Rio bids A$3.9B for Riversdale

Rio Tinto (rio-n, rio-l) wants more coal: the major has offered A$3.9 billion for Riversdale Mining (riv-a), an Australian coal company with one mine in operation, one in construction, and one primed for development.
Speculation of a takeover bid has pushed Riversdale’s share price from below A$12 to above $16 over the last six weeks, closing recently at A$16.57. The speculators were correct about a bid but overestimated its level, as Rio is offering A$16 per share.
The bid values Riversdale at A$3.9 billion. In announcing the deal, the Riversdale board highlighted that the offer price represents a 46% premium to the one-month volume-weighted average Riversdale share price on Nov. 3, 2010, which is “the day prior to speculation arising around potential takeover action.” The offer also constitutes a 24% premium to Riversdale’s one-month volume-weighted share price on Dec. 3, the last trading day prior to Riversdale confirming it was in discussions with Rio about a possible corporate transaction.
The Riversdale board is recommending shareholders accept the offer and Rio has entered into lock-up agreements covering 14.9% of the issued share capital. The offer is still subject to approval by at least half of Riversdale’s shareholders.
“The recommending directors do not believe that the Riversdale share price at the close of trading on Dec. 19, is a meaningful benchmark for premium purposes due to the significant takeover speculation that has been influencing the Riversdale share price,” the company said in the announcement. The directors went on to describe the offer as “appropriate” considering the pre-production nature of the majority of Riversdale’s assets and the significant time, risks, and uncertainties involved in bringing those assets to production.
All of Riversdale’s projects are in Africa: two in Mozambique and one in South Africa. The Benga project, in Mozambique’s Tete province, is a joint venture with India’s Tata Steel, which owns 35%. The partners have identified 4 billion tonnes of coal resources, including 502 million tonnes of reserves, and are building a mine that should be operational by September. In its first stage the operation should produce 5.3 million tonnes of coking coal annually; the partners are assessing the economics of gradually expanding the mine to bring annual production to 20 million tonnes.
Riversdale’s other Mozambique project is Zambeze; it is directly adjacent to Benga and hosts 9 billion tonnes of coal resources. In mid-2010 Riversdale signed a memorandum of understanding (MOU) with Wuhan Iron and Steel Corp. (WISCO) and a logistics partnership agreement with China Communications Construction for the development of Zambeze. The MOU provides for WISCO to earn a 40% stake in the project for US$800 million, to be paid in three tranches and subject to the achievement of certain milestones. Production from Zambeze is not expected until 2014.
And the company’s only operating mine is the Zululand Anthracite Colliery, in the Zululand coalfield of northern Kwa-Zulu Natal, South Africa. In the year ending June 2010, the mine produced 753,400 tonnes of coal. The mine still has 40 million tonnes of coal in situ, enough to support another 13 years of operations.
“Riversdale is at the crossroads of having to commit significant resources and funds to develop our coal projects and to make substantial investments in infrastructure, particularly for the Zambeze coal project,” said managing director Steve Mallyon. “The offer provides immediate value certainty and, if accepted, shareholders do not have to inject further equity to fund the development.”
On news of the Rio offer Riversdale moved 3 million shares to creep up another A27¢, to A$16.57.