DEALTALK-Bidders circle Riversdale, but obstacles remain

* ArcelorMittal, Xstrata, Anglo eyeing Riversdale – sources

* Brazil, Mozambique govts, shareholder CSN may deter Vale bid

* Indian consortium confirms Riversdale interest

By Michael Smith and Brian Ellsworth

SYDNEY/RIO DE JANEIRO, Dec 20 (BestGrowthStock) – News of Rio Tinto’s
potential bid for Africa-focused Riversdale has left global mining
giants considering similar bids to tap into the Australia-listed firm’s
attractive Mozambique coal assets.

ArcelorMittal and Xstrata are “very interested” in
Riversdale, while Anglo American is also taking a look, three sources
with knowledge of the situation said.

Five state-run Indian firms have confirmed they were considering an offer,
attracted to Riversdale’s formidable coal assets, though no formal approaches
have been made so far.

Brazil’s Vale , which had been tipped as a prime candidate to buy
the asset, may be deterred by friction with Riversdale shareholders, pressure
from Brazil’s government to invest at home, and potential opposition from
Mozambique’s government.

Mozambique is seen as a key supplier of coal in the coming years given its
large reserves of thermal coking coal that has relatively low costs and is
well situated to serve China’s booming market.

Analysts say Riversdale may eventually supply 5-10 percent of the global
market for the key steel-making material.

Rio and its advisors Macquarie are said to be outraged that its interest
in Riversdale has gone public so early, pushing up the stock price and
potentially sparking a bidding war before they were ready to formalize a bid.


Graphic on top Australian mining deals:

Story on Rio in talks on bid for Riversdale [ID:nSGE6B50MD]

Breakingviews column on Rio’s bid approach [ID:nLDE6B50LL]

India’s coal shortage to deepen next year [ID:nSGE6AT083]


Riversdale’s biggest shareholder is India’s Tata Steel , with a
24 percent stake. Brazilian steelmaker CSN and U.S. investment firm
Passport Capital are also major shareholders.


Vale, the world’s top iron ore producer, has built up an extensive
logistics network in the region and would benefit from a massive boost in its
reserves of coal. It has identified coal, along with copper and fertilizers,
as a key area of expansion as its seeks to diversify its business.

“It makes a lot of sense (for Vale to bid for Riversdale),” said Xavier
Prevost, an independent analyst at XMP Consulting who formerly worked as a
mining official with South Africa’s government. “If Vale goes for Riversdale,
then they would have most of Mozambique, all the best parts of it.”

Vale declined to comment on the issue.

The firm this year bought into firms that control hundreds of miles of
rail lines in Mozambique and neighboring Malawi for its $1.7 billion Moatize
coal mine — where reserves are only around 10 percent of those at
Riversdale’s Zambeze project.

Neither Rio Tinto nor Riversdale have significant infrastructure in the
area. With heavy upfront investments in logistics lowering the margins on the
Moatize project, Vale could boost returns by taking control of Zambeze.

But the shareholder mix makes the takeover a complex one.

Tata, which has said it views its Riversdale stake as a strategic asset,
could also step in with an offer, while an Indian consortium which includes
Steel Authority of India and power producer NTPC said it
would decide by the end of December whether to bid.

One of Vale’s problems is that it may face harsh criticism from the
Brazilian government, which frequently pressures Vale to invest at home.

Vale could also face heavy resistance from CSN, which became part owner of
Vale when the iron miner was privatized in 1997 but has had a thorny
relationship with Vale for a decade.

According to one analyst who spoke off the record, Vale’s CEO Roger
Agnelli and CSN Chief Executive Benjamin Steinbruch fell out over the
direction of the iron miner, leading to an acrimonious exit of CSN from the
company and creating bad blood between the two companies.

“You know they don’t love each other, right?” the analyst said. “I don’t
see Vale being a partner with CSN anywhere, and I don’t see CSN reaching an
agreement to sell shares to Vale.”

Mozambique could also block a potential Vale takeover of such a major coal

Obete Matine, the country’s deputy national director of mineral resources,
told Reuters the government wants to see more foreign firms exploring coal
assets to boost state revenues.

He declined to comment on whether the government would be opposed to a
single company controlling most of its coal assets.
(Additional reporting by Jackie Cowhig in London, Agnieszka Flak in
Johannesburg, Charles Mangwiro in Maputo and Joseph Chaney in Hong Kong)

(Editing by Lincoln Feast)

DEALTALK-Bidders circle Riversdale, but obstacles remain