Rio is facing a battle for Riversdale's coal mines

By ROB DAVIES FOR THE DAILY MAIL
Updated: 16:53 EST, 23 December 2010

Anglo-American mining titan Rio Tinto edged closer to a £2.5billion takeover of Riversdale Mining, but faces becoming embroiled in a bidding war for the sought-after target.

Rio is attracted by Sydney-based Riversdale's coal mines in South Africa and Mozambique, which supply coking coal used in the production of steel, and has already had a bid at A$15 per share (or £2.2billion) knocked back.

But eager Rio has opted to raise its offer in a bid to cash in on the demand for steel in industrialising and highly populated economies such as India and China.

Riversdale Mining: If Rio can seal the deal, it would be the company's first major acquisition since its £19.5billion takeover of Alcan in 2007

However, Rio (down 44.5p to 4535p) may need to raise its offer if it cannot secure the blessing of Riversdale's three largest shareholders, India's Tata Steel, Brazilian steel group CSN and US investment firm Passport Capital.

Shares in Riversdale closed at A$16.57 on the Sydney stock exchange yesterday on news of Rio's improved A$16 per share offer, suggesting investors may hold out for even more.

And the company could face pressure to sweeten the deal in the face of a potential counter-bid from rivals including Tata, which is mulling whether to build its 24 per cent holding into a majority stake.

A consortium of five Indian state-run companies - International Coal Ventures - has previously shown interest in Riversdale and is considering an offer, according to reports from India.

And Brazilian mining success story Vale has also been linked with a bid, largely because it owns assets adjacent to Riversdale's in Mozambique.

But Riversdale boss Michael O'Keeffe gave Rio hope with a glowing assessment of its offer, which he said would be ' transformational' for the company.

If Rio can seal the deal, it would be the company's first major acquisition since its £19.5billion takeover of Alcan in 2007, which left the world's third-largest mining company struggling with massive debt and prompted criticism from shareholders and analysts.

Ambitious plans to form a £75billion iron ore joint venture with rival BHP Billiton hit the buffers earlier this year, amid opposition from European regulators.

Scrapping the plan forced Rio to look at other options to expand its iron ore business and it subsequently announced plans to spend a record £9bn on beefing up its operations in the Pilbara region of Australia.