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Tata Steel today announced the sale of its 26.3% stake in Riversdale Mining to Rio Tinto for
A$1060mn. With Rio already having management control with its 73.2% stake, we believe Tata
Steel may not have had too many options. We note that it will continue to hold 35% stake in the
Benga coal project in Mozambique
Announces sale of Riversdale stake
Tata Steel today announced the sale of its 26.27% stake in Riversdale Mining to Rio Tinto for
A$1060mn.
With control gone, not too many options anyway
With Tata Steel Europe's continued lack of raw material integration, the investment in
Riversdale Mining was strategic for securing coking coal needs over the long-term and hence
we view the stake sale as negative. However, with Rio Tinto already gaining majority control
with its 73.2% stake in Riversdale, we believe Tata Steel may not have had too many options.
Continues to hold 35% stake in Benga
Tata Steel would continue to hold 35% stake in Riversdale Energy Limited, a subsidiary of
Riversdale Mining, which owns the Benga coal project in Mozambique. The stake was
purchased in late 2007 for A$100mn. Tata Steel has a minimum 40% off-take rights of the
coking coal output from Benga.
Benga to commence production from early 2012
The Benga project has reserves of 502mt and resources of 4bn tonnes and production is
expected to commence from early 2012 with initial production of 5.3mt ROM to produce 1.7mt
of hard coking coal and 0.3mt of thermal coal. (0.7mt of coking coal to Tata Steel from its 40%
off-take rights).
We estimate Tata Steel's stake in Benga at A$613mn
We estimate the value of Tata Steel's remaining 35% stake in Benga at A$613mn based on
our Australian Mining team's SOTP valuation of Riversdale Mining. (Riversdale's 65% stake is
estimated at A$1,138mn. Please see report on Riversdale Mining-Playing at the margin-24
January 2011). We note that this is not part of our current SOTP valuation of Tata Steel. An
investment of US$350mn is required to fully develop Benga.
Does improve the debt position
The stake sale does improve the leverage position of the company considerably. Net debt
was US$10.4bn at the end of FY11 and this should now reduce by US$1.1bn. The surplus
cash should ease the debt burden even as the company steps up on investments across its
Indian and European operations. We estimate total capex of US$5bn over FY12/13F.
Stake sale is valuation neutral
The stake sale does not impact our valuations materially. We value Tata Steel's stake in
Riversdale at US$1.2bn (Rs45/share) which is in-line with the sale consideration. Increase in
CWIP/decrease in net debt will now be to the effect of US$1.1bn.
We have a Buy rating on Tata Steel with TP of Rs640
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Tata Steel today announced the sale of its 26.3% stake in Riversdale Mining to Rio Tinto for
A$1060mn. With Rio already having management control with its 73.2% stake, we believe Tata
Steel may not have had too many options. We note that it will continue to hold 35% stake in the
Benga coal project in Mozambique
Announces sale of Riversdale stake
Tata Steel today announced the sale of its 26.27% stake in Riversdale Mining to Rio Tinto for
A$1060mn.
With control gone, not too many options anyway
With Tata Steel Europe's continued lack of raw material integration, the investment in
Riversdale Mining was strategic for securing coking coal needs over the long-term and hence
we view the stake sale as negative. However, with Rio Tinto already gaining majority control
with its 73.2% stake in Riversdale, we believe Tata Steel may not have had too many options.
Continues to hold 35% stake in Benga
Tata Steel would continue to hold 35% stake in Riversdale Energy Limited, a subsidiary of
Riversdale Mining, which owns the Benga coal project in Mozambique. The stake was
purchased in late 2007 for A$100mn. Tata Steel has a minimum 40% off-take rights of the
coking coal output from Benga.
Benga to commence production from early 2012
The Benga project has reserves of 502mt and resources of 4bn tonnes and production is
expected to commence from early 2012 with initial production of 5.3mt ROM to produce 1.7mt
of hard coking coal and 0.3mt of thermal coal. (0.7mt of coking coal to Tata Steel from its 40%
off-take rights).
We estimate Tata Steel's stake in Benga at A$613mn
We estimate the value of Tata Steel's remaining 35% stake in Benga at A$613mn based on
our Australian Mining team's SOTP valuation of Riversdale Mining. (Riversdale's 65% stake is
estimated at A$1,138mn. Please see report on Riversdale Mining-Playing at the margin-24
January 2011). We note that this is not part of our current SOTP valuation of Tata Steel. An
investment of US$350mn is required to fully develop Benga.
Does improve the debt position
The stake sale does improve the leverage position of the company considerably. Net debt
was US$10.4bn at the end of FY11 and this should now reduce by US$1.1bn. The surplus
cash should ease the debt burden even as the company steps up on investments across its
Indian and European operations. We estimate total capex of US$5bn over FY12/13F.
Stake sale is valuation neutral
The stake sale does not impact our valuations materially. We value Tata Steel's stake in
Riversdale at US$1.2bn (Rs45/share) which is in-line with the sale consideration. Increase in
CWIP/decrease in net debt will now be to the effect of US$1.1bn.
We have a Buy rating on Tata Steel with TP of Rs640
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