Sumitomo to sell stake in Chilean Sierra Gorda mine to South32 for $ 1.55 billion

File photo.  The Sumitomo Metal Mining Co logo at the company's headquarters in Tokyo.  Japan, September 13, 2018. REUTERS / Ritsuko Shimizu / Files
File photo. The Sumitomo Metal Mining Co logo at the company’s headquarters in Tokyo. Japan, September 13, 2018. REUTERS / Ritsuko Shimizu / Files

Oct 14 (Reuters) – Japanese companies Sumitomo Metal Mining Co Ltd and Sumitomo Corp have agreed to sell their stakes in Chile’s Sierra Gorda copper mine to Australian miner South32 Ltd for $ 1.55 billion, including net debt adjustment, it was reported Thursday.

The Japanese companies, which together hold a 45% stake, had said last year that they were considering abandoning the investment, which they jointly own with Polish state miner KGHM, after years of losses.

Sumitomo Metal, which has a 31.5% stake in the mine, said that the price of the transaction would include a carry-over of about $ 1.2 billion and payments tied to the copper price of up to $ 350 million, and that the transaction it would be completed in March.

For its part, Sumitomo Corp, which has a 13.5% stake, said it would receive $ 510 million in cash up front and an additional payment of up to $ 150 million if certain price and production thresholds are reached through 2025.

The companies suffered huge depreciation losses in fiscal years 2015 and 2016 due to the slow start-up of the mine, which faced a number of technical problems.

Sierra Gorda produced 149,000 tonnes of copper concentrate through March 2021 and plans to produce 180,000 tonnes this year, a Sumitomo Metal spokesperson said.

For South32, the operation would mean entering the largest copper producing country in the world given the foreseeable boom in demand for the metal, used in all kinds of products, from household appliances to electric vehicles.

The operation will be financed with a combination of cash and a $ 1 billion credit line, and is expected to have an immediate positive effect on profits, according to the Perth-based company.

“We are actively restructuring our portfolio for a low carbon world and acquiring a stake in Sierra Gorda will increase our exposure to the raw materials important to that transition,” said South32 CEO Graham Kerr.

(Reporting by Indranil Sarkar in Bengaluru and Yuka Obayashi in Tokyo; Editing by Devika Syamnath, Rosalba O’Brien and Emelia Sithole-Matarise)

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