[miningmx] — CODELCO and Anglo American unveiled on Thursday a deal that will
not only end a bitter legal battle between the two giant mining firms, but could also
unlock the huge value contained in one of the world’s richest copper districts.
With a vigorous handshake and backslaps in a Santiago hotel, Codelco chief
executive Thomas Keller and John Mackenzie, head of Anglo American’s copper
business, officially confirmed a deal carefully designed to save face as well as
fortune.
While the 49% stake in Anglo American Sur that Codelco initially sought remained
off the table, the deal has earned the state-owned mining firm a big stake in Los
Bronces, one of the world’s biggest copper mines, at way below market value
($1.7bn) plus two mine properties – Los Leones and Profundo Este – which it
believes to be worth $400m.
And Anglo may have seen its stake in Sur reduced from 75.5% to 50.1%, but it
retains majority control of the asset and the US$5.39 billion sale to Mitsubishi,
which allowed it to recoup half of the market value threatened by Codelco’s option,
remains in place.
The deal also lifts the uncertainty posed by continued litigation.
Codelco’s lawyers remained convinced of its strong legal case, but, Keller explained,
the board recognised that pursuing the dispute through the courts for another four
or five years could lead to a “nightmare scenario’ where changed market conditions
meant the option was worthless or funding was no longer available.
The financing arrangement and joint venture with Mitsui means that its debt
capacity is unaffected and it can pursue badly needed multibillion-dollar investments
in century-old mines such as Chuquicamata and El Teniente.
Based on the price paid by Mitsubishi last November, Keller said the deal would allow
Codelco to record a pre-tax gain of $4.09bn, comparable to the amount it would
have earned if the option had been exercised in full as originally envisioned.
Add the amount the Chilean state will gain through tax payments on the various
transactions involved in the deal, and the deal leaves the country more than “$5bn
better off than it was yesterday,’ the executive noted.
But the deal’s real value may still be waiting to be unearthed.
Sitting side by side in Andes Mountains, Codelco’s Andina and Los Bronces exploit
the same giant Rio Blanco mineral complex from adjacent valleys.
Anglo is currently ramping up an expansion to double production at Los Bronces;
Codelco is planning investments to triple thorughput at Andina.
Add Anglo’s recent Los Sulfuros and San Enrique Monolitos discoveries, covered by
the Sur deal, and the complex has the potential to produce significantly more than a
million tonnes of metal a year.
But unlocking the site’s full value could require greater cooperation.
Codelco has already faced difficulties in finding room for its planned expansion in the
narrow Rio Blanco valley. Water supplies are limited and there are environmental
issues in open-pit mining so close to one of South America’s biggest cities (Los
Bronces lies just 65 kilometers from Santiago).
Speaking on Thursday, Codelco chairman Gerardo Jofre described relations between
the two sides as “unimprovable’ and promised “a climate of cooperation and trust to
tackle business opportunities together’: a million miles from the suits and
countersuits of six months earlier.
Underpinning future relations is a shareholder agreement between the four partners
in Anglo American Sur.
“It made an important contribution to the negotiation process,’ Keller unveiled,
“Without it, it would have been impossible to reach a deal.’
Under the pact, Codelco will be able to name one director to the Sur board, gain
access to full details on how the business is running and have a say on key
investment decisions.
Both sides hope the deal could turn an embarrassing bust-up into something much
more constructive.
However, time may be against them – falling commodity prices and jumpy investors
are forcing mining companies to slim down bloated investment portfolios.
Codelco already has plenty of interesting projects on their book, and limited
resources, while Anglo, having seen its stake involuntarily halved in a year, may
have reservations.
But for now there is optimism.
