Glencore Xstrata Sells Las Bambas Copper Mine to China's MMG for $5.9 Billion

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Researched by Industrial Info Resources (Sugar Land, Texas)--Glencore Xstrata (LSE:GLEN) (Baar, Switzerland), the world's largest commodities trading company, has announced the sale of its copper mine project in Las Bambas, Peru, to a Chinese consortium for $5.85 billion in cash. The consortium is owned by MMG Limited (HK:1208) (Hong Kong, China), a subsidiary of China's state-owned Minmetals that holds 62.5%; GUOXIN International Investment Corporation Limited, which holds 22.5%; and CITIC Metal Company, which holds 15%.

In addition, the consortium will pay all capital expenditures and other development costs incurred since the beginning of the year and up to the closing date, which is expected before the end of September. At the end of March, costs and capital expenditures amounted to $400 million.

The sale of Las Bambas was one of the requirements for the Chinese Ministry of Commerce to approve the merger between Glencore and Xstrata. The transaction is expected to close by this fall, subject to regulatory approval and a vote by MMG's shareholders, Glencore said in a statement.

"Today's announcement demonstrates our commitment to maximizing value for our shareholders," said Glencore Chief Executive Officer Ivan Glasenberg in a statement. "Since we acquired Xstrata on May 2, 2013, our team has taken decisive steps to de-risk Las Bambas, which has culminated in this compelling offer from the consortium."

"This is a transformational acquisition for MMG," said MMG Chief Executive Andrew Michelmore. "Our investment in this project of national importance is the first step in what we see as a long-term relationship with Peru."

Glencore Xstrata management also stressed that it will continue to look for investment opportunities and that any surplus capital will be returned to shareholders subject to the group maintaining a "BBB" credit rating.

The Glencore Xstrata merger created the world's fourth-biggest mining company and the world's largest commodities trader.

Buying Las Bambas gives the group, led by Minmetals's MMG Limited, control of a mine that's scheduled to produce 12.5% of 2013 China's imports of copper. Las Bambas is expected to produce 460,000 metric tons of copper concentrate annually over the next 10 years, according to projections by Glencore.

"The deal should not only strengthen Glencore Xstrata's balance sheet and liquidity, but also improve its free cash flow profile over the next two years as the capex earmarked--$1.8 billion for 2014--for Las Bambas should be retained," said Philippe Landroit, an analyst at Societe Generale in London.

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