Rio Tinto's Subsidiary Slated for IPO Friday

NEW YORK ( TheStreet) -- Rio Tinto (ADR) ( RTP) has plans to take Cloud Peak Cloud Peak Energy, its coal mining company, public in a move to cope with the tough business environment.

The initial public offering is slated for Friday. Cloud Peak will offer 35.19 million shares at a price ranging from $16 per to $18 per share. It will trade under the ticker symbol "CLD" on the NYSE. It may also issue $600 million of senior unsecured notes, with about $284.6 million to be distributed to Rio Tinto and the rest earmarked for general purposes.

The sale could raise up to $491.6 million after expenses, according to an SEC filing. The proceeds will go to Rio Tinto in exchange for mining assets. The net proceeds could end up as high $565.3 million if underwriters end up taking the offer of 4.6 million shares to cover overallotments.

Cloud Peak's reserves and long term contracts renders the pricing reasonable, according to Francis Gaskins of IPOdesktop.

This Rio Tinto subsidiary is the third largest U.S. coal producer, overseeing mines in the coal-rich regions of Montana, Wyoming and Colorado. Cloud Peak's raked in a solid pro forma net income of $63.1 million in the year ended December 31, almost double $32.3 million in 2007.

Operating under a volatile energy and metals commodities environment has been tough for many mining companies, who are now increasingly being forced to carry out production cuts and other cost savings measures. Adding to the challenges are strict new greenhouse-gas regulations in the works.

BHP Billiton ( BBL), for example, withdrew its hostile bid for Rio Tinto last year amid sliding metals prices and the recessionary climate. It has no immediate plans to make another bid, Reuters reports. If BHP plans to reinitiate another takeover attempt, it will have to wait a year before it can make another bid for Rio Tinto at lower prices under UK takeover rules.

Rio Tinto shares are changing hands 2.30% lower at $214.95 in mid-afternoon trading as the market reacts to a spate of mixed economic news, including unchanged initial jobless claims and record foreclosures despite more manufacturing activity in Philadelphia.

Shares of BHP Billiton slipped 2.20% to $61.49.

Some observers say that the general market retreat can also be read as a rush to exercise expiring options or profit-taking before the protracted holiday week.

-- Reported by Andrea Tse in New York

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