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Anglo Sells Chile Unit Stake in ‘Bold’ Bid to Thwart Codelco

Mitsubishi Pays $5.39 Billion for Stake in Anglo Chile Unit
A truck transports copper at the Anglo American Sur Los Bronces copper mine in central Chile. Anglo, which bought the mine from Exxon Mobil Corp. in 2002, plans to start output at a $2.5 billion expansion of the site this year. Photographer: Alejandra Parra/Bloomberg

Anglo American Plc., part owner of the world’s biggest platinum and diamond producers, moved to block Codelco from acquiring 49 percent of its Chilean copper unit by selling a stake to Mitsubishi Corp. for $5.39 billion.

The deal would cut by half the holding state-owned Codelco can buy in Anglo American Sur SA after Japan’s largest trading company became a 24.5 percent shareholder, Anglo Chief Executive Officer Cynthia Carroll said on a conference call yesterday.

Anglo is seeking to thwart Codelco’s plan to exercise an option to buy the Anglo Sur stake in an arrangement with Mitsui & Co. that values the holding at $9.76 billion. The London-based company said Codelco could still acquire a 24.5 percent stake. Anglo Sur includes Los Bronces in central Chile, which may become the fifth-largest copper mine in the world.

“The speed and boldness of Anglo American’s M&A guile in the last week has materially exceeded market expectations,” Dominic O’Kane, an analyst at Liberum Capital Ltd. in London, said in a note to investors. “This is a clever and bold move.”

The Mitsubishi deal is the second transaction worth more than $5 billion in five days by Carroll, 54, after a Nov. 4 agreement to buy the Oppenheimer family’s 40 percent stake in diamond producer De Beers.

Codelco will proceed with plans to buy the full 49 percent holding and will defend its rights with all legal means, Chairman Gerardo Jofre told reporters today. The option dates back to a government contract with Exxon Mobil Corp. in 1978. Codelco had no prior knowledge of the Mitsubishi deal, he said.

“We can tell the country that we will take all the options available to defend the rights of Codelco and the Chilean people,” Jofre said. “We are very certain of our rights.”

Shares Gain

Anglo rose as much as 4.7 percent to 2,463 pence in London trading and was at 2,383 pence at 3:57 p.m.

Codelco’s option on the unit is restricted to available shares beyond 51 percent owned by Anglo American and any held by other parties, Carroll said. Codelco, the world’s largest copper producer, secured a $6.75 billion loan from Mitsui on Oct. 12 to help finance the transaction.

“We have acted in full compliance with the option agreement between Anglo American and Codelco,” Carroll said. “We are free to sell any percentage of our shares in Anglo American Sur at anytime; we evaluated and will continue to evaluate any alternatives.”

The sale gives Anglo American Sur a valuation of $22 billion, Carroll said. Mitsubishi paid with a promissory note which is due today, the London-based company said in a statement.

‘Legitimate Right’

Codelco has “a legitimate right” to exercise its option, Chile Finance Minister Felipe Larrain told reporters Oct. 28.

“We have had ongoing conversations with Codelco over many months regarding the option, they haven’t proved satisfactory in terms of coming to a conclusion,” Carroll said. “On the other hand, as the 24.5 percent remains available, if Codelco exercises its option in January we will be happy for Codelco to be our partner going forward.”

Anglo Sur, which also includes the El Soldado mine and the Chagres smelter, produces about 450,000 metric tons a year, Codelco said in October.

Exxon Minerals

Codelco’s ability to buy a stake in the unit dates from a 1978 option given to the Empresa Nacional de Mineria by Exxon Minerals Chile Inc. Empresa Nacional de Mineria transferred the right to Codelco in 2008. The option can be exercised every three years.

Anglo said it will continue to invest in Chile, where it says it has spent $6.5 billion since 1980. Anglo jointly operates Collahuasi, the world’s third-largest copper mine, in northern Chile with Xstrata Plc.

Mitsubishi is paying more than 18 times the enterprise value over Anglo American Sur’s 2010 earnings before interest, tax, depreciation and amortization, Carroll said on a conference call. That compares with the average EV/Ebitda ratio for copper deals in the past 12 months of 13.2 times, according to data compiled by Bloomberg.

The cost looks “a bit too high,” said Jiro Iokibe, a senior analyst at Daiwa Securities Capital Markets. “The company may not want to miss the chance to own the assets with the good quality and significant volume.”

De Beers

Anglo agreed last week to buy the Oppenheimer family’s remaining stake in De Beers for $5.1 billion, ending the dynasty’s 80-year ownership in the world’s largest diamond miner. The transaction will increase Anglo’s holding in De Beers to as much as 85 percent.

“We feel that Anglo is more than compensated for the copper growth it gives up” by selling the stake to Mitsubishi, Citigroup analysts Heath Jansen and Johann Pretorius wrote in a note. “In addition, the proceeds will be enough to pay for the additional 40 percent stake in De Beers.”

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