Rio Tinto Ltd. (RIO) on Thursday won the endorsement of Riversdale Mining Ltd.'s (RIV.AU) board for an improved A$3.9 billion takeover bid for the Mozambique-focused coal miner.

But analysts said that the diversified mining giant may have to again sweeten its offer to woo a Riversdale shareholder register that includes India's Tata Steel Ltd. (500470.BY) and Brazil's Cia. Siderurgica Nacional (SID).

Coking coal used in steelmaking is coveted by emerging economies undergoing construction booms. Their steelmakers want to reduce a dependence on traditional suppliers such as Rio Tinto by investing in alternative sources of coal.

Mozambique is expected to become the second-largest producer of coking coal within the next 15 years behind Australia, which currently accounts for two-thirds of all global seaborne trade of the commodity.

Asset sales, a large equity raising and a recovery in commodity prices have helped Rio Tinto get its balance sheet back in order after it was left heavily indebted by the acquisition of aluminium company Alcan shortly before global markets plunged in 2008.

Its offer for Riversdale could flush out rival bidders--India's steel ministry has asked five state-run companies to consider a joint bid for Riversdale, and analysts have suggested that Tata and Brazil's Vale SA (VALE) could also be circling the Perth-based group.

Its offer of A$16 cash for each Riversdale share compares to an original indicative offer of A$15 announced Dec. 6 but is below Riversdale's last trade before the improved offer was made public of A$16.30. Rio Tinto said that it has already attracted pre-bid acceptances from 14.9% of Riversdale's shareholders for an offer that has a 50% minimum acceptance condition.

The bid represents "an appropriate price" for the company, Riversdale said, particularly given the risks involved in bringing its prospective assets into production.

But in a clear sign that the bid may not be enough, Riversdale shares jumped another 2.2% to A$16.65 when they resumed trading Thursday.

Hayden Bairstow, an analyst at CLSA, said undeveloped coking coal assets as large as Riversdale's are rare and that Rio Tinto clearly hasn't got Riversdale's major shareholders over the line.

"We're not talking a huge increase potentially to get it done, but I don't think A$16 is (enough)," Bairstow said. "The question is if anyone else comes in, it changes the story completely."

Of the 14.9% of pre-bid acceptances, 1.3% represents the interests of directors and 13.6% of institutional shareholders, Riversdale said.

Two major shareholders told Dow Jones Newswires on Dec. 6 that they would be unlikely to sell out for less than A$20.

"It's very difficult to find companies that are well-endowed with this sort of commodity in this sort of quantity in the mining game," said Clive Donner, managing director of LinQ Resources Fund (LRF.AU), Riversdale's fourth-biggest shareholder. Donner wasn't immediately available for comment Thursday.

A Rio Tinto spokesman declined to comment on whether the miner has talked to Tata or CSN, which own 24% and 13% of Riversdale, respectively.

Andrew Gardner, an analyst at MF Global in Sydney, said earlier this month that Riversdale should be valued at A$17-A$18 a share on the quality of its assets alone, but that the presence of major steelmakers as shareholders could drive the valuation higher.

Riversdale has 13 billion tons in coking and thermal coal resources in its Benga and Zambeze projects in Mozambique.

A memorandum of understanding between Wuhan Iron & Steel Co. (600005.SH) and Riversdale that would have given the Chinese company 8% of the miner in return for an US$800 million investment in Zambeze has lapsed, but Riversdale has said it remains interested in a deal.

ArcelorMittal (MT), the world's biggest steelmaker, last month offered C$433 million for Canadian iron ore explorer Baffinland Iron Mines Corp. (BIM.T), while the Wall Street Journal reported the company had looked at buying coal miner Massey Energy Co. (MEE), a top-five U.S. producer.

--By Ross Kelly, Dow Jones Newswires; 61-2-8272-4692; ross.kelly@dowjones.com

(Cynthia Koons and David Fickling in Sydney contributed to this report)
Linq Resources Fund (ASX:LRF)
Historical Stock Chart
From May 2024 to May 2024 Click Here for more Linq Resources Fund Charts.
Linq Resources Fund (ASX:LRF)
Historical Stock Chart
From May 2023 to May 2024 Click Here for more Linq Resources Fund Charts.