Minmetals Group Buys Glencore Peru Copper Mine for $5.85 Billion
Source: www.chinamining.org Citation: Bloomberg Date: Apr.14, 2014
China Minmetals Corp., the state-owned metals trader, led a group that agreed to pay $5.85 billion for Glencore Xstrata Plc (GLEN)`s Las Bambas copper project in Peru as China seeks greater control over material supplies.
"It`s a good price, probably toward the top end of market expectations," Jeff Largey, an analyst at Macquarie Group Ltd. in London, said in a phone interview, adding the deal provides a good outcome for China. "This is a Chinese buyer, buying a very high quality copper asset."
Buying Las Bambas gives the group, which includes Melbourne-based MMG Ltd., control of a mine that`s forecast to produce 400,000 metric tons of copper a year from 2015, equivalent to 12.5 percent of 2013 imports of copper metal by China, the world`s biggest buyer. The sale also satisfies the final condition by Chinese regulators for Glencore`s $29 billion takeover of Xstrata Plc.
Glencore has "taken decisive steps to de-risk Las Bambas" since acquiring Xstrata last year, Ivan Glasenberg, the billionaire chief executive officer of Baar, Switzerland-based Glencore, said yesterday in a statement.
MMG holds a 62.5 percent stake in the group buying Las Bambas. The consortium also includes Guoxin International Investment Corp., with a 22.5 percent stake, and Citic Metal Co., with 15 percent, Glencore said.
The deal is subject to approval by regulators and by MMG shareholders. Minmetals, which holds about 73 percent of MMG according to data compiled by Bloomberg., has committed to vote in favor of the purchase, Glencore said.
Debt, Shareholders
Sale proceeds will immediately be used to reduce debt, Glencore said. The company will also look at reinvesting capital and returning some of it to shareholders.
Glencore may invest in copper projects in the Democratic Republic of Congo and Zambia or seek acquisitions, Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London, said in an e-mail.
"The main story will be, I guess, what next for the deal flow," Gait said. Glencore`s London-Based peer Anglo American Plc (AAL) is "vulnerable," Gait said.
The sale comes as other global miners also divest properties, giving Glencore the opportunity to make purchases, Macquarie`s Largey said. The takeover of Xstrata was Glencore`s largest.
"Acquisitions have always been part of the company`s DNA," Largey said, noting Glencore could look at buying additional thermal coal assets as peers distance themselves from a tough market for the fossil fuel.
Mine Development
Development of Las Bambas was about 56 percent complete at the end of last year and there`s about $2.4 billion left to be spent on the site, Glencore said recently. It will cost an estimated $5.9 billion in total, Glencore Chief Financial Officer Steven Kalmin said in September. The mine is slated to start production in 2015.
China imported 3.2 million tons of copper metal and 10.1 million tons of copper ore and concentrate last year, data from the country`s customs authority shows. Its consumption totaled 9.83 million tons in 2013, or 47 percent of global demand, according to the World Bureau of Metal Statistics.
There`s 950 million tons of ore reserves at Las Bambas at 0.73 percent copper, Glencore said in February. The mine currently has an estimated life of 23 years though there`s potential to add further reserves, it said.
"China has to import 80 percent of its need for copper, which is massively used in infrastructure construction," Heng Kun, an analyst with Essence Securities Co., said before the deal was announced. "Buying copper resources is a strategic move for China to secure the raw material supplies."
Peter Grauer, the chairman of Bloomberg LP, parent of Bloomberg News, is a non-executive director of Glencore Xstrata.
BMO Capital Markets Ltd. and Credit Suisse Group AG are advising Glencore on the sale.
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