Chinese lead shortlist for Glencore's $5.9 bln Peru mine -sources


By Clara Ferreira-Marques and Anjuli Davies

LONDON, Oct 10 (Reuters) - Two groups of Chinese miners, inpartnerships that will pit giant Chinalco againstrival Minmetals, lead a shortlist of suitors for GlencoreXstrata's $5.9 billion Las Bambas copper mine in Peru,according to sources involved in the process.

Glencore agreed this year to sell the Las Bambas project tomeet demands from China's competition authorities after itsrecord-breaking takeover of mining group Xstrata. The Chineseregulator feared that the tie-up handed the newly formedcommodities heavyweight too much power in copper.

Several sources said that initial bids for Las Bambas - dueto begin production in 2015 and one of the largest copper minesto come on the block in recent years - had come in around the $6billion mark, including the sum invested in construction so far.

Suitors will begin due diligence next week and couldfine-tune their numbers, which are close to analysts' estimatesof the mine's value and, two of the sources said, aboveGlencore's target price.

In a research note published in May, Nomura analysts put theend-2014 value of the mine at about $6.2 billion.

Copper has been among the most resilient metals even as thecommodity price cools, making copper assets desirable even forminers under pressure to rein in spending.


China already consumes about 40 percent of the world'scopper and has remained particularly hungry for significantsources of supply. Las Bambas is expected to produce more than450,000 tonnes of copper a year in its first five years ofoperation and an annual 300,000 tonnes thereafter.

Providing details of the shortlist for the first time, thesources said there were five to six groups of suitors, led byChinalco, which has partnered with Jinchuan, and rivalMinmetals, partnering with CITIC. Chinalco already has apresence in Peru with the Toromocho mine.

Unusually, both Chinese groups have gone on the shortlist,though it is unclear if both sets of Chinese suitors will submitbinding offers next month.

"It is like playing a game of poker with two hands," one ofthe sources said as the groups prepare for due diligence.

A Chinalco spokesman was not immediately available tocomment. MMG, which drives Minmetals' base metals expansionabroad, Jinchuan and CITIC Resources declined to comment.Minmetals said last week that it had submitted a bid but wouldnot pay a "crazy" price.

Glencore declined to comment on the process but saidpublicly last month that it had seen robust Chinese interest andexpects a sale agreement before the year end.


There are also non-Chinese suitors, the sources said,including mid-tier Western miners, potentially with existingPeruvian presence.

Among the miners named by several of the sources is NewmontMining Corp, which said in a newspaper interview lastweek that Las Bambas was "interesting" and has also indicatedthat it could seek to increase copper production.

Other, sources, however, question Newmont's appetite, whilethe company itself has declined to say whether or not it is inthe running for either all or part of Las Bambas.

By the time a sale is agreed this year, Glencore Xstrataestimates that it will have spent $3.3 billion on Las Bambas,one of the largest mines in Xstrata's project portfolio. It hasestimated the total construction cost will be $5.9 billion.

At current bid levels - and at a time when most majorproducers are under pressure from investors to pull back ondeals and new projects - all buyers are expected to formconsortiums ahead of the final round, the sources said.

That would mean a Las Bambas ownership structure harkingback to the copper expansions of the 1990s, before boom-yearprices encouraged bold solo projects.

Some of Latin America's largest copper operations arealready joint ventures. They include Chilean mines Collahuasi, apartnership between Glencore Xstrata and Anglo American,and Escondida, the world's largest copper mine and a venturethat includes BHP Billiton and Rio Tinto.

Glencore has notified shortlisted suitors, the sources said.The miner is pressing for second-round binding offers bymid-to-late November, with a deal to be agreed by the end of theyear.

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