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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, in partnerships that will pit giant Chinalco against rival Minmetals, lead a shortlist of suitors for Glencore Xstrata'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 to meet demands from China's competition authorities after its record-breaking takeover of mining group Xstrata. The Chinese regulator feared that the tie-up handed the newly formed commodities heavyweight too much power in copper.

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

Suitors will begin due diligence next week and could fine-tune their numbers, which are close to analysts' estimates of the mine's value and, two of the sources said, above Glencore's target price.

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

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


China already consumes about 40 percent of the world's copper and has remained particularly hungry for significant sources of supply. Las Bambas is expected to produce more than 450,000 tonnes of copper a year in its first five years of operation and an annual 300,000 tonnes thereafter.

Providing details of the shortlist for the first time, the sources said there were five to six groups of suitors, led by Chinalco, which has partnered with Jinchuan, and rival Minmetals, partnering with CITIC. Chinalco already has a presence 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 submit binding offers next month.

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

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

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


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

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

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

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

At current bid levels - and at a time when most major producers are under pressure from investors to pull back on deals and new projects - all buyers are expected to form consortiums ahead of the final round, the sources said.

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

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

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