China Molybdenum Co. (3993), the nation’s second-biggest producer of the steelmaking material, agreed to pay $820 million for Rio (RIO) Tinto Group’s Northparkes mine to gain its first overseas copper asset.
The sale should be completed by the end of the year, Rio said today in a statement. London-based Rio owns 80 percent of the mine with the balance held by Sumitomo Metal Mining Co. and Sumitomo Corp. (8053), which have the right to match the offer.
Buying the stake gives China Molybdenum control of a mine in New South Wales that provided 43,100 metric tons of mined copper for Rio in 2012 as well as a specialist underground training center. The purchase ranks as the third-largest by a Chinese company of a mining asset announced this year as the number and value of the nation’s deals in the sector slides from last year, according to data compiled by Bloomberg.
“The acquisition is part of China Moly’s diversification to boost profit as molybdenum has been weak over the past few years in line with China’s sluggish steel market,” said Kevin Guo, a Shenzhen-based analyst with Guotai Junan Securities Co.. “Production of copper enjoys a higher premium than other base metals such as zinc and lead.”
Rio declined 0.2 percent to A$57.11 at the close in Sydney. The stock has dropped 13 percent this year. China Molybdenum halted its shares today pending an announcement on a transaction.
The deal is subject to “customary” regulatory approvals, Rio said according to the statement. The mine, which began operation in 1994, is valued at about $800 million, Citigroup Inc. said in a February report.
Before today, Chinese companies had announced 67 mining deals this year worth a total of $7.1 billion, down from 269 in 2012 worth $27.7 billion, according to data compiled by Bloomberg. China Molybdenum last bought assets in 2008, when it paid HK$350 million ($45 million) for three gold mines in China, according to the data.
The “board is optimistic on copper and gold,” China Molybdenum Chairman Wu Wenjun said in a phone interview. “Although they’re a small part in our operations, they’re part of our development strategy both in China and overseas.”
Copper, used in electrical wiring and tubes, is expected to gain until at least 2015, according to analyst forecasts compiled by Bloomberg, as aging ore bodies and few large new discoveries keep the metal’s supply and demand balance tight.
The Northparkes operation “is a good performer on any measure except scale” while the asset had “significant expansion potential,” Adrian Wood, a Sydney-based analyst with Macquarie Group Ltd., said in a report.
Rio may reap $10.4 billion from asset sales, Deutsche Bank AG estimated in March, as the company joins global rivals in selling assets after falling commodity prices crimped revenue. The company considered selling Northparkes, which is in New South Wales state, in 2009, and held onto it after copper and gold prices rose, Rio said in December that year.
“Northparkes is a successful business but is not of sufficient size to be a good fit with our strategy,” Chief Financial Officer Chris Lynch said in the statement. “The agreed sale of Northparkes follows our recently completed divestment of the Eagle nickel project in the United States.”
Copper for delivery in three months, the London Metal Exchange’s benchmark, has dropped 13 percent this year to $6,862 a ton on July 26, entering a bear market in April.
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