Mitsui’s 200% Copper Mine Premium Signals More Codelco Deals

Mitsui & Co., Japan’s second-largest trading house, paid three times as much as Codelco for a stake in a Chilean copper asset last month as it seeks to build a foundation for future deals with the largest copper producer.

A joint venture between Codelco and Tokyo-based Mitsui agreed to buy a 29.5 percent stake in Anglo American Sur SA, which owns the world’s fifth-largest copper mine, for $2.8 billion last month. Codelco’s 24.5 percent stake was priced at $73 million per 1 percent, compared with Mitsui’s at $220 million per 1 percent, according to Bloomberg calculations based on the terms of the deal.

Mitsui, which has the most cash of the Japanese traders, is seeking to benefit as state-owned Codelco plans to spend $20 billion to almost double copper output, expand abroad and into other metals. Codelco has 132 million metric tons of copper resources valued at $1 trillion based on today’s prices.

“We’d like to be co-investor, to be jointly involved in the upstream” with Codelco, Daiki Sato, head of projects at Mitsui’s base metals division, said in an interview in Tokyo. Codelco has mining rights across South America and attractive lithium and molybdenum assets, he said.

The move mirrors investments Mitsui made in BHP Billiton Ltd.’s iron ore mines in the 1960s, which propelled it to become Japan’s biggest importer of the material.

A 2003 purchase of shares in Vale SA’s holding company for $830 million the last fiscal year alone accounted for 75 billion yen ($958 million) of profit. The stake, equivalent to 5 percent of Vale, the world’s largest iron ore miner, is worth about $4.25 billion today.

Mitsui ’Overpaid’

Codelco and Mitsui agreed to buy the stake in Anglo American Sur to help the Chilean company end a 10-month dispute with Anglo American Plc, which retains control of the asset. Mitsubishi Corp., Japan’s biggest trader, owns 20.4 percent.

Eight analysts including Yuji Nishiyama from Credit Suisse Group AG in Tokyo and Toshiyuki Johno of BNP Paribas SA cut their net income forecast for Mitsui for this fiscal year after the venture with Codelco was announced last month. Mitsui’s portion was “overpriced”, UBS AG said in an Aug. 24 report.

Mitsui’s copper production will rise to 160,000 tons in the fiscal year ending March 31, 2015, from 63,000 tons last year, following the Codelco deal, Sato said in the interview on Sept. 5. Codelco, which mined 1.73 million tons of copper last year according to a regulatory filing, will also allow Mitsui to market the Sur output on behalf of the two partners, he said.

“With copper, we’re focusing on meeting supply for Japan and the rest of Asia,” Sato said. “Our aim is to become a steady, global supplier” of commodities, he said.

Declining Iron Ore

The Codelco venture will help Mitsui diversify earnings away from bulk commodities as iron ore prices decline to a three-year low, said Akira Kishimoto, an analyst with JPMorgan Securities Japan Co. Iron ore accounted for about half of Mitsui’s profit, Barclay’s Plc said in a Feb. 21 report.

“Copper will be the standout even in the broader metals space” in the next few years, Kishimoto said by phone from Tokyo. “Long-term, there is an opportunity for Mitsui to establish a closer relationship with Codelco and get into their aggressive expansion plan, even outside South America.”

Copper traded in London is little changed this year and the best-performing metal after gold over the last 12 months, according to the UBS Bloomberg CMCI Index of 26 commodities.

Metals Spending

Codelco, which reported profit of $2.06 billion last year, is spending $2.2 billion this year developing 13 new projects of about 30 in its portfolio, according to its website.

Mitsui said last month it plans to spend 200 billion yen this year on its metals units. That’s about 16 percent more than Codelco’s planned spending on new projects.

Mitsui has spent more than $43 billion on its existing businesses and acquisitions in the 10 years to 2011, according to data compiled by Bloomberg. It is the most reliant of Japan’s six major trading houses on resources for profit. Mitsui reported $17.3 billion in cash and near-cash items as of June. 30, close to the highest since at least 1993.

Codelco is negotiating access to a “world-class” copper and molybdenum deposit in Ecuador, which would be its first outside Chile, Santiago Yepez, president of Ecuador’s Mining Chamber, said in an interview in Quito on July 12. The Chilean company has also spent about a decade exploring sites in northern Brazil and Mexico.

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