Anglo American could be a forced seller of their premier copper asset

OK, here is an announcement out from Anglo American last evening on the alerting service, our good old friend Gareth also pointed us in this direction. It is to do with a South American copper asset or more specifically with Anglo American Sur, which is the divisions of the parent company that owns the El Soldado and Los Bronces copper mines. OK, now you are interested. It turns out that when Anglo American bought these assets back in 2002 (good times boys, what-what) there was an option included where Enami, a Chilean State owned mining company could purchase back 49 percent of the assets. I am presuming exercisable by a specific date. Enami then ceded their option at the end of 2008 to none other than Codelco (Corporacion Nacional del Cobre de Chile), the Chilean state owned copper mining company.

OK....the option, as per the Anglo American announcement is fairly easy to understand: "Anglo American Sur comprises the Los Bronces and El Soldado copper mines and the Chagres copper smelter. The option dates back to 1978 and was inherited by Anglo American upon acquisition of the assets in 2002. The exercise window for the option is limited to the month of January every three years until 2027; the next such window is January 2012."

Soon. To read the English version of the Codelco announcement, that was easy to find on their website, here goes -> Codelco arranges debt financing to acquire interest in a world class copper mine owned by Anglo American.

Not a done deal, I guess the tricky part is deciding what the price should be RIGHT NOW, in the lead into these negotiations. The price that I have heard so far from those in the know is for that 49 percent, Anglo could get as much as 9 billion Dollars. The guys at Codelco actually value the asset based on some secret formula, from the release:

"Under another agreement, Mitsui provides Codelco with the option to settle a portion of the loan from Mitsui with an indirect 50% stake in the Anglo Sur shareholding acquired by Codelco, based on a pre-determined value for the 49% interest in Anglo Sur of approximately US$ 9.76 billion. Any balance of the acquisition debt would be converted into a non-recourse term loan."

This is huge. And at the same time, a big pity for shareholders, that would mean that they would get a short term cash injection, BUT, they would have to give up half of a great asset. Anglo American's London market cap is 32 billion Pounds, which is just over 50 billion Dollars. So, roughly 9 and a half billion Dollars in cash is potentially a good thing, but it does a few things, one is decrease their exposure to a good copper asset. I understand that they may also be able to buy back the option, but I am guessing that will come at a serious price, something that Codelco may (or may not) be happy with. As others point out, this would increase their exposure to South Africa, the mining minister might tell you otherwise, but analysts at a global level seem to think this is a problem. And perhaps more telling is the commentary that suggests Anglo's recent acquisitions have been poor. Ooops.

Anglo have referred to this in their releases over the years, I am guessing that they just hoped that Codelco would not exercise their option. Or guessed that they would not. Either way this has come up. And we will wait and see what transpires.