Glencore Sees Chinese Bidders Competing for $5 Billion Mine

Glencore Xstrata Plc, the global commodity trader and metals producer run by Ivan Glasenberg, expects as many as four Chinese bidders for a Peruvian copper mine that may be valued at more than $5 billion.

“There are groups forming together and combining,” the billionaire chief executive officer told reporters yesterday in London. “We see there will be at least three to four groups bidding. There is some other outside interest besides the Chinese consortiums.” A first round of bids is due next week, he said.

Chinese companies including Chinalco Mining Corp. International, MMG Ltd. and Citic Resources Holdings Ltd are among those studying offers for Las Bambas, people with knowledge of the process have said. Glencore, based in Baar, Switzerland, is selling the mine as part of an agreement to win Chinese regulatory approval for its $29 billion takeover of Xstrata Plc this year.

The National Development and Reform Commission, China’s top economic planning agency that approves all major overseas acquisitions, usually restricts state-owned companies from making rival offers.

“We understand the NDRC sometimes doesn’t allow them to compete, but I think the interest that we’ve seen in China is very robust,” Glasenberg said. “There is very strong interest from some big major groups and they are not in the consortium, so it seems that they are going to compete.”

BMO Capital Markets Ltd. and Credit Suisse Group AG are advising Glencore on the sale. Las Bambas could be valued at more than $5 billion, a person familiar with the matter said this month.

Shareholder Payout

Proceeds from the sale may be returned to shareholders, Chief Financial Officer Steve Kalmin told reporters. About $3 billion has been spent on the project so far. It’s estimated to cost about $5.9 billion to complete, he said.

The Las Bambas mine is scheduled to produce 400,000 metric tons of copper a year starting in 2015 for at least the first five years. Xstrata said in January it was building the project at a cost of $5.2 billion.

Glencore, the biggest publicly traded raw-materials supplier, hopes to close the sale by year-end, Glasenberg said on an Aug. 20 conference call. The deal may not be completed until the first half of next year, Kalmin said yesterday.

The agreement with China struck in April that gave Glasenberg approval to buy Xstrata requires Glencore to pursue the sale to a buyer approved by the country’s Commerce Ministry by Sept. 30 next year.

Sale Price

The sale price will be the higher of two scenarios -- either an evaluation by two independent investment banks, or the total costs incurred by Glencore and Xstrata at the project, according to Glencore.

Magris Resources Inc., the investment company founded by former Barrick Gold Corp. CEO Aaron Regent, is considering a bid for the mine, people familiar with the matter said last month. Jiangxi Copper Co., China’s largest producer of the metal, is also interested in Las Bambas, company secretary Pan Qifang said the same day.

Glencore yesterday raised its estimate of savings from the takeover of Xstrata to at least four times the initial projection. The acquisition Glencore completed in May will generate a minimum of $2 billion in synergies next year, the Baar, Switzerland-based company said. Closing 33 Xstrata offices, firing workers and cutting costs at existing operations has saved $1.4 billion, it said.

The purchase created the world’s fourth-biggest mining company, adding coal, nickel, zinc and copper mines to Glencore’s trading empire.

Cost Savings

The deal was expected to generate annual cost savings “well above” the stated $500 million plan, Glasenberg, 56, said in May. Morgan Stanley estimated $800 million of savings, it said in a Sept. 9 report.

Glencore has reviewed 88 projects acquired from Xstrata and decided to suspend 44 of them, it said. The company also raised the cost estimate for the Koniambo nickel project, inherited from Xstrata, by $1 billion to $6.3 billion. The cost of expanding the operation was also increased by about $800 million from an earlier estimate.

Glencore last month wrote down the value of assets acquired in the takeover by $7.7 billion to reflect “the broader negative mining industry environment.” The company, the world’s biggest exporter of power-station coal, reported a first-half net loss of $8.9 billion on the writedowns.

Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore Xstrata.

Before it's here, it's on the Bloomberg Terminal.