Rising Coking Coal Prices Spur Rio Tinto's Dealmaking

The last time Mozambique hosted any battles on its soil, the Bill Clinton era was just getting underway and the grunge band Nirvana was at the height of its popularity. Now that the country’s long civil war is over, a potential new skirmish, albeit of the economic variety, could begin full-force between Rio Tinto and other miners for Mozambique’s hard coking coal.

Rio Tinto, the Australian-based world’s No. 3 mining giant, has been very busy lately. Not long after calling off a potential deal with BHP Billiton to cut costs, Rio made a deal for a joint venture with Chinalco, a.k.a. The Aluminum Corp. of China, to solidify its mineral exploration in the northern and northeastern parts of that country. (The focus will be copper and coking coal.) This came on the heels of “an agreement with Sinosteel Corp. to extend cooperation at the Channar iron ore project in the Pilbara region of Western Australia, according to a recent WSJ article. Now, earlier this week, Rio Tinto is reported to have entered talks to take over Australia’s Riversdale Mining for $3.5 billion.

And that’s where Mozambique comes in. According to several reports, an all-out bidding war for Riversdale may ensue. The company has hard coking-coal projects in Mozambique that “could eventually supply 5% to 10% of the global market for the steel-making material, Sonali Paul reported for Reuters. This is important for Rio, as they are trying to diversify as much as possible with high-quality coking coal becoming increasingly scarcer. They may face bidding competition from Xstrata, Anglo American and Peabody Energy. Rio’s biggest bidding competitor, however, is likely to be Brazil’s Vale, which already owns mines near Riversdale’s in Mozambique.

A recent Mineweb article examines the extent of Vale’s infrastructure investments in Mozambique, and upon reading the laundry list, it’s apparent that they’re the company to beat for future African metal-market share.   Vale exercised an option for a majority share of the Sociedade de Desenvolvimento do Corredor do Norte SA (SDCN), which controls more than 1600 kilometers of railroad in Mozambique and Malawi. This way, Vale ensures that product transport from the Moatize coal project development with nominal production capacity at 11 million metric tons of coal, 80 percent of it metallurgical, when it starts up in the first half of 2011 will be secure and efficient.

If Rio Tinto wins out in this acquisition, they can plant a legitimate foothold in Vale’s proverbial backyard, bolstering their other global deals and gaining a share of Africa’s rich coking coal reserves. With Rio becoming more streamlined (already shedding more than half of its net debt in 2008 following their purchase of Alcan), they just may be able to swing their weight around a bit more nimbly than others.

–Taras Berezowsky

One Comment

  • The use of sophisticated software systems for coal mining that is mostly burnt for power generation and steel production and adds to the greenhouse effect is valid for western countries who may allocate resources and funds to alternative and more greener sources of power. Some of the alternatives may be “safer” than the traditional mines. Unfortunately, coal market news show developing economies are more likely to increase their use of thermal coal & metallurgical coal in coming years because of its affordability and to meet increasing demands for electricity and steel. Whether they will embrace and utilise sophisticated software systems that no doubt add to the cost of production is yet to be seen. Cherry of http://www.coalportal.com


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