CODELCO and Anglo battle for copper continues

About the only local interesting company news was another announcement from Anglo American in their ongoing battle with Chilean state owned mining company, CODELCO. Refresher, if you needed one, remember we wrote about it last year when the news first surfaced in the middle of October, in a post titled Anglo American could be a forced seller of their premier copper asset. As you can see from the note that day, the option that CODELCO had indicated that they would exercise dates back to 1978. And when Anglo bought the asset, it bought the conditions too.

Now the problem is that CODELCO have to do this now, they only have the option available for the month of January every three years, and that time has come. The next such time will be 2015. CODELCO have lined up the money and are intent on doing this deal. So what did Anglo do thereafter? Well, as you can see from this piece, just a month thereafter, in November: Anglo American, have they stymied Codelco? So what would you be thinking if you were Mitsubishi now? Dangerous territory no doubt, and seemingly paying more than what CODELCO thinks the asset should be bought for.

What happened next is that CODELCO objected and the courts in Chile blocked Anglo American from any further sales, see Anglo American/Codelco, the plot thickens. But as you can see, Anglo were going to oppose this ruling. And in fact on the 22nd of December, whilst we were all wondering whether Santa had seen us as naughty or nice, Anglo "filed a writ today with the Court of Appeals in Santiago, for distribution to the competent court, against Codelco for breach of contract." See the official release: Anglo American protects its rights in Chile while open to a commercial solution.

Codelco response to Anglo American's lawsuit was swift, as per their website. What was quite interesting is that CODELCO believe that Anglo have the legal "difficulties". But wait, at the beginning of the working month, January second, CODELCO said right, we will exercise our option. The version is not available in English, but thanks so much to internet translate options, I was able to decipher something. Here goes, my Spanish is very limited: El derecho que tiene Codelco al 49% no es transable

From Bing translate I was able to pick up the full release, I know it is long, but let me do a copy paste job here:

"The right of Codelco to 49 per cent is not tradable"

Monday, January 2, 2012

The State enterprise today exercised the option to purchase 49% of Anglo American South. Through public deed notified to Anglo American and then reported to the SVS through an essential fact.



Santiago, January 2, 2012.-"the right of Codelco to 49 per cent (of Anglo American South) is not tradable" said Thomas Keller, Vice President of administration and finance and Executive Deputy President in a press conference in which together with the Chairman of the Board, Gerardo Jofré, explained that the company exercised this morning the purchase option.



Gerardo Jofré, CODELCO President of the Board of Directors, along with Thomas Keller, Executive Chairman (s) at press conference



CODELCO today sent an essential fact first time to the Chilean Superintendency of securities and insurance (SVS) to inform that it has exercised its right to purchase shares of the company Anglo American South S.A. formerly, the legal adviser of Codelco, Patricio Enei, along with the notary Osvaldo Pereira, made delivery in the offices of Anglo American in Santiago the deed that embodied the purchase option.



"The most important thing for the country is the economic value behind this option." And that is something that we will respect. "This economic value can be captured in different ways," said Gerardo Jofre. However, noted that the above should not be confused at any time to renounce part of rights: "We are exercising by 49% and are indicating that if there is a number that is not in dispute, as for example 24.5 per cent, we request that sell us this amount now and that we then follow the process required to ensure respect for the balance of 49%." "We will play the other party with all legitimate means, in a way that no mistake", insisted the Chairman of the Board




In the same sense, Thomas Keller explained that if the Corporation accepts the immediate transfer of the available actions, "does not mean that us satisfied with el 24.5 per cent." Of course we are going to fight the remaining percentage. "The right to 49% with Codelco is not tradable."



Consulted on the value that would have that 24.5% currently is not in dispute, Keller stated that "if it is to apply the logic of the contract we are talking about three billion dollars, approximately".



Executives noted that Anglo American has resorted to various delaying tactics that aim only to undermine the right of Codelco, among them, to deny the delivery of information necessary for a proper valuation of the option of 49%.



The company reported after exercise the option by 49 per cent is waiting for a response. "That the country is calm, we are going to sue if necessary;" "We hope that it is not the case, because we are waiting for a reasonable and positive response of Anglo American," said Gerardo Jofre.



The Chairman of the Board added that initiate legal action, will be "not only our right but that also the compensation for the damage which could cause delays or other manoeuvres".



With regard to the possibility of requesting interim measures or an arbitration, Jofre pointed out that such actions are part of the legal strategy that the company could continue, but are not yet completely defined.



Finally, in relation to the agreement with Mitsui, Japanese company that Codelco obtained financing to exercise the purchase option, Thomas Keller said that "we have a very good relationship with Mitsui as partners in this transaction." "Them we have been informed and have all the support and are confident that we will continue with this operation," he said."

Excuse all the grammar, that is what you get with a web translator. So this is the background to the next release, which we saw yesterday, which seems to indicate that Anglo American have the legal side sewn up. Because the announcement says it all: Anglo American reaffirms that it is not obliged to sell any AA Sur shares to Codelco.

Wow. So I am pretty sure that the legal team for CODELCO and Anglo are scrambling right now, seeing in fact if they (CODELCO) have breached their contractual obligation, and seeing if any announcement made should have in fact taken place at the beginning of this month. And not back in October. So, the courts of Chile I suspect are going to have to decide here. In the mean time, Anglo has to proceed with the sale to Mitsubishi as far as I understand it. There seemingly is a solution, but it might entail Anglo settling at a higher price with CODELCO. That should make Mitsubishi feel better. This is a long way from finished, all I can say is that in the medium term, it might not be a good idea to be selling these copper assets to anybody! That for me is a disappointment on their shareholders part, the copper market seems rather tight now. And it is the year of the Dragon! Early this year, January 23 on our calendar. Oh yes, Happy New Year everyone.