Tata Steel, which won a bruising bidding battle for Corus three years earlier, may be heading for another, this time for coal to feed Corus.
The world’s third-largest mining company, Rio Tinto’s $3.2-billion potential bid for Australia’s Riversdale Mining, Tata Steel Europe’s only source of coking coal security, has sent the Indian group looking at all options. Tata Steel is the single-largest shareholder in Riversdale with 24 per cent. Coal from here is expected to flow in from 2012. Tata Steel Europe accounts for 70 per cent of the group’s operations, but has no captive mines.
“Tata Steel views Riversdale Mining as a valuable strategic investment and continues to be interested in developing the tenements of the company. Tata Steel will continue to monitor the situation and will take appropriate action as deemed necessary,” a Tata Steel statement said.
Tata Steel’s Singapore-based subsidiary, Tata Steel Global Minerals Holdings, also has a seat on the board of the Mozambique and South Africa-focused Riversdale.
The company’s statement is in the wake of a confirmation from Riversdale that it had discussions with Rio Tinto concerning a possible transaction at the corporate level, for an indicative consideration of around $13 per Riversdale share.
Fight or cash-out?
The Tata Steel stock today appreciated 3.4 per cent to Rs 634.95 on the Bombay Stock Exchange, in anticipation that the company would cash out. Tata Steel’s 24 per cent stake would be valued at $840 million at the current bid price.
Apart from the 24 per cent stake in the holding company, Tata Steel Global Minerals Holdings has a 35 per cent stake in Mozambique’s Benga project, combined with an offtake agreement for 40 per cent of its coking coal.
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Tata Steel entered into a joint venture agreement with Riversdale in 2007 and it turned out to be a windfall. In March 2008, an estimate of inferred coal resource contained in the northern part of the Benga licence in Mozambique was identified, equivalent to 1.94 billion tonnes, upgraded to four billion tonnes when the company also announced an increased estimate of coal reserves of 502 million tonnes this May.
The J P Morgan Australian Resource team believes a counter bid is likely. “The carrying value in Tata’s balance sheet was $232 million for the 21 per cent stake (during the year it acquired the remaining stake through market purchases).” The team, however, observed that Tata Steel’s balance sheet was stretched. “We believe Tata’s balance sheet lacks flexibility for a meaningful counter-bid,” the report said.
Earlier, India’s largest iron ore producer, NMDC, had evinced interest in Riversdale. “We have seen the recent developments but haven’t taken a decision. Our business development team had some issues. It’s not that we have rejected picking up a stake. We have prepared some papers and in the next three-four years, we will decide on what action to take,” chairman and managing director, Rana Som, said. NMDC has a memorandum of understanding with Tata Steel for a joint venture.
Tata Steel apart, Brazil’s CSN has a significant stake in Riversdale at 15.6 per cent and is the second largest shareholder. The other large blocks are: HSBC (9 per cent), J P Morgan (7.6 per cent), ANZ (6.9 per cent), Citicorp (5.1 per cent).