Las Bambas sale takes pressure off Glencore balance sheet – analysts
The agreed sale of the Las Bambas copper mine to a Chinese consortium at the high end of the price range would take pressure off GlencoreXstrata’s stressed balance sheet, analysts said last week.
The sale, Glencore said, would “immediately and materially” degear its balance sheet, with the surplus capital earmarked for return to shareholders, guided by the maintenance of its BBB/Baa credit ratings.
The Las Bambas disposal was a condition the Chinese Ministry of Commerce imposed when it approved the merger of Glencore and Xstrata a year ago.
Investec Securities mining analyst Marc Elliott said the key positive of the proposed sale was a reduction of balance sheet risk and Liberum analyst Ben Davis commented that the excess available for return to shareholders would be limited by low current commodity prices and Glencore’s own targeted gearing levels.
Moody’s Investors Service saw the divestiture as providing insight into Glencore management’s willingness to limit or delay shareholder remuneration until currently weak credit metrics improved.
London-, Hong Kong- and Johannesburg-listed Glencore said last week that it had agreed to sell its entire interest in the Las Bambas copper mine project, in Peru, to a consortium owned 62.5% by the Hong Kong-listed MMG, 22.5% by Guoxin and 15% by Citic for $5.85-billion cash, causing Investec Securities, which had previously assumed a lower sales price of $5.5-billion, to raise its numbers.
The consortium must also pay the capital expenditure and other costs of developing Las Bambas from the start of this year, which stood at $400-million at the end of March, to the closing of the offer.
“Our willingness to sell reflects the level of the offer and our conviction that we can use the sale proceeds to create additional shareholder value,” said Glencore’s South African-born CEO, Ivan Glasenberg.
MMG CEO Andrew Michelmore described the consortium’s proposed acquisition of Las Bambas as transformational for MMG, which saw it as the first step in a long-term relationship with Peru.
Elliott noted Glencore management’s previous indication that the proceeds of the sale could be applied to funding other opportunities – speculated as Rio Tinto’s Hunter Valley coal assets in Australia or onshore oil opportunities in Nigeria – or to deleveraging, share buy-backs and a rebasing of the dividend.
Moody’s believed that the Chinese consortium had financial and political support for its offer, as it would afford it control over a high-quality copper deposit.
China Minmetals Non-Ferrous Metals, which holds 74% of MMG’s share capital, has irrevocably committed to vote in favour of the transaction, for which BMO Capital Markets and Credit Suisse are acting as Glencore’s financial advisers.
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