Anglo American PLC agreed to sell rival Codelco a stake in its coveted south-central Chile copper holdings on Thursday, ending a bruising 10-month battle between the mining titans over Codelco's bid to buy a bigger share.
The cash deal, which is worth more than $2.8-billion and represents a significant discount to the market price, will cut Anglo's stake in its Anglo American Sur properties to 50.1 per cent while giving Chilean state miner Codelco and its financing partner, Japan's Mitsui & Co., a 29.5-per-cent stake.
The agreement terminates a multibillion-dollar courtroom showdown over Anglo's flagship Los Bronces mine, poised to become the world's No. 5 copper mine at its peak and previously called La Disputada, "the disputed one" in Spanish.
Codelco initially wanted to exercise an option to purchase 49 per cent of Anglo American Sur. But Anglo's surprise sale of 24.5 per cent of the properties to Mitsubishi for a hefty $5.4-billion last November dented Codelco's ambitions.
Anglo and Codelco executives both praised Thursday's deal, which was reached a day before an agreed deadline.
Anglo copper chief John MacKenzie, in a rare joint press conference with Codelco chief executive officer Thomas Keller in Santiago, said the company had done well for its shareholders.
"[Anglo] would have received $4.9-billion for the 49-per-cent stake rather than the equivalent of $7.19-billion agreed today, resulting in an effective $2.29-billion improvement," Goldman Sachs said in a note to clients.
Meanwhile, Mr. Keller said Codelco ended up with a stake in the most productive copper reserves district in the world at a highly attractive price. A previous valuation suggested a price of about $2.8-billion for the 24.5-per-cent stake.
Codelco's willingness to relinquish its original aspirations for the 49 per cent may sit poorly with public opinion and its powerful unions, however. And Anglo was forced to nearly halve its share in Los Bronces mine in less than a year.
The two miners are hoping the deal leads to "joint initiatives on Los Bronces-Andina," Anglo said. Industry players have long speculated over potential synergies between the two mines, which geologically constitute one mega-deposit.
"Codelco gets significant value from an option contract that seemed lost for many years," said Juan Carlos Guajardo, head of mining think-tank Cesco in Santiago. "The most important thing for Anglo is that it has closed in a fairly reasonable manner a situation that could have generated significant problems. It's a good deal for all parties."
Under the deal, world No.1 copper producer Codelco will buy a 24.5-per-cent stake in Anglo American Sur for $1.7-billion in cash. Mitsui has extended a $1.863-billion loan to Codelco for the purchase.
Codelco will also get land adjacent to its flagship Andina mine, which it values at around $400-million, Anglo said.
Mitsui, in the context of the Codelco-Mitsui partnership, will buy an additional 5-per-cent shareholding for another $1.1-billion, with shares made up 0.9 per cent from Anglo and 4.1 per cent from Mitsubishi. The 4.1 per cent will be bought by Anglo from Mitsubishi for $890-million, and subsequently sold on.
"It's clear Mitsubishi and Mitsui are betting heavily on Chile," said Mr. Guajardo. "Mitsui is a conglomerate that is going to strengthen its position in the country. …It's gaining a privileged relationship with Chile."
Codelco and Mitsui could explore further mining opportunities together in Chile or internationally, Codelco said in a statement to Chile's regulator on Thursday.
Last October, Codelco said it would exercise its option to buy a 49-per-cent stake in the Anglo Sur mining complex when the option window opened in January, 2012.
It secured a $6.75-billion bridge loan from Mitsui to exercise its option, with the right, but not the obligation, to pay off part of the loan through the sale of an indirect stake of half the shares acquired.
Weeks later, Anglo surprised the market with a pre-emptive sale of a 24.5-per-cent stake in Anglo Sur to Mitsubishi. Anglo said the $5.4-billion deal secured better value for investors.
Since then, the companies have been tussling over the properties.