Rio Tinto Eyes Coal Miner

by: Emerging Money

Two miners may be teaming up in Australia. Rio Tinto (NYSE:RIO) is reportedly talking about acquiring its much smaller coal-oriented counterpart Riversdale Mining (OTC:RFLMF) for around $3.5 billion.

Riversdale shares surged overnight after the company confirmed rumors that Rio approached it with an A$15 a share (currently $14.88) takeout offer. The deal would value RFLMF at around $3.5 billion.

Currently RFLMF is controlled by a consortium of global steel companies including Companhia Siderurgica Nacional (NYSE:SID), Tata Steel (OTC:TATLY) and Wuhan Iron & Steel.

Since RIO already dominates the iron ore markets, adding RFLMF's expanding reserves of increasingly precious metallurgical coal -- necessary in traditional steel-making processes -- would only help it squeeze the steel industry more systematically. As such, it is unlikely to take this offer sitting down, although there may be little it can do about it short of get into a bidding war.

Watch the steel group this morning to see how it reacts to the prospect of this steel-friendly company and its assets theoretically being grabbed by one of the big iron ore names.

Analysts are already predicting that the stock could go to $17.50, or even higher if RIO rival VALE (NYSE:VALE) gets involved as rumor has it the Brazilian miner might.

So far, Australian stocks in general are flat with the exception of RFLMF, which is obviously surging to well above $15.

Disclosure: No positions