Rio Tinto bids £2.2bn for Australia's Riversdale

Image caption Rio may face rival bidders for Riversdale

Anglo-Australian miner Rio Tinto has made an initial £2.2bn (A$3.5bn) bid for Sydney-based Riversdale Mining.

Riversdale, whose largest shareholder is India's Tata Steel, has huge coking-coal projects in Mozambique.

Shares in Riversdale soared more than 16% as investors speculated that a bidding war could break out for the company.

Brazil's Vale, which has coal mines in Mozambique, and Tata are seen as potential rival bidders for Riversdale.

Coking coal, used in steelmaking, is in strong demand from China and India.

Rio's A$15-a-share offer is only about a 6% premium to Riversdale's closing price last week, and analysts said shareholders would demand a higher bid.

In a statement Riversdale admitted discussions with Rio, but hinted that it might be talking to other parties.

"While discussions with Rio Tinto are ongoing, there is no certainty that Rio Tinto or any other party will proceed with any proposal for the acquisition of Riversdale," the statement said.

A takeover of Riversdale would be Rio's first major acquisition since its $38bn purchase of Alcan in 2007, a deal widely seen as mistimed because it was made at the height of the commodities boom.

Rio repaired its balance sheet last year with a $15bn rights issue after scrapping a $19.5bn investment by its biggest shareholder, China's Chinalco.

Rio declined to comment.

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