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Codelco, Anglo Settle Dispute Over Fifth-Biggest Copper Mine

Codelco, the biggest copper producer, reached an agreement with Anglo American Plc (AAL) to end a 10-month dispute over the world’s fifth-largest copper mine.

Anglo American will reduce its stake in its Sur unit, which owns the Los Bronces mine in central Chile, to 50.1 percent from 75.5 percent, according to terms of the deal released today. A joint venture between Codelco and Mitsui & Co. (8031) will buy 29.5 percent of Sur in a cash deal valued at about $2.8 billion.

The arrangement ends a feud that began Oct. 12 when Codelco announced it secured financing from Mitsui to take up an option to acquire 49 percent of Sur for about $6 billion. Anglo reacted by selling a 24.5 percent stake to Mitsubishi Corp. (8058) in November in a deal that valued Sur at twice that of the Codelco option. Anglo American and Codelco halted legal proceedings in June to seek an out-of-court settlement.

“The combination of Anglo American, Codelco, Mitsubishi and Mitsui forms a compelling proposition for future investment in the Los Bronces district - one of the world’s most exciting producing and prospective copper ore bodies - for the benefit of all our respective shareholders,” Anglo Chief Executive Officer Cynthia Carroll said in the statement.

Anglo shares rose 1.6 percent to 1,941.5 pence in London. By not having to sell 49 percent under terms of the original option contract, Anglo has generated $2.3 billion of value, UBS AG analysts wrote in a note to clients today. The settlement also avoids a more than three-year “acrimonious legal battle in a politicized environment,” the analysts wrote.

Retains Control

The settlement sees Anglo retain control of Sur, which includes Los Bronces, where the company completed a $2.8 billion expansion, and two of the world’s best undeveloped deposits, according to John MacKenzie, head of copper at Anglo.

The Codelco-controlled venture with Mitsui will acquire the 29.5 percent stake through two transactions, Anglo said in the statement. One is a 24.5 percent shareholding for $1.7 billion, in which Codelco will also receive mining tenements east of its Andina mine, which is adjacent to Los Bronces. Separately, the venture will get a 5 percent shareholding, comprising 0.9 percent from Anglo and 4.1 percent from Mitsubishi, for $1.1 billion, according to the statement.

Codelco, which owns 83 percent of the venture with Mitsui, may sell “small” stakes to the Tokyo-based company after the Sur transaction is completed, Codelco Chairman Gerardo Jofre told reporters in Santiago today.

Cash Settlement

The transactions will be settled in cash and Anglo American intends to use proceeds for general corporate purposes, it said.

Chile’s government will collect $1.33 billion in taxes from Anglo’s sale of the asset to Codelco, Thomas Keller, the state- owned company’s chief executive, told reporters. Raimundo Espinoza, a workers representative on Codelco’s board, voted against the deal, Jofre said.

For Codelco, the deal will mean an additional 115,000 metric tons of annual copper output, consolidating the company’s status as the world’s biggest producer, Keller said.

Mitsui will finance Codelco’s purchase of the Sur stake, allowing the Santiago-based company to pursue a strategy of expanding existing mines without affecting its credit rating, Keller said.

Codelco plans to spend more than $40 billion over the next decade revamping copper mines and boosting output to more than 2 million tons a year, according to a June presentation by Keller.

To contact the reporters on this story: Matt Craze in Santiago at mcraze@bloomberg.net

To contact the editor responsible for this story: James Attwood at Jattwood3@bloomberg.net

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