DBRS Comments on Resolution of Anglo American/Codelco Dispute on Anglo Sur

DBRS notes that Anglo American plc (Anglo American) and Corporación Nacional del Cobre de Chile (Codelco) have announced that they have agreed to establish a joint venture to participate in the copper mining assets of Anglo American Sur S.A. (Anglo Sur). The agreement resolves a dispute between Anglo American and Codelco that has persisted since 2011(see DRBS news releases dated October 13, 2011, and November 10, 2011). DBRS views the transactions announced on August 23, 2012, as a reasoned compromise, which will enhance Codelco’s position as the world’s leading copper producer and will allow Anglo American to continue with its mine operations in Chile, albeit on a reduced scale, while enhancing Anglo American’s liquidity. The transactions are not expected to affect DBRS’s “A” rating of Codelco’s Senior Unsecured Debt or its A (low) Issuer Rating of Anglo American.

The agreement will result in Anglo Sur being owned 50.1% by Anglo American, 20.4% by Mitsubishi Corporation (Mitsubishi) and 29.5% by a joint venture between Codelco and Mitsui & Co., Ltd. (Mitsui). In addition, Anglo Sur will transfer to Codelco certain undeveloped mining properties to the east of Codelco’s Andina mine, which are expected to offer significant synergies to Codelco, while being of nominal commercial value to Anglo Sur. Codelco’s original option agreement to acquire an interest in Anglo Sur will be extinguished by the agreement.

Anglo Sur is a Chilean copper producer that owns and operates the Los Bronces and El Soldado mines; and the Chagres smelter, which produced about 269,000 tonnes of copper in 2011; as well as other undeveloped copper assets in Chile. Codelco will purchase its 24.5% interest in Anglo Sur for $1.8 billion and Mitsui will purchase its 5.0% interest for total cash consideration of $1.1 billion.

DBRS, using the stated price of the interests in Anglo Sur purchased by Mitsubishi and Mitsui, estimates the implied value of the Anglo Sur operations to be in excess of $20 billion. Codelco will obtain its 24.5% shareholding in Anglo Sur for net cash consideration of $1.7 billion, representing a purchase price of $1.8 billion less dividends paid in relation to the shareholding since January 1, 2012. This is somewhat below the approximately $2.5 billion price that Codelco would have paid under its original option on Anglo Sur. Mitsui is expected to extend to Codelco the necessary financial resources for the acquisition of 24.5% of Anglo Sur through a loan amounting to $1.9 billion, which is expected to cover Codelco’s purchase of Anglo Sur stock, funding costs and other expenses.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Companies in the Mining Industry, which can be found on our website under Methodologies.