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Brazil-based Companhia Siderurgica Nacional (SID), or CSN, has agreed to sell its entire equity stake in the Australia-based mining company Riversdale Mining Limited to Rio Tinto Plc.

Rio Tinto has obtained more than 72% of Riversdale’s holding.

According to the agreement, the company will dispose of its 19.9% stake in Riversdale (equivalent to 47.29 million common shares) for A$16.50 per share. The total consideration comes to approximately A$780.3 million (or US$830 million).

Rio Tinto, headquartered in London, engages in exploring, mining and processing the earth's mineral resources. In December 2010, the company had offered to purchase Riversdale’s shares for A$16 per share. Later, it revised the offer price by A$0.50 to A$16.50 per share.

Companhia Siderurgica produces hot- and cold-rolled flat steel, galvanized sheets, and tin plates for the packaging, automotive, and construction industries. We find the growth prospects of CSN encouraging, considering the various projects that are being carried out by the company. Its entrance into the cement business seems to be an added advantage.

Global steel demand in the quarters ahead will probably be on the rise, benefiting from the reviving global economy, increasing private and public capital spending, falling unemployment levels and growth of the emerging economies, especially China and Brazil. Furthermore, steel demand in Brazil will get a boost as the country will host the 2014 World Cup soccer championships and the 2016 Rio de Janeiro Olympics.

Despite these positives, the growth momentum gets restricted because of the possibilities of weak results in the quarters ahead, while mounting debt level, high cyclicality, growing competition in the industry and rising manufacturing cost remain the prime causes of concern.

The company faces stiff competition from Usiminas, Arcelor Mittal (MT) and Metalúrgica Gerdau. We currently maintain an Underperform recommendation on the stock.

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