November 20, 2009 / 12:51 AM / 10 years ago

UPDATE 2-Rio Tinto unit Cloud Peak IPO prices below range

* Shares priced at $15 in IPO, range had been $16-18

* Rio Tinto to retain 48.3 pct of Cloud Peak

* Cloud Peak to debut on NYSE on Friday under “CLD”

* 7th spinoff out of 46 U.S. listed IPOs in 2009

(Adds analyst comment, background, byline)

By Clare Baldwin and Phil Wahba

NEW YORK, Nov 19 (Reuters) - U.S. coal miner Cloud Peak Energy Inc CLD.N, a unit of Rio Tinto Plc, priced shares in its initial public offering below expectations on concerns the flotation was designed to help its parent’s balance sheet rather than fund its own growth.

Gillette, Wyoming-based Cloud Peak sold 30.6 million shares at $15 each, raising about $459 million. But Cloud Peak had expected to price them between $16 and $18, according to a regulatory filing.

Almost all of the proceeds will go to Rio Tinto Plc (RIO.L) (RIO.AX) and the Anglo-Australian miner will retain a 48.3 percent stake in Cloud Peak.

Rio Tinto is saddled with debt stemming from its 2007 acquisition of Canadian aluminum maker Alcan and attempted to take Cloud Peak public last year, but postponed the IPO, citing difficult market conditions at the time.

“There’s investor push-back because it’s (money) not going back to the company and it’s not for growth. It’s just a Rio Tinto bailout,” said IPOdesktop.com president Francis Gaskins.

Analysts expressed concerns last week that the IPO was overpriced relative to Cloud Peak’s peers and because of uncertainty in the coal markets. [ID:nN13476369]

Cloud Peak is the third largest U.S. producer of coal and owns surface mines in Wyoming and Montana. In 2008, coal from its mines generated about 4.4 percent of the electricity produced in the United States, according to a prospectus.

A number of the largest IPOs this year have been carve-outs of already publicly traded companies seeking to build up cash reserves.

In February, drugmaker Bristol Myers Squibb Co (BMY.N) spun off its pediatric nutrition unit Mead Johnson Nutrition Co MJN.N in an $828 million IPO in and last month Spanish bank Banco Santander SA (SAN.MC) spun off its Brazilian unit in an $8 billion offering.

Of the 46 U.S.-listed IPOs so far this year, 7 have been spin-offs.

Cloud Peak reported sales of $1.06 billion for the nine months ended Sept. 30, up 17.4 percent over the year earlier results, with a profit of $190.1 million.

Cloud Peak shares are set to begin trading on Friday on the New York Stock Exchange under the symbol “CLD.”

The IPOs underwriters, led by Credit Suisse, Morgan Stanley, and RBC Capital Markets, have the option to buy another 4.59 million shares. (Reporting by Clare Baldwin and Phil Wahba; editing by Andre Grenon)

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