MMG agrees $5.85bn deal to buy Las Bambas from Glencore Xstrata

MMG, the international unit of China Minmetals, has agreed to buy Glencore Xstrata’s Las Bambas project in Peru to expand its presence in the copper market.

MMG, the international unit of China Minmetals, has agreed to buy Glencore Xstrata’s Las Bambas project in Peru to expand its presence in the copper market.

The $5.85 billion purchase will be made in consortium with two other Chinese companies, MMG said.

“This is a transformational acquisition for MMG,” the company’s ceo Andrew Michelmore said in a statement. The deal was struck nearly 12 months after China ordered the sale of Las Bambas as a condition for letting Glencore to buy Xstrata.

Las Bambas, at this point due to start up next year, will add a mine with about 400,000-450,000 tpy of planned copper capacity to MMG’s portfolio. The company produced 187,738 tonnes of copper in 2013, from mines in Australia, Laos, and the Democratic Republic of Congo.

“Once completed Las Bambas is expected to produce in excess of 2 million tonnes of copper concentrate in the first five full years of operations. This puts Las Bambas as the number three copper producing mine globally in 2017,” Michelmore said on a conference call.

MMG Ltd has 62.5% interest in the consortium buying Las Bambas, while Guoxin International Investment Corp Ltd has 22.5% and CITIC Metal Co. Ltd has 15% stake.

In addition to the $5.85 billion, all capital expenditure and other costs incurred in developing Las Bambas in the period from January 1 2014 to closing will also be payable by the consortium, Glencore said. Capital expenditure and costs since start of the year amount to about $400 million.

The deal and project capital cost will be fully funded using a combination of equity and long-term debt to be arranged through a banking syndicate arranged by China Development Bank, MMG said.

The deal which is expected to close in the third quarter is subject to approval from China’s ministry of commerce and MMG’s shareholders. China Minmetals Non-Ferrous Metals Co Ltd, which holds about 74% stake in MMG, is committed to vote in favour of the deal..

The mine is expected to have a 20-year life.

“We also believe there are opportunities to extend the existing resource and mine life as a significant proportion of the licence area is currently unexplored,” Michelmore added.

Las Bambas, which will become one of the largest global copper mines once in full production, has 6.9 million tonne copper ore reserve and 10.5 million tonne copper mineral resource, MMG said.

“Our goal is to effect a smooth transition of ownership without a disruption to project development, and we look forward to working closely with the existing team to bring Las Bambas into production,” Michelmore said.

Las Bambas is expected to start production in the first quarter of 2015, with output set to reach 400,000-450,000 tpy of copper.

The sell side
“The proceeds from the sale will immediately and materially de-gear Glencore’s balance sheet,” GlencoreXstrata said in a statement.

Glencore said it will continue to look for opportunities to reinvest capital and any surplus capital would be returned to shareholders.

BMO Capital Markets Ltd and and Credit Suisse were the financial advisors to Glencore in connection with the sale.

Lead joint financial advisers to MMG on behalf of the JV consortium were Citigroup and Bank of America Merrill Lynch supported by financing advisors BOCI Asia Limited and ICBC International Capital Ltd.

MMG’s legal advisors are White & Case, Dentons and Rodrigo, Elias & Medrana.

MMG’s major shareholder China Minmetals Non-ferrous Metals Co. Ltd, was advised by Deutsche Bank.

Shivani Singh

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