RioTinto and Japan's Mitsubishi Corp have offered to jointly buy out minority investors in Australia's sixth-largest coal miner, Coal and Allied Industries.

Cash rich Rio Tinto, looking to deploy its cash resources to benefit from the low stock valuations in the current global crisis, jointly with Japanese trading house Mitsubishi Corp has offered to buying out minority investors in Coal and Allied Industries, at A$122 per share, valuing the miner at A$10.6 billion.

Through a wholly-owned subsidiary, Rio Tinto is Coal & Allied's largest shareholder with a 75.71-per cent stake. Mitsubishi Development currently holds 10.20 per cent of Coal & Allied.

Under the proposal negotiated between the two, Rio and Mitsubishi would end up with stakes of 80 per cent and 20 per cent, respectively in Coal and Allied.

It will cost Mitsubishi about $1 billion and Rio close to $500 million to complete the buyout.

Perpetual Limited, the largest institutional shareholder of Coal & Allied with a 6.3-per cent of the stock, has indicated that it is supportive of the Proposal in the absence of a superior proposal emerging.

Coal and Allied shareholders will be offered A$122 cash for each share held in Coal and Allied, while allowing the coalminer to pay out its A$1.20 dividend as scheduled on 26 August 2011. The total cash amount would come to $123.20 per share

The total cash amount of A$123.20 per share represents 35.4-per cent premium to Coal & Allied's closing price of A$91.00 on 5 August 2011, which was the last trading day before Rio Tinto's approach; and a 21.9 per cent premium to the one month volume weighted average price of Coal & Allied shares of A$101.04 as at 5 August 2011

The proposed takeover price is likely to be at a discount to Coal and Allied's January high of A$130, although its shares closed at A$116.20 yesterday, up A$25.20.

Analysts say since yesterday's closing price is at a significant discount to the offer price, there may be a possibility of the offer not materialising in its present form.

Coal and Allied yesterday described the offer as ''indicative, conditional, incomplete and non-binding'' from Rio on Saturday. "CNA gives no assurances that the indicative proposal will lead to a takeover offer being made," the company said.

''There can be no certainty as to whether or not this proposal will result in any form of transaction and the discussions remain subject to a number of matters including regulatory approvals and Rio Tinto and Mitsubishi Development entering into joint bid and other arrangements in relation to the proposal on agreed terms" Coal and Allied said in a statement.

Rio Tinto has confirmed that it had approached the Coal & Allied board on 6 August 2011 with the Proposal.

It said that on 7 August  along with Mitsubishi Development, it entered into a standstill agreement with Mitsubishi's Australian subsidiary, Mitsubishi Development Pty Ltd, which would make the offer. The agreement would prevent either company from acquiring additional shares in Coal & Allied for the next two months.

Coal & Allied sold 18.7 million tonnes of thermal coal and semi-soft coking coal from its Mount Thorley, Warkworth, Bengalla, and Hunter Valley mines in 2010.