PanAust Buys Glencore Stake in Frieda River Copper Project

PanAust Ltd., the Australian operator of copper, gold and silver mines in Laos, agreed to pay as much as $125 million for Glencore Xstrata Plc’s majority stake in a Papua New Guinea project to add long-term production.

Frieda River could produce 100,000 metric tons of copper and 160,000 ounces of gold annually and have a mine life of 18 years, the Brisbane-based company said today in a presentation. PanAust will need development capital of $1.5 billion to $1.8 billion, it said, compared to Xstrata’s 2012 estimate of $5.6 billion to develop a larger mine.

“If you start with a scale of the project we contemplate, then you can leverage up into something bigger and get to the scale initially contemplated by Xstrata by progression, rather than on day one,” PanAust Managing Director Gary Stafford said by phone from Brisbane.

Producers from Mongolia to Chile are developing new copper mines or expanding existing pits to boost output after prices more than tripled in the past decade on demand from China, the biggest consumer of the metal. While purchases of the metal in the world’s second-largest economy are projected to slow, demand is poised to rise in the U.S. and Europe, UBS AG analyst Tom Price said Oct. 30 at a Melbourne conference.

Selling Projects

Frieda River is “one of the largest undeveloped copper and gold deposits in the world,” PanAust said in a statement.

Xstrata had estimated Frieda River would average about 204,000 tons of copper and 305,000 ounces of gold annually over 20 years, according to a December 2012 feasibility study.

Glencore Xstrata, which completed the takeover of Xstrata in May to create the fourth-largest mining company, is suspending and selling Xstrata projects as it seeks to make cost savings of $2 billion in 2014.

PanAust will pay $75 million in two installments by December 2015 and as much as $50 million once the project has been developed, Baar, Switzerland-based Glencore Xstrata said in a separate statement. PanAust dropped 5.5 percent to A$1.91 in Sydney trading, giving it a market value of A$1.2 billion ($1.1 billion).

The Australian producer will also take a 7.5 percent stake in Highlands Pacific Ltd., which holds a 20 percent interest in Frieda River. Highlands jumped 41 percent to 8.6 Australian cents in Sydney.