Rio Raises Riversdale Bid to $3.9 Billion After Resistance

Rio Tinto Group, the world’s second-largest mining company, raised its bid for Riversdale Mining Ltd. (RIV) by 3 percent to A$3.9 billion ($3.9 billion) as share purchases by steelmakers threaten to scuttle the deal.

“The choice for Riversdale shareholders is clear - accept the $16 or $16.50 on offer or risk seeing their share price return to pre-bid levels,” Doug Ritchie, chief executive of Rio’s energy unit, said in the statement. Rio will pay A$16.50, 9 percent more than Riversdale's close yesterday, should more than half its shareholders accept, Rio said.

Gaining control of Riversdale’s Mozambique projects would boost Rio’s reserves of steelmaking coal as prices climb. Rio has said it will settle for a controlling stake as Sydney-based Riversdale’s two biggest holders, Mumbai-based Tata Steel Ltd. (TATA) and Cia Siderurgica Nacional SA (CSNA3), increased their stakes to strengthen their hand in negotiations for supply contracts.

Riversdale shares reversed an earlier 4 percent gain to trade down 0.3 percent at A$15.08 at 11:27 a.m. Sydney time. The decline reflects the “uncertainty of the situation,” Gregory Lafitte, head of Asian merger arbitrage at Louis Capital Markets Ltd. in Hong Kong said in an e-mail. Rio declined 1.9 percent.

At the increased offer, Rio is paying 6.9 times the asset value of Riversdale, according to data compiled by Bloomberg. That compares with the 1.6 times median of 10 comparable industry deals globally in the past five years.

Global mining deals have had the best start to a year since 2008 with 261 deals worth $31.8 billion, according to data compiled by Bloomberg. There were 1,590 deals worth $144.8 billion last year, the highest level since 2007.

Rio extended its offer, recommended by the Riversdale board, by two weeks to April 1. The company holds 17.5 percent of Riversdale, according to Bloomberg data. Tata Steel holds 27.1 percent and CSN, as the Brazilian steelmaker is known, has a 19.9 percent stake.

Tata Steel’s Managing Director H.M. Nerurkar said on Feb. 21 his company wanted to retain its stake in Riversdale. Tata also owns 35 percent of Riversdale’s Benga coal project in Mozambique. Flavia Ferreira, a spokeswoman at CSN, as the Brazilian company is known, didn’t immediately respond to e- mails seeking comment today.

Global coking coal demand may gain about 7 percent this year to 245 million tons from about 230 million tons in 2010, coal researcher McCloskey Group Ltd. said Jan. 17. Shipments may rise to 415 million tons by 2020, he said.

A successful takeover would add 13 billion tons of coking coal to its resources, split between Riversdale’s Zambeze project and the Benga development, according to the Australian miner’s website. Riversdale said Jan. 24 it would need an extra A$400 million to fund its share of the development cost for the Benga project’s stages 2 and 3 and “not less” than $2.9 billion for the Zambeze project.

“There is no question that Rio Tinto’s expertise is crucial to overcoming the development challenges of Riversdale’s projects,” Rio’s Ritchie said.

Construction for the first stage of the Benga project is targeted for completion during the second half of this year, for production capacity of 5.3 million metric tons of coal that may rise to 20 million tons. The Zambeze project is set to complete a pre-feasibility study in the same period, and production won’t start before 2014, Riversdale said.