(SID) Rio Tinto to Buy Tata’s Riversdale Stake

Recently, Rio Tinto plc (RIO) received a nod from the Indian Steel major Tata Steel to buy 26% stake in its coal mining company, Riversdale in an open offer of AUD 16.5 per share, or roughly $17.36 per share. The deal is valued at $1.1 billion.

The deal is expected to give Rio Tinto full control over the Riversdale coal miner for secure coal assets for Rio’s mining requirements, on the backdrop of rising fuel prices. The transaction is expected to provide significant potential for increasing Rio Tinto’s coal output.

Rio won majority control of Riversdale earlier in 2011 with a $3.9 billion bid. The company raised its holding in the African Miner to 73% in April, following a deal with the Brazilian steelmaker, Companhia Siderurgica Naciona (SID) for its 19.9% stake. With the current rise in holding, the company is expected to speed up the development of Benga and Zambeze coal projects of Riversdale.

Tata Steel, however, was previously hesitant on the stake selling issue, as they were not having enough inventory of a long-term coal supply for feeding their European steel manufacturing plants.

Headquartered in London, UK, Rio Tinto plc is engaged in exploring, mining, and processing the earth’s mineral resources, producing a broad range of metals and minerals. Rio Tinto competes against the global mining giants like BHP Billiton (BHP) and Vale (VALE) and smaller mining companies like Cliffs Natural Resources (CLF) and Freeport McMoran (FCX).

We currently have a Neutral recommendation on the stock supported by Zacks #3 Rank, which implies a short-term (1-3 months) Hold rating.

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