bet on copper being in hot demand in an accelerating global energy transition with an investment of up to $2.05 billion in a Chilean copper mine, as big miners pivot to metals needed for electric vehicles and renewable energy infrastructure.
The Australia-based mining company—which has assets in the U.S. and Brazil, among other places—on Thursday said it would buy a 45% stake in the Sierra Gorda copper mine in the
region of northern Chile for an upfront cost of $1.55 billion and future sum of up to $500 million linked to production rates and metal prices. It agreed to purchase the stake from Japan’s
The other 55% of the mine is owned by Poland’s
Copper has become highly sought after among many of the world’s large diversified miners because of its widespread use in low-carbon technologies and the electricity grid. Copper has the highest conductivity of any nonprecious metal.
Electric vehicles are estimated to use roughly four times as much copper as gas-fueled cars. Wind and solar farms also typically use several times more copper than coal plants.
Sierra Gorda, which has been operating since 2014, is expected to produce roughly 180,000 metric tons of copper this year, South32 said. World copper mine supply is expected to be more than 21 million tons over the same period, according to Australian government estimates.
“It provides immediate, meaningful exposure to copper, a critical metal for the green energy transition,” said South32’s Chief Executive
The mine also produces gold, silver and molybdenum.
The Antofagasta region of Chile is the world’s largest copper producing region and Sierra Gorda has a large resource base with exploration potential, he said.
BHP Group Ltd.
, the world’s No. 1 miner by market value, estimates world copper demand will likely double over the next 30 years. Many analysts predict shortages of the metal will emerge in this decade because of a scarcity of discoveries and underinvestment in new mines.
Mining companies have been struggling to find enough of the commodity that can profitably replace the volumes already being dug up. Owners of known copper-rich deposits are either not interested in selling or want to charge potential buyers a hefty price.
In September, Australia’s
Sandfire Resources Ltd.
agreed to purchase the Minas De Aguas Teñidas copper mining operation in southern Spain for $1.87 billion from Abu Dhabi’s sovereign-wealth fund Mubadala Investment Co. and commodity trader Trafigura Group Pte.
“It’s very hard to get into the copper space,” said South32’s Mr. Kerr.
U.S. investment bank Jefferies said it believes South32 secured the Sierra Gorda stake for an attractive price.
Mr. Kerr said he thought some potential buyers may have been put off by the minority ownership and previous technical problems at the mine.
Shares in South32 gained 4.9% in Australia on Thursday.
KGHM didn’t immediately respond to a request for comment. Sumitomo Metal Mining and Sumitomo Corp. said the sale of their stakes—at 31.5% and 13.5%, respectively—followed a strategic review.
Miners in Chile are facing the threat of potentially higher taxes that are being considered by lawmakers, although South32 said Sumitomo have agreed to provide an indemnity to cover potential tax changes up to an agreed cap.
Companies including BHP and
PLC say they are eager to expand their copper businesses, pivoting away from bulk commodities like iron ore, due to expectations of rising demand. BHP, which has had a yearslong focus on mining in developed countries, last week said it would consider operating in more challenging locations for access to rich copper and nickel deposits.
“Across the sector, probably the big end of town is having a think about where they go next, because they recognize the opportunities are becoming tighter,” South32’s Mr. Kerr said.
South32, which was spun out of BHP in 2015, has been refining its own portfolio recently, moving away from the likes of coal and manganese toward base metals.
Earlier this year, it sold a thermal coal business in South Africa to a local mining company. South32 is also considering a sale of its stake in the Eagle Downs metallurgical coal project in Australia.
Last month, the company said it would increase its investment in Mozambique’s Mozal aluminum smelter with the purchase of an additional 25% stake. Aluminum is also widely used in low-carbon energy supply, such as solar-panel frames.
The Sierra Gorda acquisition is expected to immediately increase South32’s earnings and margins, the company said. South32 will partially fund the deal with a $1 billion debt facility and will continue to look at ways of expanding its metals business further, Mr. Kerr said.
Write to Rhiannon Hoyle at [email protected]
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