A consortium of state-owned Chinese companies led by China Minmetals Corp., one of the country’s biggest metals miners, announced Monday a deal to buy a giant copper mine in Peru from Glencore Xstrata for more than US$6 billion.
In a deal that shows how Chinese regulators are influencing global mergers and acquisitions far beyond China’s borders, Glencore said it would sell its Las Bambas copper mine project to the Chinese group for US$5.85 billion in cash plus development costs, according to The New York Times. The sale of the mine was a condition stipulated last year by China’s Commerce Ministry before it approved the US$30 billion purchase by Glencore International, a Swiss commodities trader, of the mining company Xstrata.
“It’s a good price, probably toward the top end of market expectations,” Jeff Largey, an analyst at Macquarie Group Ltd. in London, told Bloomberg, adding the deal provides a good outcome for China. “This is a Chinese buyer, buying a very high quality copper asset.”
The astronomical price tag notwithstanding, the deal is the kind of “win-win” that China likes in that it mostly favors China.
In this case, China, already the world’s largest consumer and producer of copper, gets a lock on a significant supply of ore from a mine it effectively controls at no doubt favorable pricing.
The Las Bambas mine, with an expected life span of 20 years, will become one of the world’s top three copper mines by 2017. It is expected to produce 450,000 metric tons of copper a year when it starts output in 2015, or equivalent to 12.5 percent of China’s copper imports.
For scope, China, which imports 80 percent of the copper it needs and consumes 40 percent of the world copper supply, can’t get a lot done without it.
Copper is used in building construction, power generation and transmission, electronic product manufacturing (think computers and iPhones), and the production of industrial machinery and vehicles. Copper wiring and plumbing are integral to the appliances, heating and cooling systems, and telecommunications links used every day in homes and businesses.
Copper is also an essential component in the motors, wiring, radiators, connectors, brakes, and bearings used in cars and trucks. The average car contains almost a mile of copper wire, and the total amount of copper ranges from about 20 kilograms in small cars to about 45 kilograms in luxury and hybrid vehicles. Similarly, a commercial aircraft uses as much as 217 kilometers, or about 2 metric tons, of copper wire.
That said, there are some risks in the purchase, the Wall Street Journal notes. Some of the drop in copper prices this year has been spurred by concerns that slowing Chinese growth could lead to copper oversupply due to big stockpiles.
There also are concerns over copper’s role in China as collateral for bank loans and other financing, with some market watchers saying that as much as 60 to 80 percent of China’s copper imports have been used as collateral against bank loans.
According to Bloomberg, development of Las Bambas was about 56 percent complete at the end of last year with about US$2.4 billion left to be spent on the site. Glencore estimated Las Bambas ore reserves at 950 million metric tons.
Analysts described Las Bambas as “the largest copper project China has ever invested in.”
MMG Ltd., a Hong Kong-listed subsidiary of China Minmetals, led the buyers’ consortium with a 62.5 percent stake. Guoxin International Investment Corp., a state-owned infrastructure and resources company, has a 22.5 percent stake, while CITIC Metal, the metal trading unit of the state-owned CITIC Group conglomerate, owns 15 percent.
The deal, which is expected to close before the end of the third quarter, is subject to approval from China’s Ministry of Commerce.
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