Search Share Prices
Anglo American to develop Peru copper mine after $600m stake sale
Anglo American has agreed to sell a stake in its Quellaveco copper project in Peru to Mitsubishi Corporation for $500m that could rise to $600m in order to plough ahead with development.
The FTSE 100 company will give up a 21.9% equity interest in the mine's holding company to add to the 18.1% interest already owned by the Japanese conglomerate, leaving Anglo with 60%.
Mitsubishi will pay $500m on closing the deal, which is expected in the third quarter of the year. Half of the remaining cash paid when total ore treatment rates at Quellaveco reach at least 150,000 tonnes per day and the other half when treatment rates reach at least 180,000 tonnes per day. The sale gives an $2.7bn implied valuation for the Quellavec project.
Anglo, which previously pencilled in an option agreement with Mitsubishi to hold a 49.9% stake, indicated that it would proceed with development of the project now it has a partner. Proceeds of the stake sale will be used to pre-fund a share of capital expenditure required for project development.
Chief executive Mark Cutifani said he looked forward to Mitsubishi's "ongoing contribution and strong support for the development of Quellaveco".
Analysts at RBC Capital Markets said the $2.7bn implied valuation for the project "appears to be a reasonable indicator that the economics are shaping up" better than expected, having ascribed a high-level $1.7bn estimate before.
Quellaveco, which is located in the Moquegua region in the south of Peru, is estimated to hold ore reserves of 1.3bn tonnes, containing approximately 7.5m tonnes of copper and a reserve life of 30 years. Anglo sees potential for further extension of another 6m more tonnes of copper.
The RBC analysts added that the injection of cash, as well as a lower capital burden, will improve Anglo American's free cash flow through the Quellaveco construction phase as the company continues to delever its balance sheet.
Shares in Anglo fell 1.5% to 1,771.6p in early trading on Thursday.