Bloomberg News

Rio May Add 25 Million Tons of Coal Through Riversdale Deal

June 20, 2011

(Updates with prices in fourth paragraph, study in fifth.)

June 20 (Bloomberg) -- Rio Tinto Group, the second-largest mining company, may add 25 million metric tons of Mozambique coal to its annual output after buying Riversdale Mining Ltd.

“When you add it up, Rio will be potentially producing, by 2016-17, 25 million tons of product, both coking and thermal” coal, Riversdale Managing Director Steve Mallyon said in a phone interview today. “That’s if all goes according to plan.”

Riversdale’s Benga project, due to begin output in November or December, will ship about 5 million tons of unprocessed coal and may expand to 20 million tons, he said. The adjacent Zambeze project, possibly costing $4 billion, may produce 42 million tons a year, rising to as much as 90 million tons of unprocessed coal, making it one of the world’s largest coal mines, he said.

Producers such as Vale SA are digging mines in Mozambique, and Anglo American Plc is seeking coal projects there, as prices for the fuel climb. The cost of steam coal sold through South Africa’s Richards Bay terminal rose about 30 percent in the past year to $118.83 a ton, IHS McCloskey data on Bloomberg show.

A “scoping study,” completed on a “Richards Bay-type” coal terminal in Mozambique earlier this month, “looks pretty good,” Mallyon said. Richards Bay is Africa’s largest coal terminal, with an annual capacity of 91 million tons.

Rio Review

Rio may review the level of 10 percent to 12 percent that Riversdale planned to keep in its proposed $1.3 billion Benga power plant, Mallyon said. Rio “as a bigger company, I think, sees the strategic value” of the project, he said. Riversdale has previously had interest in the project from Chinese banks, as well as companies in the U.K., U.S. and South Korea.

Eskom Holdings Ltd., the largest provider of electricity in South Africa, may buy power from the plant, Mallyon said.

Riversdale expects this year to complete the sale of its Zululand Anthracite Colliery, “too small” for Rio and a specialized product it doesn’t know well, after interest from South Africa, Australia, Canada and the U.K., he said. It may produce almost 900,000 tons this year, Mallyon said.

Rio gained almost full control of Sydney-based Riversdale last week after Tata Steel Ltd. said it would sell 26.3 percent.

--Editors: Tony Barrett, Amanda Jordan

To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net;

To contact the editor responsible for this story: Amanda Jordan at ajordan11@bloomberg.net.


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