Glencore Xstrata sells Las Bambas copper project to Chinese consortium for $5.85 bn

14 Apr 2014

Glencore Xstrata Plc, the recently merged commodities trading and mining giant sold its Las Bambas Peruvian copper project to a Chinese consortium led by China Minmetals Corp for $5.85 billion in cash.

The consortium will pay an additional $400 million for capital expenditure and other costs incurred by Glencore in developing Las Bambas from 1 January 2014.

The Chinese buyers include MMG Ltd, the offshore arm of state-controlled China Minmetals, which will hold 62.5 per cent stake, Guoxin International Investment Corp will hold 22.5 per cent, and the Citic Metal Co, which will own the remaining 15 per cent.

Glencore was forced to sell the Las Bambas project, Xstrata's largest greenfield copper project in Peru, to the Chinese group as part of a deal with China's regulators in exchange for their approval for its $76-billion merger with mining giant Xstrata. (See: $76-bn Glencore-Xstrata merger wins Chinese conditional approval)

The Chinese regulators were concerned of the merged entity's hold on global copper resources as both companies account for around 7 per cent of worldwide copper supply.

Despite this divestment, a merged Glencore-Xstrata's market share would increase significantly over the next decade as both companies go through with their planned investments in Chile, Peru, Australia, and the African copper belt.

Xstrata, already the world's fourth-largest global copper producer, has projects under construction that will increase copper production by more than 50 per cent to 1.5 million tonnes per annum over the next three years.

The Las Bambas copper project, located in Peru's Cotabambas and Grau Provinces is said to hold reserves of around 1.710 billion tonnes.

The project consists of three open pit mines with initial life of 18 years. Construction of the mines had started in the first half of 2012 and is expected to start producing in 2015.

Las Bambas will produce an average of 400,000 tonnes of copper in concentrate including significant gold, silver and molybdenum by-products.

At that rate of production, the output from Las Bambas would be close to that of Rio Tinto's Oyu Tolgoi mine under development in Mongolia and about half of BHP Billiton's Escondida mine in Chile.

Listed in Hong Kong China Minmetals is the country's largest diversified metals trading company.

Founded in 1950 and based in Beijing, China Minmetals' business also spans finance, real estate, mining and metallurgic technology covering 28 countries and regions in the world.

It has 17.7 thousand employees, controls eight listed companies at home and abroad, and is also the country's largest steel trading company.

''Today's announcement demonstrates our commitment to maximising value for our shareholders. Since we acquired Xstrata on 2nd May 2013, our team has taken decisive steps to de-risk Las Bambas, which has culminated in this compelling offer from the consortium,'' said Ivan Glasenberg, CEO of London-listed GlencoreXstrata.

The deal is expected to close before the end of Q3 2014 after regulatory approvals from China and Peru.