Anglo American and Codelco End Dispute over Los Brancos Copper Mine

on Aug 30, 2012

Anglo American (AAL:LN), the British multinational mining company, finally struck a deal with its major rival, the Chilean copper giant Codelco, after a ten month battle for the control of one of the world’s most valuable copper deposits.

The conflict started last year with Codelco announcing it plans to exercise a decade old option to buy a 49 per cent stake in Anglo American Sur, a set of assets including the prized Los Bronces mine, the El Dorado mines, the Chagres smelter and two recently discovered copper-rich deposits. The option can be taken up only once every three years and only in January. Codelco revealed its plans in October last year when Anglo had already invested around $2.8bn (£1.77bn) to double the output in the Los Bronces mine and turn it into potentially the world’s largest copper producer. The option allows Codelco to buy just under half of the assets of Anglo American Sur for the sum of $4.9bn (£3.09bn), which is much lower than what Algo believes the assets are worth.

To prevent Codelco from exercising the option, Anglo quickly sold shares to Mitsubishi (MTU:US). A total of 24.5 per cent were transferred with Anglo receiving $5.4bn (£3.4bn). If Codelco had bought the shares through exercising their option, they would have paid only $2.45bn (£1.5bn) meaning the British company received more than twice as much from Mitsubishi.

Codelco immediately filed a lawsuit in the Chilean courts claiming Anglo’s sale as a violation of the option agreement. The legal battle which ensued protracted for 10 months and caused nervousness not only in investors but also miners operating in Chile. At one point Anglo described Codelco’s tactics as “bullying” and it looked as if the conflict would not be resolved in the near future. However, with Mitsubishi agreeing to sell part of its own share in AAS a deal was finally struck. Some say the departure of Diego Hornandez, former CEO of Codelco, also helped to speed up the settlement.

The terms of the deal are as follows: Anglo is to decrease its shares in AAS from 75.5 per cent to 50.1 per cent, which means it retains control of the assets. Codelco and its financing partner Mitsui are buying 29.5 per cent stake for $2.8bn (£1.8bn). The Chilean firm agreed on the conditions because it now buys 24.5 per cent for $1.7bn (£1.07bn) instead of the $2.5bn (£1.6bn) it would have paid under the option agreement. The other 5 per cent were sold from Mitsubishi for $1.1bn (£700m). In total, Anglo gets $7.2bn (£4.5bn), which is $2.3bn (£1.45bn) more than what it would have received if Codelco was left to exercise its option.

“Although the modest value dilution is disappointing, Anglo still ends up ahead. The intangible benefits are that Anglo’s future in Chile is more secure, and that a drawn-out and acrimonious legal battle has been avoided” said Deutsche Bank analysts.
Anglo’s CEO Cynthia Caroll said she is happy with the sale, which created substantial value for the shareholders. The market also seemed to approve the agreement and share prices of Anglo-American rose by 1.7 per cent to £19.41.
With its new stake in AAS, Codelco will be able to expand its copper production by 115,000 metric tonnes annually during the next five years with the Los Bronces mine expected to produce more than 400,000 tonnes a year. “This is equivalent to 7% of Codelco’s annual production and will allow it to consolidate its spot as the world’s largest copper producer,” Codelco’s chief executive Thomas Keller told reporters.


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