* Chinese buyer had been expected, Minmetals now ahead
* Las Bambas is one of largest mines in Xstrata's projectportfolio
* Construction cost expected to be around $5.9 billion
HONG KONG/LONDON, Nov 25 (Reuters) - Chinalco, thelargest aluminium producer in China, has dropped out of the racefor Glencore Xstrata's $5.9 billion Las Bambas coppermine in Peru, leaving Minmetals as the front-runner, sourcesfamiliar with the matter said.
Commodities trader Glencore agreed this year to sell LasBambas to secure approval from China's competition authoritiesfor its takeover of miner Xstrata because Beijing feared themerged group would have too much power over the copper market.
A Chinese buyer has been considered a virtual certaintysince Las Bambas was put on the block, given the deep pockets ofthe country's state-owned enterprises and China's hunger forcopper - it is already the world's top consumer of the metal.
Leading Western miners, by contrast, are under pressure frominvestors after ambitious boom-time deals soured and have movedway from complex multibillion-dollar projects such as LasBambas, one of the largest copper mines to be sold in recentyears.
China had also been expected to annoint a preferred bidder -its usual practice - rather than allow Minmetals and Chinalco tosubmit competing final offers.
"It's not a reflection on Chinalco per se; Minmetals won thelobbying. The NDRC (China's National Development and ReformCommission) had to make a decision to anoint a favoured bidder.They weren't going to allow two binding bids," one of thesources said.
Chinalco Mining and MMG - the Hong Kong-listedoffshore arm of China Minmetals Corp which is bidding - declinedto comment. Glencore also declined to comment.
Chinalco is already present in Peru with its Toromochocopper mine, but MMG was seen as having more experience ofintegrating large Western businesses, the sources said.
MMG is bidding alongside CITIC group and other smallerpartners, though the final line-up is still unclear. Chinalco isnot expected to be among the minority partners, though changesare possible before binding bids are submitted.
There are also non-Chinese suitors who could submit bindingoffers, the sources said, potentially including mid-tier Westernminers such as Newmont Mining. Newmont, which hasindicated that it wants to increase its copper presence, hasdeclined to comment on whether or not it is competing.
Second-round bids for Las Bambas are due next month, severalof the sources said. That would be weeks later than previouslyindicated, meaning that Glencore misses its own target ofagreeing a sale this year. However, it would still be wellwithin the September 2014 deadline decreed by China'scompetition authorities.
Initial bids for Las Bambas came in around the $6 billionmark last month, including the sum invested in construction sofar - close to analysts' estimates of the mine's value. In aresearch note published in May, Nomura analysts put the end-2014value at about $6.2 billion.
By the time a sale is agreed, Glencore Xstrata estimatesthat it will have spent $3.3 billion on Las Bambas. It hasestimated the total construction cost will be $5.9 billion.
Las Bambas, one of the largest mines in Xstrata's projectportfolio, is due to begin production in 2015. It is expected toproduce more than 450,000 tonnes of copper a year in its firstfive years and 300,000 tonnes a year thereafter.
- Commodity Markets
- Glencore Xstrata
- Las Bambas