Bloomberg News

Codelco Plans Anglo American Option After $6.75 Billion Loan

October 12, 2011

Oct. 13 (Bloomberg) -- Codelco, the world’s biggest copper company, plans to exercise an option to buy as much as 49 percent of an Anglo American Plc Chile unit in a deal that may increase the state-owned company’s annual output by 10 percent.

Mitsui & Co. Ltd., based in Tokyo, agreed to lend Codelco up to $6.75 billion toward the acquisition of the stake in Anglo American Sur SA, which owns the Los Bronces and El Soldado mines in central Chile, Codelco said yesterday in an e-mailed statement. The Santiago-based company also agreed to sell Mitsui 30,000 tons of copper a year and can repay some of the loan through selling Mitsui 50 percent of the stake acquired.

“If, as currently anticipated, we exercise the purchase option, we hope to work closely with Anglo American,” Chief Executive Officer Diego Hernandez said in the statement. “Our investment decisions aren’t affected by the volatility that the global economy may experience in the short term.”

Hernandez plans to spend about $20 billion this decade to revamp aging mines as part of a total $67 billion estimated investment by mining companies in the world’s biggest copper producing nation. Chile is seeing few signs of weaker Chinese demand even after prices plunged on concern that Europe’s debt crisis will damp raw material demand, Mining Minister Hernan de Solminihac said in an Oct. 5 interview.

The decision on whether to take up the option in January will depend on market conditions and the company’s finances at the time, Hernandez told reporters in Santiago yesterday. The deal with Mitsui won’t affect Codelco’s investment plan, he said.

Put Option

Codelco would participate in the transaction through its investment subsidiary Inversiones Mineras Acrux SA. The arrangement with Mitsui gives Codelco an option to sell the company half of any stake it buys as part payment for the loan. The deal values the 49 percent stake at about $9.76 billion.

The rest of the loan would be converted into a five-year loan to Acrux, not backed by Codelco. The loan would then be paid with income from the new stake in Anglo American Sur, Codelco said in the statement.

Should Acrux exercise its put option and sell half of its stake to Mitsui, the companies have drafted a shareholder pact.

Besides the mines in the Andes Mountains north of Santiago, Anglo American Sur also owns the Chagres copper smelter and two nearby exploration prospects.

Anglo Considers

The unit produces about 450,000 metric tons a year, meaning the deal would increase Codelco’s output by as much as 10 percent, the state-owned company said.

Anglo America, based in London, will consider the implications of Codelco’s announcement, it wrote yesterday in an e-mailed statement, without elaborating.

Codelco’s option to buy dates from a 1978 option given to the Empresa Nacional de Mineria by Exxon Minerals Chile Inc. Empresa Nacional de Mineria transferred the right to Codelco in 2008. The option can be exercised every three years.

Los Bronces produced 221,400 tons last year, a 7 percent decline compared with 2009, Anglo American said in its last annual report. The company plans a $2.5 billion expansion of the mine, scheduled to start in the fourth quarter, aimed at making it the fifth-largest copper mine in the world. Codelco’s Andina mine is adjacent to Los Bronces.

--With assistance from James Attwood and Heather Walsh in Santiago. Editors: Dale Crofts, Robin Saponar

To contact the reporters on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net; Javiera Baeza in Santiago at jbaeza1@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net


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