Rio, CSN in talks over sale of Riversdale stake

Rio Tinto Group, seeking to buy Riversdale Mining for A$3.9 billion ($5.3 billion), is in talks to buy shares in the coal company from Cia Siderurgica Nacional, sources say.

The two people declined to be identified because the discussions are private. CSN, as the Brazilian steelmaker is known, owns 19.9 per cent of Sydney-based Riversdale, according to Bloomberg data. Tata Steel owns 27 per cent, the data shows.

It wasn't clear how many shares Rio would buy from CSN.

Rio confirmed it is in talks with a major shareholder after Riversdale halted its shares from trading yesterday in Sydney, citing notification by the London-based company of discussions.

Control of Riversdale's projects in Mozambique would boost Rio's supply of steelmaking coal as prices double.

"If neither of these companies are sellers to Rio, I think Rio is likely to stay there with a minority interest of 40 per cent," said Peter Rudd, mining and resources research manager at Armytage Private.

"Maybe subsequently there's a share issue and they'd be able to take up their entitlement and maybe underwrite a shortfall and therefore increase their involvement. That's very speculative."

Sweeter Bid Rio said on March 10 it would raise its offer to A$16.50 a share from A$16, should more than half of Riversdale's holders accept.

The deadline for the sweetened bid was yesterday, with the bid overall set to expire on April 6.

Rio now owns 41.04 per cent of its target, according to a filing yesterday.

Calls to CSN spokeswomen Flavia Ferreira and Edma Nogueira weren't answered outside regular business hours yesterday.

Rio spokeswoman Karen Halbert declined to comment further on the talks when contacted in Melbourne.

"We're in discussions," she said.

Tata and CSN have each increased their stakes in Riversdale since the offer opened.

Coal producers are being targeted as prices gain, forcing companies to spend more on acquisitions to secure reserves in nations from Australia to Mozambique as consumption in China and the developing world drives up valuations.

A record US$30 billion ($40 billion) in deals may be completed in the coal industry this year as acquirers pay an average 33 per cent premium, the highest in at least a decade and double the historical average, Bloomberg data shows.

Tata's managing director H.M. Nerurkar said on February 21 his company wanted to retain its stake in Riversdale. Tata also owns 35 per cent of Riversdale's Benga coal project.

- BLOOMBERG