EXCLUSIVE: Korea Resources opens talks to sell stake, offtake in First Quantum’s Cobre Panama [UPDATED]
Korea Resources Corp (Kores) has initiated a sale process for its 10% stake and offtake agreement in First Quantum’s Cobre Panama copper mine, four sources with knowledge of the matter told Metal Bulletin.
South Korean state-backed Kores is in the process of divesting non-core assets and aims to raise cash from the sale of its stake, sources said.
South Korean traders Samsung and Posco Daewoo have already begun talks regarding the offtake agreement at the mine, but the process to sell Kores’ interests in Cobre Panama will officially start September, when advisors are set to be appointed.
“The sale will be held to all parties, not just Korean, in open bidding,” one source close to the sale confidential said. “The 10% offtake agreement could be separately sold but it is not yet determined.”
Sources spoke with Metal Bulletin on condition of anonymity because the talks are confidential.
The offering presents merchants and other investors with the chance to control a slice of the only major new copper mining project forecast for the coming few years.
“It’s one of the world’s big new copper mines,” John Meyer, a partner at mining equity brokers and corporate finance providers SP Angel, said.
“The world is looking for the next raft of copper mining projects and there’s not much around,” he said.
Cobre Panama is scheduled to produce 350,000 tonnes per year of copper in concentrate, starting with a minimum 150,000 tonnes in 2019 and ramping up to full capacity in 2021.
Considering the mine’s estimated 27% copper content, a 10% offtake would equate to 130,000 tpy of copper concentrates at capacity.
By the time it is commissioned, the mine will have cost $6.3 billion to bring into production according to First Quantum financials released earlier this year.
Korea Resources declined to comment, while Samsung did not respond to Metal Bulletin’s requests for comment.
Posco Daewoo confirmed it is studying the business and has not come to a decision yet, in an emailed response to Metal Bulletin on Friday August 24.
South Korean early investment
Kores owns its 10% stake and offtake through its shareholding in Korea Panama Mining, originally a 50/50 joint venture with South Korean copper smelter LS Nikko.
Korea Panama Mining itself has a 20% interest in Cobre Panama; last year LS Nikko sold its interest and shareholder loans to First Quantum for a headline value of $635 million, but kept its 10% offtake right.
The South Korean 20% interest in Cobre Panama dates back to its project stage when the mine was mostly owned by Inmet Mining, with KPMC taking up its option to acquire the stake in 2012.
First Quantum acquired Inmet Mining in a hostile takeover for C$5.1 billion ($3.9 billion) in 2013.
Korea Resources was set up in 2008 with ambitions to become a top 20 mining and resources company by 2020.
But massive investments, such as the Boleo copper project in Mexico and Ambatovy nickel in Madagascar have proved costly and unpopular with the new Democratic Party government.
“KORES has invested in large-scale overseas resources development projects, resulting in a deterioration in KORES’ financial condition due to a general decrease in global commodity prices and delayed normalization of production,” director general for energy and resources policy Ki-Young Park said in a public letter underlying continued government funding for Kores in March this year.
Accordingly, the company is looking to offload some of its investments.
“Kores are selling non-core assets to reduce the company’s liabilities,” a second source said.
Opportunity for merchants
The sale itself is likely to trigger a great deal of interest from merchant trading businesses that are eager to acquire additional volumes, and with that an edge in an increasingly competitive concentrates market.
Although Samsung and Posco Daewoo, South Korea’s largest non-ferrous metals trading houses, have begun the early stages of negotiations, companies outside of the country will also be invited to bid.
“It’s two separate positions, the offtake and the stake,” a third source said.
“The Korean trading houses are reviewing to buy the Kores stake, but it’s quite a big investment for them,” the third source said.
[This article was first published on Thursday August 23 and was updated on Friday August 24 with comments from Posco Daewoo, referred to as a potential bidder in this article.]