Rio Digs for Aussie Coal on Way to $97

The Australian diversified mining giant Rio Tinto (NYSE:RIO) has recently struck a deal with Australian Pacific Coal Limited to invest in its coal project in eastern Australia’s resource-rich Bowen Basin. The project is currently under development. Rio Tinto has operations across six continents, but primarily focuses its operations in Australia and Canada. The company competes with mining giants such as Vale (NYSE:Vale), BHP (NYSE:BHP), Freeport McMoran (NYSE:FCX) and other mining companies. ^[1]

We have a $97 price estimate for Rio Tinto, which is 30% ahead of the market price.

The project, located at Mt Hillalong, is an advanced exploration target, located 22 kilometers to the west of Rio Tinto’s Hail Creek mine that produces close to 6 million tons of coking coal annually.  The total budget, announced in March 2011, for the further exploration of the project over the next 12 months is close to $ 1 million.

According to a statement by Australian Pacific, the exploration arm of Rio Tinto has signed a non-binding letter of intent, wherein the company will undertake the financial and technical risks in examining and estimating the coal reserves and the production potential at the Mt. Hillalong project. Whether the company will go all-out to acquire the project or enter into a joint venture for the project is yet to be decided. In case Rio Tinto does not buy the project, Australian Pacific will hold the full ownership, added the company.

Rio Tinto is working aggressively to develop additional resource base of coal to meet the rising demand. Along with the Mt. Hillalong, some of the existing development projects of Rio Tinto are at the Kestral Mine and the Mt Pleasant. Click here to see a detailed analysis of Rio Tinto’s energy division – Coal & Uranium.

See our complete analysis of Rio Tinto

1. Rio Tinto In Deal To Invest In Australian Pacific Coal Project, Dow Jones Newswires [↩]