Lundin Buying Freeport’s Interest in Candelaria

Lundin Mining and Freeport-McMoRan announced on October 6 a definitive agreement whereby Lundin is buying Freeport’s 80% ownership stake in the Candelaria/Ojos del Salado (Candelaria) copper mining operations and supporting infrastructure in Chile for cash consideration of $1.8 billion. Contingent consideration of up to $200 million in aggregate is also payable calculated as 5% of Candelaria’s net copper revenues in any annual period over the next five years if the realized average copper price exceeds $4/lb.

The transaction effective date is June 30. Closing of the transaction is expected in the fourth quarter of 2014. The remaining 20% ownership stake will continue to be held by Sumitomo Metal Mining Co. and Sumitomo Corp.

Candelaria is located approximately 12 miles south of the city of Copiapó in northern Chile’s Atacama province. It also has a port facility, Punta Padrones, located in the coastal town of Caldera, approximately 50 miles northwest of the mine. Operations include the Candelaria open-pit copper mine, a 75,000-mt/d mill and concentrator, and two nearby underground copper mines that produce a combined total of 6,000 mt/d.

Candelaria has current combined proven and probable mineral reserves of 380.4 million mt at an average grade of 0.54% copper, 0.13 g/mt gold, and 2.01 g/mt silver, estimated using a copper price of $2/lb. Candelaria operations are expected to produce 156,000 mt of copper, 97,000 oz of gold, and 1.9 million oz of silver in 2014. Annual average life-of-mine production based on current reserves is forecast at about 126,000 mt/y of copper, 77,000 oz/y of gold, and 1.4 million oz/y of silver. Lundin expects to fund the acquisition with $1 billion in new senior secured debt, approximately $600 million in equity financing, and the sale of a stream on 68% of Candelaria’s gold and silver production to Franco- Nevada Corp. for an upfront payment of $648 million.

Freeport-McMoRan’s announcement said the sale represents another important step in its ongoing debt reduction plan. As of June 30, the company had consolidated cash totaling $1.5 billion and consolidated debt totaling $20.3 billion.

Franco-Nevada President and CEO David Harquail said, “Franco-Nevada is pleased to partner with Lundin to support this major step in its growth. Today’s announcement is a good example of how royalty and stream financing can work in parallel with more traditional debt and equity financing sources to help an operating company execute a major acquisition. For Franco-Nevada, this will be a new cornerstone asset defined by substantial cash flow, upside potential, and attractive geography.”

As featured in Womp 2014 Vol 11 -