Chile’s Codelco to win big in agreement with Anglo

If everything goes as planned, at the end of this week Chile’s Codelco, the world's number one copper producer by a wide margin, and Anglo American (LON:ALL) will sign a long-awaited agreement that would end one of the biggest business disputes in recent decades.

The pact, which has to be signed by two Japanese multinationals involved in the disputed assets, will end a conflict that began ten months ago.  Since then both parties have tangled in the media and Chilean courts.

In October last year, and barely a week after Anglo American announced that the $2.8 billion they splashed on expanding Los Bronces will start to bear fruit, Codelco decided to exercise an option that dates back to 1978 to acquire half of it.

The state-owned miner had passed on Los Bronces, a smelter and a lesser mine at the time. However, last year the copper giant put together the $6 billion called for in the option agreement – which analyst say short changes Anglo by billions.

What must really gall Anglo, which appeared to have been taken by surprise by Codelco's move, is that they will have to pay around $1 billion in taxes on the transaction.

The agreement expected this week would clearly favour Codelco and the Chilean State as it nets them over $5 billion from Anglo, according to experts quoted by La Tercera.

Codelco would also benefit from the acquisitions of two mining properties Anglo would give up. The assets, located close to the copper miner’s Andina division, are worth about $400 million.

Finally, Chile’s state would get revenue in taxes coming from the London-based company, as about a third of the $1 billion paid last year after Anglo sold its 24.5% stake to Mitsubishi, will have to be paid again. This time, because Anglo will be selling that stake back to Codelco.

And Anglo? By putting an end to the dispute with Codelco, the company would be able to focus on solving more important issues, such as deciding what to do with CEO Cynthia Carroll, wanted gone by the company’s top shareholders. Or, better yet, do something to improve its share price, down 26% in six months, which is making shareholders fear Anglo American could be the target of a hostile takeover.