Monday, August 8, 2011
Rio targets coal company
Mon, Aug8, 2011 |Agency AAP
Mining giant Rio Tinto has moved to take advantage of plummeting global sharemarkets, offering to buy the coal miner it already mostly owns.
The informal bid for Coal & Allied is viewed by market players as an opportunistic one for a high quality coal company in an industry with few buying opportunities.
Rio Tinto and Mitsubishi Development made the $122 per share joint proposal for the Coal & Allied stock they do not already hold, valuing the company at $10.6 billion, a 34 per cent premium on last week's closing price.
This offer follows other recent moves in the industry, including Peabody and Arcelor Mittal's recent bid for Australia's MacArthur and Rio's own successful takeover of Mozambique-based Riversdale.
The plunges in financial markets of recent days had given Rio the chance to gain full ownership of a good quality coal asset, Mine Life senior resources analyst Gavin Wendt said.
"There is near-term weakness out there, as far as coal company equities and sentiment are concerned ... but the bigger picture has not changed," Mr Wendt told AAP.
"The demand-supply fundamentals (for coal) are very strong."
Rio and Mitsubishi already own nearly 86 per cent of Coal and Allied, with Rio holding 75.7 per cent. Mitsubishi will provide about $1 billion of the $1.5 billion needed for the acquisition.
Coal & Allied has formed a committee to consider the bid, including chairman Bryan Davis, who said he was yet to form a view.
Coal & Allied is based in Brisbane and has three mines in NSW's Hunter Valley that produced 13.23 million tonnes (Mt) of mostly thermal coal (used in power generation) in the six months to June.
The company reported a first half net profit of $227 million late last month.
UBS Resources released a statement giving Coal & Allied a Buy rating, saying that corporates were placing more value on coal than sharemarkets, which may lead to a jump in coal shares.
Coal & Allied was the best performer on the ASX All Ordinaries index on Monday, with its shares shooting up 28 per cent to a three month high $116.20.
Rio shares slumped 4.7 per cent to $68.63. That followed Friday's six per cent drop. Investors are afraid that demand for resources will dry up if the sovereign debt problems in the US and Europe lead to a global recession.
Iron Ore sales contributed nearly 80 per cent to Rio's record $US7.6 billion ($A7.3 billion) record first-half profit last week, compared to less than six per cent from its NSW and Queensland coal mines.
EL&C Baillieu Stockbroking resources analyst Adrian Prendergast said Rio should increase its energy exposure and the coal interests it already owned made it a logical path.
"It certainly will help their business, it integrates with their interests across all commodities as a cheap energy source at the heart of most of their customer bases in developing regions," he said.
Stock Resource managing director Grant Craighead said the advantage of owning 100 per cent of Coal & Allied, was that Rio could fit its operations into its own through marketing, shipping and infrastructure.
The largest institutional shareholder in Coal & Allied, Perpetual Ltd, which owns 6.3 per cent of the company, said it supported the proposal.
The offer of $123.20 per share allows shareholders to retain the dividend of $1.20 per share scheduled to be paid on August 26.