3:43 AM
By Sonali Paul
MELBOURNE | Mon Dec 6, 2010 5:21am EST
MELBOURNE (Reuters) - Anglo-Australian miner Rio Tinto made a $3.5 billion bid approach for Africa-focused Riversdale Mining, sending the target firm's shares surging 16 percent and setting up a potential takeover battle.
Rio's move on Australia's Riversdale is likely to spark a bidding war, as the company has hard coking-coal projects in Mozambique that could eventually supply 5-10 percent of the global market for the key steel-making material.
Brazil's Vale is seen by some analysts as the most likely rival bidder, as it already has coal mines nearby in Mozambique. India's Tata Steel, Riversdale's top shareholder, was also seen as a potential bidder.
Xstrata Plc, Anglo American and Peabody Energy could also be interested. Top coking-coal exporter BHP Billiton is seen as a less likely contender, as it has its own growth options in Australia.
Xstrata and Anglo declined to comment.
The company's fourth-biggest shareholder, Australian investment firm LinQ Management, expects Riversdale to be hotly contested, given the scarcity of good quality coking-coal assets and booming demand from China and India for the commodity.
"It's in a good part of the world for accessibility, and we think there's plenty of further upside for whoever's interested in buying it. Hopefully there will be other interested suitors coming to the table," LinQ Managing Director Clive Donner said.
Riversdale confirmed media reports that Rio was talking about an offer around A$15 a share for Riversdale, which would value the group at A$3.5 billion ($3.48 billion), only a 6 percent premium on Riversdale's close on December 3 ahead of a leak to a UK newspaper. Riversdale also hinted that it was talking to others.
"While discussions with Rio Tinto are ongoing, there is no certainty that Rio Tinto or any other party will proceed with any proposal for the acquisition of Riversdale," Riversdale said.
Rio Tinto confirmed it was in talks, but also said that it had told Riversdale it was not currently in a position to submit a formal bid for the company.
"Hence nothing is on the table," a Rio spokesman told Reuters in an email. "Discussions are incomplete."
Riverdale's shares hit a high of A$16.41 on Monday, its biggest one-day gain in more than two years. They ended up 15.7 percent at A$16.31.
UBS is advising Riversdale and Macquarie is advising Rio Tinto.
SEEKING MID-SIZED TAKEOVERS
A deal would mark Rio Tinto's first significant acquisition since its badly timed $38 billion takeover of Alcan at the height of the commodities boom in 2007, which forced it to sell more than $13 billion worth of assets to help slash debt.
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