UPDATE 2-China's Shenhua eyes Rio coal stake - report

(Updates shares, details))

By Joseph Chaney

HONG KONG, Jan 12 (Reuters) - China Shenhua Energy (1088.HK), the country's biggest coal miner, plans to bid for a major stake in global miner Rio Tinto's (RIO.AX) $3.7 billion coal unit, a newspaper reported on Monday, as it chases overseas reserves.

Rio Tinto (RIO.L) is looking for bidders for a 76 percent stake in Australia's Coal & Allied Industries (CNA.AX), which runs three operations in New South Wales, said the South China Morning Post, citing unnamed sources.

Analysts say an acquisition would be a good move for Shenhua (601088.SS), as it looks to secure resource assets beyond China.

"Many coal companies are trying to cut costs right now, but Shenhua still has an ample cash position," said Michelle Leung, an analyst who covers Shenhua for CIMB.

"The news didn't disclose how much reserve the coal is going to provide or its quality. There are many uncertainties," Leung added. "It could help diversify as a source of resources. This is a good strategy for them to go overseas for long-term reserves."

Representatives from China Shenhua were not available for comment when contacted by Reuters on Monday.

China Shenhua is also pushing Rio Tinto for more assets to be included in the sale, the report said, adding that chairman Chen Biting had previously said Shenhua was looking for acquisitions in Mongolia, Indonesia and Australia.

Shenhua's Hong Kong-listed shares lost nearly 4.7 percent, underperforming the benchmark Hang Seng Index's .HSI 2.8 percent fall, after data showed an increase in stocks at power plants even as cold weather sweeps through China. Smaller rival China Coal Energy (1898.HK) fell 7.5 percent.

Shenhua's Shanghai shares dropped nearly 1.5 percent, while the Shanghai Composite Index .SSEC eased 0.24 percent. Shares in Coal & Allied, a highly illiquid stock due to Rio's majority stake, were not traded on Monday.

Other likely bidders for Rio's stake in Coal & Allied include Japan's Mitsubishi (8058.T) and Switzerland-based Xstrata (XTA.L), the South China Morning Post said.

Rio Tinto is saddled with high debt after buying aluminium producer Alcan for $38 billion. It has already cut its forecast iron ore production estimates for 2008 and 2009 to around 175 million tonnes and 180 million tonnes, respectively.

Rio is axing 14,000 jobs, more than halving capital expenditure and seeking buyers for a host of core and non-core assets after bigger rival BHP Billiton (BHP.AX) (BLT.L) walked away from a $66 billion hostile bid in November.

Bankers and analysts say BHP, Brazil's Vale (VALE5.SA), Xstrata and China's aluminium giant Chinalco, parent of Chalco (2600.HK) (601600.SS), are all eyeing Rio's diverse collection of assets. (Editing by Ian Geoghegan)