron ore miner, wants to bulk up on coking coal reserves. Riversdale's large reserves have relatively low costs and are well situated to serve China and India's booming markets.
With Mozambique emerging as a potentially substantial supplier, the trend will obviously be upwards if you're talking about Africa as a whole, said Andrew Harrington, an analyst with Patersons Securities in Sydney.
Riversdale may eventually supply 5-10 percent of the global market for the key steel-making material, analysts say.
Chinese firms have been investing heavily in coal mines in countries like Australia, South Africa, Indonesia and Russia to meet growing demand, while Indian companies are also stepping up their efforts to secure raw materials.
Five state-run Indian firms last week confirmed they were considering an offer and a source at a member of the consortium said a meeting was planned later on Wednesday to appoint a merchant bank to advise on whether to bid.
We are inclined toward bidding, subject to the outcome of due diligence, the source said, requesting anonymity.
ICVL is only interested in picking up some stake in the company. It wants access to the resources in the company, he added.
The members of the International Coal Ventures (ICVL) consortium are NTPC , Steel Authority of India , NMDC , Coal India and Rashtriya Ispat Nigam Ltd.
Other potential interested parties include Anglo American , ArcelorMittal and Xstrata , according to sources close to the deal, although some analysts said they may be unable to match a A$16 per share bid.
India's Tata Steel , which owns about 24 percent of Riversdale, is
another which could be interested.
Never say never. Tata is the most likely or other similar Indian groups have to be a possibility. Anyone with significant exposure in that area already is less likely, said Tim Barker, manager of the natural resources fund for BT Financial Group.
Brazil's Vale , which owns nearby coal mines on Mozambique was not expected to bid.
Riversdale's large shareholders are seen as potential obstacles to a deal. Brazilian steelmaker CSN and U.S. Investment firm Passport Capital are also large shareholders, in addition to Tata Steel.
Rio was making the offer alone and not part of a joint venture with another party, one source said.
BACK IN THE HUNT
Rio Tinto is back on the acquisition trail after the global economic downturn froze its expansion plans. It took on $40 billion in debt to buy Canadian aluminum maker Alcan in 2007 and was forced to sell assets and new equity to lower its gearing.
Last month, the mining company said it was set to nearly triple capital spending, to $11 billion in 2011.
Unlike cash-rich BHP Billiton , which recently made an unsuccessful $39 billion bid for fertilizer giant Potash , Rio has been off the acquisition trail in recent years as it sought to repair its balance sheet.
BHP is not expected to bid for Riversdale as it has its own coal unit in South Africa.
A successful bid would cap off a boom year for mergers and acquisitions involving Australian-listed firms. Another coal miner Whitehaven Coal has also invited interested bidders to conduct due diligence on the company.
UBS is advising Riversdale on the deal and Rio Tinto is being advised by Macquarie .
($1 = 1.006 Australian Dollars)
(Additional reporting by Ruchira Singh in NEW DELHU, Arada Kultawanich in BANGKOK and Rebekah Kebede in PERTH; Editing by Balazs Koranyi, Lincoln Feast and Muralikumar Anantharaman)