RIV Riversdale Fpo

Australian mining company Riversdale Mining Ltd. (RIV.AU) expects to complete a feasibility study for its Mozambican Zambeze coal project by the end of 2012 and hopes to start producing coal by the middle of 2014, according to a presentation given by a senior executive on the project.

David West, the principal geologist on the Zambeze project, said the company has 10 drill rigs on site and an exploration staff of 60 people, including 26 geologists, to complete the feasibility study on the 24,700-hectare Zambeze project.

The Zambeze project is located in Mozambique's northwestern province of Tete, where mining companies and steelmakers from all over the world--including Brazilian mining company Vale SA (VALE, VALE5.BR), U.K.-listed Eurasian Natural Resources Corp. (ENRC.LN), Japan's Nippon Steel (NISTY, 5401.TO), and India's Jindal Steel & Power Ltd. (532286.BY)--have flocked to extract high-quality coking coal out of the ground.

Coking coal is a key ingredient used in steelmaking and is in high demand around the world because of burgeoning demand for steel in emerging economies such as Brazil, India and China, where industrialization and urbanization are occurring at a rapid pace.

The Zambeze project is forecast to eclipse Riversdale's Benga project in terms of resource base and annual production. The Zambeze project has a resource base of 9.05 billion tons of coal compared with Benga's 4.03 billion tons of coal resources.

The project has the potential to extract up to 90 million tons of coal annually, although current plans are to process 45 million tons of coal into roughly 15 million tons of coal products annually. The product mix would be two-thirds coking coal and one-third thermal coal. Thermal coal is used to fuel coal-fired power stations.

In contrast, the Benga project, which is due to begin exporting coal this year, is forecast to potentially process up to 20 million tons of coal, although current plans are to process 10.6 million tons of coal into 3.3 million tons of coking coal and up to 2.2 million tons of thermal coal by 2013.

The Zambeze project is forecast to ramp up production slowly: during the first year of production, the company plans to produce 2.4 million tons of coking coal and 1.4 million tons of thermal coal from 11 million tons of mined coal. Production will rise sharply to 8.6 million tons of coking coal and 5.6 million tons of thermal coal in 2018 from 43 million tons of mined coal. Production will then plateau with small incremental rises thereafter. The product mix in 2025 is forecast at 9.5 million tons of coking coal and 5.4 million tons of thermal coal respectively, according to the presentation.

West said the 9.05 billion indicated and inferred resource base means Zambeze could have "a life of mine of 25 years or even more." At a certain stage in the project, Riversdale will have to move Tete's international airport to a different location in order to continue mining the deposit, West said.

Riversdale is looking at various options for transportation, including barging the coal down the Zambezi river to Chinde where it would then be shipped to the port of Beira and onto larger ships for export. Riversdale expects it could start using the barging scheme for its Benga project in late 2012 and early 2013.

Riversdale's coal assets in Mozambique have attracted a lot of suitors who are either interested in investing in the company or in its projects. India's Tata Steel Ltd. (500470.BY), and Brazilian steelmaker Companhia Siderurgica Nacional (SID, CSNA3.BR) recently raised their stakes in the company to a combined 47% of the voting shares.

Meanwhile, Anglo-Australian mining company Rio Tinto PLC (RIO, RIO.LN) has offered $3.9 billion to purchase all of Riversdale. The offer expires March 18 and is conditional on Rio purchasing just over 50% of the company's shares. Riversdale's board of directors has recommended the offer in the absence of another bid.

At the project level, China's Wuhan Iron & Steel Corp (600005.SH), the world's fourth largest steelmaker, also signed a non-binding memorandum of understanding to buy a 40% stake in the Zambeze project but that agreement expired in September. Tata Steel also owns a 35% stake in the Benga project with rights to 40% of the project's life of mine coking coal output.

-By Alex MacDonald, Dow Jones Newswires; 44 20 7842 9328; alex.macdonald@dowjones.com

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