Codelco Seeks $2 Billion in Bond for Copper Expansions

Codelco, the world’s largest copper producer, raised $2 billion in a sale of debt that includes its first 30-year bond in more than five years.

The Chilean state-owned company sold $750 million of 30-year bonds at an extra yield, or spread, of 180 basis points above U.S. Treasuries. The company also placed $1.25 billion of 10-year bonds at a 165-basis point spread.

Codelco plans to invest about $26 billion this decade to modernize aging mines and offset declining output from ore with less copper content. Codelco said the yields it achieved are among the cheapest funding it has ever had.

“They are a recognition of the credit quality of Chile and of Codelco in an environment characterized by volatility in international financial markets,” the company said in a regulatory filing.

The yield on 10-year U.S. government bonds fell to 1.5 percent today, six basis points short of the 1.44 percent record low reached on June 1. The yield on 30-year U.S. Treasury bonds fell to 2.6 percent, nine basis points above the record low.

Codelco set yields of 3.157 percent on the 10-year bond of and 4.398 percent on the 30-year bond, it said. The company received orders for five times as much debt as it sold, it said in a statement to the Santiago stock exchange.

Retains Profit

Codelco will use the proceeds to refinance debt as well as to fund its investment program for 2013, it said. The company has $435 million of bonds falling due this year and another $500 million next year and is building an underground mine at its century-old Chuquicamata open pit in the Atacama desert. The government allowed Codelco to retain $800 million, or 40 percent, of last year’s profit.

The state company last sold debt in October 2011, issuing $1.15 billion of 3.875 percent, 10-year notes to yield 167 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. Those bonds traded today at a spread of 169 basis points.

The bonds will be rated A1, the fifth-highest investment grade rating, Moody’s Investors Service said in a statement. Codelco’s ownership by Chile, the highest-rated Latin American country, is a major factor in its rating, Moody’s said. Credit-default swaps of Chile trade just 15 basis points wider than Germany’s.

Gap Widens

The spread between the yield on Codelco’s bonds and those on its owner Chile widened to 65 basis points today from 62 yesterday. Codelco sold 30-year bonds in 2005 and 2006.

HSBC Holdings Plc and JPMorgan Chase & Co. managed the sale for the Santiago-based company. Before the deal, HSBC was second in Bloomberg’s league table for arranging Latin American bond sales in dollars this year, trailing Citigroup Inc. by $386 million.

Codelco’s Chief Executive Officer Thomas Keller is in talks with Anglo American Plc over a 49 percent stake in the latter’s Sur copper unit that Codelco has an option to buy at a below-market price.

Codelco and Anglo have already extended the negotiation period once in their legal dispute over the stake. Anglo wants to maintain control of Sur, which includes the Los Bronces mine, where the London-based company completed last year a $2.8 billion expansion, and two of the world’s best undeveloped copper deposits, according to John MacKenzie, head of copper at Anglo. Codelco owns the Andina copper mine adjacent to Los Bronces in the Andean foothills near capital Santiago.

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