[miningmx.com] — THE board of Riversdale Mining – except for Tata Steel representative N K Misra – has approved a bid of A$16 per share in cash from Rio Tinto for the coal junior “in the absence of a superior offer”.
Tata holds a 22% equity stake in Riversdale, which owns two major coking and steam coal projects on the Moatize coal field near Tete in central Mozambique.
Rio Tinto’s bid is good news for Riversdale minority shareholders as well as the future prospects for Mozambique’s fledgling coal industry – but it’s bad news for South Africa.
Riversdale confirmed on December 6 it had been in discussions with Rio Tinto over a bid at $15/share but said Rio Tinto had indicated it was “not in a position to submit a proposal for the potential acquisition of the company’.
Misra’s decision to abstain could be taken as an indication that Rio Tinto may face serious opposition to this bid.
Tata teamed up as a joint venture partner with Riversdale in 2007, when it bought a 35% stake in the Benga project. This also entitled Tata to buy 40% of the coking coal produced from Benga at market prices.
Riversdale then lined up a second JV partner for its separate Zambeze project, in the form of Wuhan Iron and Steel (Wisco).
That agreement was supposed to be completed by end-October, but negotiations were not concluded and the present state of play is unclear.
The agreement provided for Wisco to buy 40% of Zambeze and 8% of Riversdale itself, which would also give the Chinese steel maker the right to buy 40% of the coking coal from Zambeze at market prices.
Both deposits are huge, with the resource at Benga put at 4 billion tonnes (bn t) while Zambeze is estimated to host a resource of up to 9bn t.
Long-term plans are to build mines producing up to 20 million tonnes (mt) per year of coal on a run-of-mine basis from each deposit.
The scale and quality of the projects is what must have attracted Rio Tinto, but first prize for the group must surely be outright control of the production from these deposits.
A riposte in the form of a counter-bid from Tata has to be a possibility, perhaps in partnership with the various other potential Indian bidders over which there has been considerable media speculation.
Neither Riversdale chairperson Michael O’Keeffe nor spokesperson Bill Kemmery could be reached for comment.
The involvement of a second global resource major in the Moatize coal field, following the initial developments by Brazilian giant Vale, confirms the potential of this huge resource.
Having two groups the size of Vale and Rio Tinto operating here also makes it far more likely that swift moves will be made to beef up Mozambique’s wholly inadequate rail and port infrastructure.
Those logistical constraints are the biggest obstacles to the development of the Moatize field as one of the world’s major coal mining regions.
It’s interesting to see O’Keeffe now citing these problems as one of the reasons why Riversdale shareholders should accept the Rio Tinto bid, given his previous gung-ho attitude.
Asked about the transport problems – in particular concerning his proposal to barge coal down the Zambezi River – O’Keeffe told Miningmx in February 2008: “I’m an Australian. We have a can-do attitude. The more people tell me something can’t be done, the more determined I get to do it.’
Now he comments in the Riversdale statement that the Rio Tinto offer is “appropriate, given the pre-production nature of the majority of Riversdale’s assets and the significant time, risks and uncertainties involved in bringing those assets to the production stage.
“The development of both projects will require a substantial commitment of time, resources and capital including for the development of the rail, port and barging infrastructure which is needed to take the coal to market.
“The recommending directors consider a fixed cash amount of A$16 now to be an attractive alternative for Riversdale shareholders.’
I think he’s right, given that Riversdale shares were trading at around $3 in July 2007 and that the company has so far only completed the “easy’ part of securing and proving up the exploration tenements and bringing JV partners on board.
This deal is bad news for South Africa, because a rampant coal export industry in Mozambique is going to divert investor attention away from this country’s coal industry.
SA’s coal exports have been hampered for years by lack of rail capacity and there’s still no indication of when the rail infrastructure will be put in place to meet the present 91mt/year export capacity of the Richards Bay Coal Terminal.
Now, throw in the uncertainty around black economic empowerment as well as security of tenure over mining rights, together with the ongoing nationalisation debate.
You have to wonder how much all of this influenced Rio Tinto’s decision to sell its previously much-vaunted Chapudi coal project in Limpopo Province to Coal of Africa at a bargain basement price of $75m, and focus on Mozambique instead.
