Chinese consortium buys Peru copper mine for $5.85b

Leading Chinese metal producer China Minmetals Corp said on Monday that a consortium led by MMG Ltd, its Hong Kong-listed subsidiary, has purchased the Las Bambas copper mine in Peru from Glencore Xstrata, making it one of the largest mining acquisitions by transaction volume in recent years.

The takeover is aligned with the long-term interests of China Minmetals and MMG, and further prioritizes the company's asset portfolio and produces good synergy with the company's other businesses, according to a statement published on the company's website on Monday, citing Zhou Zhongshu, president of China Minmetals Group.

The deal is priced at $5.85 billion, and upon its completion, Glencore will receive the money in cash, China Minmetals said.

Other partners in the consortium include Hong Kong-based Guoxin International Investment Corp Ltd and China's CITIC Metal Co Ltd. The stakes in the consortium for MMG and the other two companies are 62.5 percent, 22.5 percent and 15 percent respectively.

CITIC Metal, a veteran investor in overseas mining assets, said in a statement on Monday that "the Las Bambas project is one of the largest single overseas mine acquisitions by size by Chinese companies. The deal helps the firm to increase the assets value."

CITIC Metal, a subsidiary of CITIC Group Corp, engages in the investment and trade of non-ferrous metals.

The deal came after Glencore agreed to sell Las Bambas to secure approval from China's Ministry of Commerce (MOFCOM) for its -acquisition of Anglo-Swiss mining company Xstrata for fears of potential monopoly.

Several Chinese companies, including Aluminum Corporation of China (Chinalco) and Jiangxi Copper Corp, had been bidding for the rights to take over the Peruvian copper mine.

"China starves for copper. From the State's perspective, purchasing mining assets like Las Bambas is putting the country's foreign reserves into good use. That is a better way than purchasing US government bonds, which are depreciating," Zhou Shijian, former vice president of China Chamber of Commerce of Metals, Minerals & Chemicals Importers Exporters, told the Global Times on Monday.

"Projects as big as this one are typically backed by the government. So the price, while it is high by some measurement, is still affordable to Minmetals and China, given the long-term interest in securing a steady copper supply for the domestic market," Sun Kewen, a copper analyst with Ji'nan-based commodity consultancy Sublime China Information, told the Global Times Monday.

China is the world's largest copper consumer, but over 60 percent of its domestic supply is imported.

"The deal will ease the pressure in copper supply, which China has a huge demand for in the long run. The mine is estimated to be able to produce over 450,000 tons of copper per year, which means it alone could supply several downstream companies," Sun said.

In comparison, Jiangxi Copper, the largest copper producer in China, produces around 1 million tons of copper annually, Sun said.

The project also alleviates operation pressure placed by the weakening yuan against the US dollar starting from late last year, Sun noted.

The Las Bambas project is located in the Apurimac region in southern Peru, and has a proven reserve of 1.71 billion tons of copper resources capable of producing 10.5 million tons of the copper metal.

The project, formerly one of the largest mines in Xstrata's project portfolio, is expected to begin production in 2015. It is expected to produce more than 450,000 tons of copper a year in its first five years and 300,000 tons a year thereafter.

The deal is expected to close before the last quarter of 2014, pending approval from MOFCOM as well as approval from MMG's shareholders.

In recent years, a number of Chinese companies have ventured to buy assets overseas to meet the insatiable demand of the nation.

However, some of these projects have run into problems, including Chinalco's Toromocho copper mining project in Peru, which allegedly polluted the local water system.