Karen Rebelo and Silvia Antonioli London
A Chinese consortium has bought the Las Bambas copper mine in Peru from Glencore Xstrata for $6 billion (R63bn), the high end of analysts’ forecasts in China’s biggest acquisition of a mine, showing the strength of its long-term need for copper.
MMG, the Hong Kong-listed offshore arm of China’s state-owned Minmetals, led the winning bid in partnership with Hong Kong-registered Guoxin International Investment and state-owned investment giant Citic Group.
Commodity trader Glencore had agreed to sell Las Bambas to secure approval from China’s competition authorities for its takeover of Xstrata last year. Beijing made this condition to prevent the merged group from having potentially too much power over the global copper market.
A Chinese buyer had been considered a virtual certainty since Las Bambas was put on the block, given the deep pockets of China’s state-owned enterprises and its hunger for copper as the top consumer of the metal.
Glencore will receive about $5.85bn in cash upon completion of the deal, which compared with analysts’ forecasts of between $5bn and $6bn.
The Chinese group was also expected to pay the mine’s capital expenditure and development costs from the beginning of this year until the deal closes, which amounted to about $400 million as of the end of last month.
“In our view, the agreed consideration offers a surprise to the upside. The transaction is another testament to Glencore chief executive Ivan Glasenberg’s strong deal-making credibility and the fact that he is willing to play a long game,” analysts at Bernstein Research said.
“In addition, it underlines the global scarcity of large high-quality copper deposits and the continued Chinese demand for this metal.”
The sale, initially expected to be concluded by the end of last year, dragged on due to a delay in reaching agreement on price. Glencore said last month that the Minmetals consortium was the preferred bidder.
Copper prices are down almost 10 percent on the year. They have recovered some ground since China’s first domestic bond default last month raised worries over its credit situation, prompting a 9 percent tumble in the price of the red metal.
The Peruvian mine is due to start production next year at a rate of more than 450 000 tons a year for the first five years. Moody’s had signalled that a decision by Glencore to abandon the sale could have put its credit rating at risk.
Glencore said it would use the proceeds to “immediately and materially” deleverage its balance sheet and could use some to make new acquisitions. It planned to return any surplus cash to shareholders.
If Glencore had failed to sell Las Bambas, Beijing had given it the option to sell one of four other copper projects – Frieda River in Papua New Guinea, Tampakan in the Philippines, or Alumbrera or El Pachon in Argentina. – Reuters