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Tata Steel (TATA IN, Rs614.55, Buy) – Riversdale valuations soar
Riversdale Mining today announced it has been in discussions with Rio Tinto concerning a
possible transaction. However, Rio Tinto also advised it is not in a position to submit a proposal
for acquisition. Tata Steel owns a 21.14% stake in Riversdale and should be positively affected
by this event
Riversdale in talks with Rio Tinto
Riversdale Mining, in response to media reports about a possible takeover bid by Rio Tinto,
announced that it was in talks with Rio Tinto for an acquisition at an indicative price of
AU$15/share. However, Rio Tinto has advised that is not in a position to submit a proposal for
the potential acquisition of Riversdale. This announcement has led to a 13% rise in
Riverdale's stock price to AU$16ps. Riversdale is listed on the Australian Stock Exchange.
Tata Steel owns a 21.14% stake in Riversdale, acquired for about US$240m and currently
valued at US$800m or Rs40ps of Tata Steel. The Tata-Riversdale joint venture conducted a
'ground-breaking ceremony' in the presence of the President of the Republic of Mozambique
in April 2010, following the completion of a series of milestones by the company.
Stage 1 of the project entails initial production of 5.3Mt of run-off mine (ROM) per year to
produce 1.7Mtpa of hard coking coal and 0.3Mtpa of thermal coal by 2Q 2011. Tata Steel has
a 35% stake in the JV, with a 40% off-take right to the coking coal produced in these mines.
The JV owns the Benga and Tete tenements, which cover an area of 24,960 hectares. Benga
has an inferred resource of 4bn tonnes. The coal from this project is intended to go to Tata
Steel Europe and may be used in the Indian operations at a later stage.
We have a Buy rating on Tata Steel, with a target price of Rs725.
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