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Glencore bids Adiós to Las Bambas

A Chinese consortium has agreed to buy Glencore Xstrata's giant Las Bambas copper project in Peru.
April 15, 2014

In a deal seemingly at odds with recent pronouncements on the ills of China's economy, Glencore Xstrata (GLEN) has confirmed that it is selling its giant Las Bambas copper project in Peru to a consortium comprised of MMG, the offshore arm of China Minmetals Corp, Hong Kong-based Guoxin International Investment Corp and Citic Metal Co.

IC TIP: Hold at 318p

Glencore will receive $5.85bn (£3.5bn) in cash, while the consortium partners will have to cover the $400m capital expenditure bill that Glencore has incurred since the beginning of this year. The partners can also expect to fork out another $2bn or so to bring production at the mine up to the initial annual target rate of 460,000 tonnes.

The deal is linked to last year's merger between Glencore and Xstrata, which was rubber stamped by China's Ministry of Commerce on the proviso that the newly formed entity would offload some of its copper assets. Understandably, the People's Republic has been at odds with western mining majors that have tried to secure dominant positions in metals markets, but without the regulatory compulsion it's debatable whether Glencore would have pressed ahead with the deal. After all, Glencore had significantly de-risked the project through $4bn in existing capital expenditure, and once up and running, Las Bambas promised to deliver upwards of $1.25bn to Glencore's top line annually. Chief executive Ivan Glasenberg may well be musing on a return of capital to shareholders, but he might opt to pare back the group's net debt overhang, which stood at $35.8bn at the year-end.