Glencore Xstrata is selling its Las Bambas copper mine project to a Chinese consortium for at least $5.85bn, underscoring China’s continued demand for commodities to feed industrial growth and bolstering the balance sheet of the resources group led by Ivan Glasenberg.
The sale to a consortium led by MMG, a subsidiary of state-owned Minmetals, is one of the largest acquisitions of mining assets by China. Las Bambas in Peru is one of the world’s largest mines under construction, expected to supply about 450,000 tonnes of copper annually.
The price is at the upper end of the $5bn to $6bn range that most industry analysts had expected. “Our willingness to sell reflects the level of the offer and our conviction that we can utilise the sale proceeds to create additional shareholder value,” Mr Glasenberg said.
Sunday’s deal comes almost a year after Glencore bought Xstrata, the mining group that started to develop the mine. Chinese competition authorities required Glencore to try to sell Las Bambas as a condition of approving the Xstrata merger – meaning it was always seen as probable that the mine would be bought by a Chinese group.
Glencore had been in talks for months with the MMG-led consortium, trying to agree a price amid an uncertain short-term outlook for copper prices.
Under the terms of the deal MMG and its partners will also pay all the development costs that Glencore incurs this year on Las Bambas, up to the close of the deal. By the end of March those costs amounted to $400m, Glencore said.
The deal raises the prospect of a return of cash to Glencore shareholders, led by Mr Glasenberg who owns about 8 per cent of the group as well as being chief executive.
Glencore said the deal would “immediately and materially de-gear” its balance sheet. It said it would look for opportunities to reinvest capital but that any surplus capital, “subject to maintaining an efficient balance sheet . . . will be returned to shareholders, within an appropriate timeframe and structure”.
Mr Glasenberg has been one of the most vocal critics of other mining companies that have delivered lacklustre returns to shareholders following years of cost escalation and heavy capital investments during a resources boom. He has also been sceptical of “greenfield” mining projects such as Las Bambas – those started from scratch, where cost overruns are seen as more likely.
The deal is expected to close by the end of September, Glencore said. MMG owns 62.5 per cent of the consortium buying the mine, while Guoxin International Investment owns 22.5 per cent and Citic Metal owns 15 per cent.