Rio Tinto Buys Tata Steel’s 26% Stake in Riversdale
Source: Riversdale Mining Ltd.
Indian Steel major Tata Steel recently agreed to sell its 26% stake in the coal mining company Riversdale to Rio Tinto (NYSE:RIO) in an open offer at AUD 16.5 per share, or roughly $17.36 per share. The deal is valued at $1.1 billion.((India’s Tata Steel sells Riversdale stake to Rio Tinto, Reuters)) Rio Tinto competes against other global mining giants like BHP Billiton (NYSE:BHP) and Vale (NYSE:VALE) as well as smaller mining companies like Cliffs Natural Resources (NYSE:CLF) and Freeport McMoran (NYSE:FCX). The company has operations across six continents but primarily focuses in Australia and Canada.
Our $96.99 price estimate for Rio Tinto’s stock value implies a significant premium to market price.
The deal will give Rio Tinto full control over the coal miner and helps to secure coal assets for mining requirements in case of rising fuel prices. Tata Steel was previously reluctant to let go of its stake, a crucial asset to fuel their European steel manufacturing plants. Tata Steel will still hold a 35% stake in the Benga project in Mozambique through its 35:65 joint venture with Riversdale.
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Rio Tinto raised its holding to 73% in April after striking a deal with the Brazilian steelmaker CSN for its 19.9% stake in Riversdale and expressed plans to delist the company. Rio Tinto will aim to accelerate the development in the Benga coal project and the Zambeze coal project (100% owned by Riversdale).
The complete control over Riversdale creates significant upside potential for Rio Tinto’s coal output.
See our full analysis for Rio Tinto’s Stock Here.