2nd UPDATE: Rio, Mitsubishi Offer To Buy A$10.6 Billion-Valued Coal & Allied

Rio Tinto PLC (RIO) and Japan's Mitsubishi Corp. (8058.TO) offered Monday to pay 122 Australian dollars (US$126) per share to buy out minority investors in Coal & Allied Industries Ltd. (CNA.AU), in an indicative cash offer that values the Australian coal miner at A$10.56 billion.

The joint bid for Australia's sixth-largest coal miner by output is the latest sign that competition for global coal resources is accelerating despite current global economic fears.

Australia's stable political system and close proximity to Asian markets like China and India, where coal demand is booming, is making domestic mines especially attractive.

Peabody Energy Corp. (BTU) and ArcelorMittal (MT) on Aug. 1 formally launched a A$4.7 billion bid for Macarthur Coal Ltd. (MCC.AU), the world's biggest producer of a low-cost variety of the coking coal used in steelmaking. The previous week, Xstrata PLC (XTA.LN) offered around C$$147 million for Canada's First Coal Corp., which holds coking coal exploration licenses in Canada.

Coal & Allied said it received the "incomplete, non-binding, conditional and indicative proposal" from Rio on Saturday Aug. 6 local time--concurrent with news breaking of Standard & Poor's downgrade of U.S. debt late Friday. "CNA gives no assurances that the indicative proposal will lead to a takeover offer being made," the company said.

Rio and Mitsubishi have held more than 80% of the miner since an asset swap in 1999.

"People had become resigned to the fact that Rio was not going to do anything on this, so it's good timing and a good premium on an otherwise bad day," said Chris Drew, an analyst at RBC Capital Markets in Sydney.

Coal & Allied shares closed up 27.7% at A$116.20, on a day when the broader S&P/ASX Metals and Mining index was down 3.7%.

Rio and Mitsubishi would end up with stakes of 80% and 20%, respectively, if the offer succeeds, paying out A$458.7 million and A$1.05 billion to reach those levels. The two companies currently hold stakes of 75.7% and 10.2%, respectively.

Fund manager Perpetual Ltd. (PPT.AU)--the only other major shareholder, with 6.3% of the stock--said it was ready to support the bid if independent directors back it.

"In the absence of a superior proposal this exceeds our valuation of net present value," James Bruce, the fund manager's resources portfolio manager, told Dow Jones Newswires. Net present value is a method of valuing companies which calculates the current value of future cash flows.

Despite its size, Coal & Allied's tight shareholder register has meant it has been a little-noticed presence on the Australian Securities Exchange for some years.

If successful, the bid would leave few pickings for local investors seeking pure exposure to coal mining in Australia, the world's largest coal exporter. If all current takeover bids succeed, pure-play coal producers still listed on the Australian Securities Exchange would have accounted for less than 20 million tons a year of output in 2010--around 6% of total Australian production.

In separate notices, Rio and Mitsubishi said shareholders would also retain a dividend due to be paid on Aug. 26, meaning the total cash amount would come to A$123.20 per share.

Coal & Allied sold 18.7 million tons of thermal coal and semi-soft coking coal during 2010 from its Mount Thorley, Warkworth, Bengalla, and Hunter Valley Operations mines, all in the Hunter Valley of New South Wales state.

-By David Fickling, Dow Jones Newswires; [phone]; [e-mail]