Interesting Cu-deal in Chile
https://www.ft.com/cms/s/0/7826c850-0b2d-11e1-ae56-00144feabdc0.html#ixzz1doXvI93q
Anglo American has sold a significant stake in some of its most prized assets in Chile for $5.39bn to Mitsubishi,the Japanese trading house, in an effort to torpedo an attempt byChile’s state miner Codelco to buy the same assets at much lower prices.
The pre-emptive sale of 24.5 per cent of Anglo American Sur, whosestar asset is the Los Bronces copper mine, is likely to spark legalaction from Codelco, which was planning to buy half of the same assetsexercising an option in place since 1978.
As far as Codelco is concerned, Anglo’s sale to Mitsubishi is separate from its own option to buy a 49 per cent stake in Anglo Sur, and any attempt by Anglo to alter that deal would be a “violation of the contract”.
The deal to take its holding down to 75.5 per cent in Anglo Sur comes only days after UK-listed Anglo American agreed to buy a 40 per cent stake in diamond miner De Beers from the Oppenheimer family for $5.1bn.
Proceeds from the sale of the Anglo Sur stake more than cover thecost of the De Beers deal. The price paid by Mitsubishi is a heftypremium to the valuation under the Codelco option – about twice whatAnglo might have been expected to receive from the Chilean miner,according to a pricing formula that was a multiple of the asset’saverage earnings over the past five years.
Codelco announced last month it had lined up $6.75bn from Japanese trading company Mitsui to exercise an option to buy a 49 per cent stake in Anglo Sur,valuing the whole assets at no more than $13.5bn. But the deal betweenAnglo American and Mitsubishi values the assets at $22bn.
Codelco’s move had been seen as a political decision to repatriatehalf of one of the country’s best foreign-owned copper assets at a timeof rising resource nationalism in the country.
Anglo said in a statement released late on Wednesday that thetransaction was “fully compliant” with the provisions of the Codelcooption agreement. The option has been in place since 1978, well beforeAnglo bought its southern Chilean assets in 2002 from ExxonMobil.
The option gives the Chilean government the right to buy a 49 percent stake during a one-month window in January every three years, at aprice based on the profitability of the assets over the past five years.
Codelco said in a statement on its website that the Anglo operation“if confirmed, does not affect Codelco’s rights over the 49 per cent ofshares of Anglo American Sur. Codelco will take all action necessary todefend its rights in full”.
Cynthia Carroll, Anglo American’s chief executive, suggested she wasnot expecting any legal challenge. “This is a business transaction. Wehave acted in full compliance of the option agreement,” she told theFinancial Times. “We have been in contact with the government [of Chile]about the transaction.”
According to Anglo’s argument, Codelco can still buy a chunk of theassets, but the sale to Mitsubishi reduces the attractiveness of itsoption. The state-owned miner was keen to secure a stake in Los Broncesmine to boost its own production. Codelco is the world’s largest copperminer.
Anglo American shareholders had been angered that the company haddone nothing to head off exercise of the option, despite having invested$2.8bn in Los Bronces to expand production. The investment will morethan double output to 490,000 tonnes per year and is due to start beforethe end of this year. Anglo faces a $1bn tax bill on the sale
“It doesn’t look good that this has been there for a long time, aheadof a major expansion, and they’ve done nothing about it,” said one fundmanager with a holding in Anglo.
Meanwhile, the deal will nearly double Mitsubishi’s annual copperoutput to 250,000 tonnes a year at a time when some analysts areoptimistic about the outlook for copper prices. Demand continues to growbut production has risen less than 1 per cent annually over the pastfive years despite strong prices, according to Macquarie Securities
“[Mitsubishi] is aggressively looking for assets despite the currentmacro environment, as a chance to get exposure to assets they wouldn’tnormally have access to,” said Polina Diyachkina, an analyst atMacquarie in Tokyo. “The currency is also working in their favour [but]the deal sounds a bit expensive.”