Anglo snubs Codelco in $5.4bn Chilean deal

[miningmx] — ANGLO American has sold a 24.5% stake in its Chilean copper
operations for $5.39bn to Mitsubishi Corporation in a bid to negate the eventuality of
that country’s state-owned Codelco taking a significant share in those assets at a
discount price.

The transaction values the holding company of assets like the Los Bronces and El
Soldado copper mines as well as the Chagres copper smelter, Anglo American Sur
(AAS), at $22bn.

An Anglo spokesperson told Miningmx the group has received numerous offers for the
25% stake in AAS, at around the same value as Mitsubishi’s winning bid.

Codelco had a long-standing right to buy just under half of AAS once every three
years until 2027. It secured a $6.75bn loan from Japan’s Mitsui & Co in October,
stating its intention to exercise the option during the next window in January. Such a
transaction would’ve valued AAS at around $13bn.

According to an Anglo statement, the percentage of shares in AAS over which
Codelco may exercise its option is reduced by the percentage of shares in AAS not
held by Anglo American at the time of the exercise. This implies Codelco will still be
entitled to buy 24.5% in AAS – similar to the stake Mitsubishi now holds – but at a
much higher valuation.

Also, the $5.39bn that Anglo has raised in its transaction with Mitsubishi will be
adequate to cover its purchase of a 40% stake in De Beers from the Oppenheimer
family for $5.1bn, as announced on Friday.

Anglo said Mitsubishi has already paid for the transaction, in the form of a promissory
note due on Thursday.

“Anglo American has regularly reviewed its available alternatives and, following a
thorough assessment, and in the interests of its shareholders, it entered into a
process to explore the potential value of the AAS assets through the evaluation of a
sale of a minority stake,’ read Anglo’s statement.

“The transaction is fully compliant with the provisions of the option agreement
between Anglo American, certain of its affiliates and Codelco, which expressly
contemplates the eventuality of Anglo American disposing of its AAS shares at any
time prior to the date on which the option may be exercised.’

Said Sir John Parker, chairman of Anglo: “The sale of an interest in AAS
demonstrates the board’s commitment to delivering value for our shareholders, in line
with the contractual alternatives available to us in our agreement with Codelco.

“Anglo American remains fully committed to its major inward investment programme in
its Chilean business and to continuing its significant social and community investment
programme in Chile.’

READY TO FIGHT

But a defiant Codelco told Reuters the sale did not affect its right
to buy a 49% stake and that it could sue Anglo over the option, setting the stage
for a showdown with Anglo American.

Anglo’s sale to Mitsubishi can be reversed and suing the global miner for damages is
an alternative, Codelco CEO Diego Hernandez told Reuters in Honolulu. Hernandez
said he was surprised at what he saw as a risky move by Anglo American that could
not only sour relations with Codelco, but also hurt the mining industry.

“This contract is made in Chile under Chilean law, not in New York or London,”
Hernandez said. “And in Chile, a…contract like this kind of option supposes good
faith by both parties, and I think that is what Anglo American has violated.

“Naturally the operation can be reversed, or you can sue for damages, and in this
case we are talking about significant numbers,” he added.

“If this sale (to Mitsubishi) is confirmed, it does not affect Codelco’s right over 49%
of the shares of Anglo American Sur,” Codelco said in a statement. “Codelco will
exercise all the actions that are necessary to safeguard its rights.”