MMG leads group buying Peruvian copper project for US$5.85b

Investors show enthusiasm for a joint-venture agreement that gives the mainland state-backed miner a majority stake in Peru copper project

PUBLISHED : Monday, 14 April, 2014, 1:33pm
UPDATED : Tuesday, 15 April, 2014, 12:32am

Shares of state-backed miner MMG jumped after it revealed it was leading a joint venture to buy a copper mining project in Peru for US$5.85 billion, as the acquisition would increase MMG's copper resources by 2.7 times and turn the firm into Asia's largest miner of the metal.

MMG, the overseas non-ferrous metals mining unit of state-owned China Minmetals, said it would form a joint venture with state-backed Citic Metal - a unit of Citic Group, China's largest conglomerate - and Guoxin International Investment to buy the Las Bambas project in Peru. Guoxin International is a unit of state-owned resources project manager Guoxin Group.

"The acquisition represents a significant step in achieving the group's objective to be recognised among the world's top mid-tier base metals mining companies," MMG said in a statement to the stock exchange yesterday.

The deal would make MMG Asia's largest listed copper miner by output, overtaking Jiangxi Copper, a Barclays research note said, adding: "It propels MMG into the big league of the top 15 copper mining companies."

The seller is Switzerland-based commodities major Glencore Xstrata. The sale of one of Glencore's major copper projects by September 30 is a condition for antitrust approval by China's Ministry of Commerce for Glencore's merger with Xstrata.

MMG will have a 62.5 per cent stake in the venture, while Guoxin International will have 22.5 per cent and Citic Metal 15 per cent.

MMG chief executive Andrew Michelmore yesterday told a teleconference some US$3.5 billion had been spent on the project by the end of last year by Glencore, which estimated US$2.4 billion more is needed until completion in the middle of next year.

He cautioned that MMG has identified risks in meeting the schedule and budget, adding MMG will give an update on its estimate after the deal's expected third-quarter completion.

The deal will raise MMG's copper resource in terms of contained metal to 10.5 million tonnes from 3.9 million tonnes.

"[MMG]'s share of the production of the Las Bambas project is expected to be almost 1.5 times of [MMG's] existing copper production once ramp-up is complete," the firm said.

Average annual output was projected by Glencore to be 400,000 to 450,000 tonnes, Michelmore said. The project's mine life is estimated at 20 years. Its unit production cost is projected to rank among the lowest 25 per cent among all copper projects globally, MMG said.

China Development Bank will lead banks in funding the deal.

Barclays' analysts estimated the acquisition could result in an up to 300 per cent increase in potential profit for MMG from 2016. The deal is subject to approval by China's Ministry of Commerce and MMG shareholders. MMG shares closed 8.8 per cent higher at HK$1.85.