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Chinese tighten grip on Tenke mine as Lundin agrees to sell stake for $1.14bn

Aerial view of the processing plant at the Tenke Fungurume in 2015. (Image courtesy of Freeport-McMoRan Copper & Gold)

After weeks of deliberation, Canada’s Lundin Mining (TSX:LUN) said Tuesday it will sell its minority stake in the African copper mine Tenke Fungurume to a Chinese private-equity firm for $1.14 billion in cash.

The deal is a result of the Toronto-based miner’s review of strategic options for its interest in TF Holdings Ltd., the Bermuda holding company that indirectly owns an 80% interest in the massive mine, located in the Democratic Republic of the Congo.

Lundin had no option but to either allow the Freeport-China Moly deal to proceed, supplant the offer, or sell its stake, as it has chosen to do.

Lundin has an indirect 30% interest in TF Holdings, which translate into the miner owning 24% of Tenke. Congo’s state miner Gecamines owns 20%. The remaining 56% belongs to Freeport-McMoRan (NYSE:FCX), which back in May signed a deal to sell that stake to China Molybdenum (CMOC) for up to $2.65 billion, a crucial part in the Phoenix-based company’s debt reduction plan.

Originally, Lundin had until mid-September to decide whether to allow Freeport to go ahead with the sale of Tenke to China Moly, but the Canadian miner was granted four extensions since then.

The company had no option but to either allow the deal to proceed, supplant the offer, or sell its stake, as it has chosen to do.

As a result, the copper, nickel and zinc miner said it could also get up to $51.4 million based on the average prices of copper and cobalt during a 24-month period beginning Jan. 1, 2018.

There were plenty of rumours about the potential suitor Lundin was lining up for Tenke. The entrance of the private equity firm into the picture, however, means the Chinese will now own 80% of the coveted mine.

It also means that Lundin has waived its right to acquire Freeport’s 70% stake in the holding company, and the effective 56% stake in Tenke.

The deal includes a termination fee of $100 million, payable by the private-equity firm under certain circumstances. Lundin said it expects the sale to close in the first half of 2017.

Tenke, which cost $3 billion to build, holds one of the world’s largest known copper resources. The high-grade mine that last year produced 203,965 tonnes of the red metal and just over 16,000 tonnes of cobalt.