South32 Ltd has announced that it has entered into two binding conditional agreements with Sumitomo Metal Mining and Sumitomo Corporation (collectively Sumitomo) to acquire a 45% interest in the Sierra Gorda copper mine in Chile via the acquisition of a 45% indirect interest in Sierra Gorda S.C.M. (SGSCM) for an upfront cash consideration of US$1.55 billion (transaction). South32 has also agreed to provide Sumitomo with a contingent price-linked consideration of up to US$500 million, payable at threshold copper production rates and prices in the years 2022 – 2025.
Sierra Gorda is an operating mine in the prolific Antofagasta copper mining region, which is expected to produce 180 000 t of copper, 5000 t of molybdenum, 54 000 oz of gold and 1.6 million oz of silver in 2021 (100% basis). The acquisition provides South32 with joint control alongside 55% joint venture partner KGHM Polska Miedz, a global miner listed in Poland.
- The transaction is expected to be immediately earnings accretive, with the upfront purchase consideration benchmarking favourably to historical investment, production and valuation multiples (3.3 x FY21 underlying EBITDA).
- Funding will be via a combination of cash on hand and an underwritten US$1 billion acquisition debt facility that will maintain our balance sheet strength and flexibility. The Group’s unaudited net cash balance at the end of September 2021 was US$660 million.
- The company expects to use its current strong cash generation to minimise acquisition debt facility utilisation, replacing it with long-term funding following completion, with the intention of maintaining our investment grade credit rating through the cycle.
- South32 will continue its flexible execution approach with regards to the remaining US$231 million capital management programme balance.
South32 CEO, Graham Kerr, said: “We are actively reshaping our portfolio for a low carbon world and the acquisition of an interest in Sierra Gorda will increase our exposure to the commodities important to that transition. Copper is a critical metal in the decarbonisation of the world's energy networks and has strong long-term market fundamentals.
“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.
“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.
“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. 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.”
Read the article online at: https://www.globalminingreview.com/finance-business/15102021/south32-to-acquire-45-interest-in-sierra-gorda-copper-mine/
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