South32 has secured two binding agreements with Sumitomo to acquire a 45 per cent interest in the Sierra Gorda copper mine in Chile for $US1.55 billion ($2.1 billion).
According to South32, Sierra Gorda is expected to produce 180,000 tonnes of copper, 54,000 ounces of gold and 1.6 million ounces of silver in 2021.
South32 will gain joint control of the asset with the remaining 55 per cent owned by Polish mining company KGHM Polska Miedz.
The transaction includes an upfront cash consideration of $US1.55 billion and a contingent consideration of up to $US500 million, which will be payable at threshold copper production rates and prices between 2022 and 2025.
“Adding Sierra Gorda further improves our portfolio and is expected to immediately lift group margins and earnings, supporting future shareholder returns while retaining strength and flexibility in our balance sheet,” South32 chief executive officer Graham Kerr said.
“The transaction expands our operating and development presence in the Americas and provides exposure to a long-life asset with a large resource base.
“The operation has existing opportunities to unlock further upside through improved production efficiency, resource expansion and exploration.”
South32 will fund the acquisition with cash on hand and a $US1 billion debt facility to ensure its balance sheet remains strong.
The company’s unaudited net cash balance at the end of September was $US660 million and it expects to reduce its acquisition debt facility use.
“Through our extensive due diligence of the opportunity over the past nine months, we believe we have identified an operation that is benefitting from significant historical investment and current, capital efficient de-bottlenecking work,” Kerr said.
“The operation is serviced by excellent infrastructure, including access to renewable power and seawater for processing. Looking ahead, we see an opportunity for continued strong performance at Sierra Gorda with our new partner, KGHM, that can deliver substantial value to South32’s shareholders.”
Sierra Gorda has more than 1 billion tonnes of copper-molybdenum-gold sulphide mineral reserves with a mine life of more than 20 years.
South32 believes there is growth and improvement potential at the site which includes a de-bottlenecking project to improve plant throughput to around 50 million tonnes per annum.