Glasenberg pulls off blockbuster Las Bambas deal

Las Bambas in Peru

Glencore Xstrata has sold its interest in the Las Bambas copper mine in Peru to a Chinese consortium in a $5.8 billion cash deal.

Glencore Xstrata (LON:GLEN) confirmed Sunday it is selling the project to a consortium led by Australia-based MMG, the offshore arm of China Minmetals Corp, Hong Kong-based Guoxin International Investment Corp and Citic Metal Co.

Glencore will receive about $5.85 billion in cash and in addition, the $400 million tab for all capital expenditure and development costs since the beginning of the year will be picked up the Chinese investors.

Glencore said proceeds from the sale will “immediately and materially” deleverage its balance sheet and the Swiss-based firm said it would continue to look for opportunities to reinvest capital and any surplus capital would be returned to shareholders.

CEO Ivan Glasenberg indicated that the the company – the world’s number one commodities trader and fourth largest miner – was persuaded to sell the “de-risked” project because of the size of the offer:

Our willingness to sell reflects the level of the offer and our conviction that we can utilise the sale proceeds to create additional shareholder value.”

When Glencore acquired Xstrata in May 2013, China’s Ministry of Commerce insisted that it offload some of its copper assets by September over fears that the combined group would dominate the global copper supply chain.

Provided the price was right Las Bambas was the obvious choice to placate the Chinese.

The size of the deal, expected to close in the third quarter, also reflects Chinese confidence in the copper price and continued domestic demand in the country which already consumes a more than 40% of the world’s copper.

Glencore has already spent $4 billion on Las Bambas which is now in full construction phase and is set to produce 400,000 tonnes of copper per year starting in 2015, as well as significant amounts of silver and gold.

Copper ended Friday at $3.04 a pound in New York trading, down by double digits since the start of the year.

Chinese copper imports have been on a tear, rising a whopping 31.4% on year to 420,000 tonnes in March. That’s up from 379,000 tonnes in February due to the Lunar New Year holiday, but down from a particularly strong 536,000 tonnes in January this year.

China’s copper imports are very price sensitive and the red metal fell to a near four-year low in March of $2.92 a pound.