Glencore Xstrata PLC sold its massive Peruvian copper project to Chinese investors for $5.85-billion (U.S.) in cash, the biggest deal in the mining sector in more than a year and an encouraging sign for an industry that has been hit hard by lower metal prices.
The sale of Las Bambas to a consortium led by state-owned China Minmetals Corp. could inject more life into the mining sector, which has struggled with fears that China’s slowing economy will crimp demand for raw materials.
“This shows you that Chinese companies still really believe in China. Westerners are overreacting to the lower economic growth,” said John Gravelle, mining leader with consultancy firm PricewaterhouseCoopers LLC.
The large Las Bambas copper mine is mostly built and scheduled to start production next year. It is scheduled to produce 400,000 tonnes of copper a year from 2015, equivalent to 12.5 per cent of 2013 imports of copper metal by China.
Chinese regulators required the divestiture of the Peruvian asset when Switzerland-based Glencore bought Anglo-Swiss Xstrata.
The sale generated excitement among miners including Canada’s Teck Resources Ltd. and former Barrick Gold Corp. chief executive Aaron Regent. They formed a North American consortium with other financial and metal players to bid for the copper project.
But ultimately Las Bambas was expected to go to Chinese bidders and did. China is the world’s largest consumer of copper and has been looking for ways to acquire the metal directly rather than through intermediaries.
The Asian country is responsible for 40 per cent of global demand for copper and must rely on imports of the metal, a crucial raw material for both construction and power generation.
Las Bambas is “long life and high quality. There aren’t an awful lot of those around,” said Jeremy Goldwyn, a copper expert and director with London-based derivatives broker Sucden Financial.
The Chinese consortium was led by MMG Ltd., which is owned by China Minmetals, and included Guoxin International Investment Corp. and Citic Metal Co.
In addition to nearly $6-billion in cash, the Chinese group will pay any expenses incurred in developing Las Bambas this year.
Glencore Xstrata said in a statement that it would use the funds to “immediately and materially” improve its balance sheet.
The deal was announced Sunday and is expected to close before Oct. 1.
The sale of Las Bambas comes as mining companies and other investors scour the landscape for cheaper assets.
Canadian miner HudBay Minerals Inc. has launched a hostile bid for Augusta Resource Corp. to gain control of the company’s large copper project in Arizona. Augusta has said it is talking to nine prospective white knights.
Copper is trading close to $3 a pound after falling as low as $2.95 in March. Commodity experts expect the metal to fall as low as $2.50 per pound this year.
Canada’s BMO Nesbitt Burns and Switzerland’s Credit Suisse advised Glencore.