Elusive5 Dec 2018 20:32
Copper deals to get elusive after Teck's $1.2bn sale
5th December 2018
By: Bloomberg
SANTIAGO - The global hunt for high-quality, low-risk copper assets that are ready for construction is about to get tougher after Teck Resources sells a stake in one of the few deals available.
Sumitomo and Sumitomo Metal Mining agreed to pay $1.2-billion for 30% of the Compañia Minera Teck Quebrada Blanca project in northern Chile. The mine, which will require an estimated investment of $4.7-billion, is set to start producing in 2021 and could double Teck’s copper business.
“This was one of the biggest and most sought-after deals in the market -- there are few projects like that out there," Cesar Perez-Novoa, an analyst at BTG Pactual in Santiago, said by telephone. “The transaction has closed at quite generous multiples, which shows that good-quality projects ready for development are scarce."
The deal comes at a time when miners are struggling to keep up with demand after years of underinvestment. Inventories tracked by exchanges in New York, London and Shanghai are already at the lowest in almost four years and production is expected to trail consumption from 2021 to 2023, according to CRU Group.
Miners are likely to remain focused on keeping their balance sheets clean and will probably tap into investors’ hunger for copper to bring in project partners who are willing to finance large expansions and new mines, according to Perez-Novoa.
MORE EXPANSIONS
The Quebrada Blanca phase 2 project, known as QB2, is expected to produce about 300,000 metric tons of copper a year in its first five years, with production starting to ramp up in late 2021, just as the copper deficit starts, Teck CEO Don Lindsay said Tuesday on a conference call.
The company said in the statement it assumes $2.5-billion in project finance loans, and Lindsay said on the call that Teck is in advanced talks for the $2.5-billion.
Of the 30% stake in the project, Sumitomo Metal Mining will take a 25% interest and its trading partner Sumitomo will hold the remainder, the two Japanese companies said Wednesday in a joint statement. The deal will help the companies secure supply in a country that relies almost entirely on imports for all its metals and fossil fuels. Sumitomo Metal expects the mine to generate earnings equivalent to its other projects, such as Morenci in Arizona and Cerro Verde in Peru.
“Good assets are very scarce now but we were able to encounter such a good copper project in terms of the size and quality,” Sumitomo Metal managing executive officer Hiroyuki Asai said at a briefing in Tokyo on Wednesday. “The project is very valuable for us.”
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