BHP Billiton To Sell Peruvian Mine Tintaya To Xstrata In $750 Mln Stock-debt Deal

Published by MAC on 2006-05-16
Source: Real Time News

BHP Billiton To Sell Peruvian Mine Tintaya To Xstrata In $750 Mln Stock-debt Deal

Real Time News

16th May 2006

(RTTNews) - Mining company BHP Billiton Ltd. revealed on early Tuesday that it has reached agreement to sell its Peruvian mine Tintaya to Xstrata plc for US$750 million, two months after it put the mine on the sale block. According to the company, the sale, which also includes nearby undeveloped deposits of Antapaccay and Corrocohuayco, is for an upfront payment of US$634 million in shares and the assumption of US$116 million of debt.

In addition, the Melbourne, Australia-based company said the sale includes a deferred payment component which would be determined shortly after completion of the deal, and is expected to be in the order of US$60 million, based on current price levels. Xstrata would make additional payments to BHP Billiton in specified circumstances if the future LME copper price reaches certain levels between July 2008 and June 2009, or the development of Antapaccay or Corrocohuayco proceeds prior to 2020.

BHP Billiton anticipates the sale to be completed within two months with an effective date of 1 June 2006.

During the last year, BHP Billition faced problems at Tintaya, temporarily suspending operations for a month following civil unrest in the nearby Espinar region. The local residents had invaded the mine demanding closure due to contamination, and also pressed BHP Billiton to make more social investment in the area.

In the third quarter ended March 31, 2006, material mined in the Tintaya totaled 15.96 million tones that declined from the same period previous year. Average copper grade declined to 1.26% from 1.56% last year. The mine's production of payable copper, and silver concentrate were down in the quarter, but the production of payable gold concentrate increased from the prior year.

Even after the sale of Tintaya, BHP Billiton expects to continue to maintain an active presence in Peru through its exploration activities and its 33.8% interest in Antamina.

The mining company, which is struggling to meet rising demand, is shedding its businesses recently, to match up with the competition. BHP Billiton, on May 9, said it has entered into an agreement for the sale of Southern Cross Fertilisers Pty Ltd, a producer of high-analysis phosphate fertilisers, to Incitec Pivot Limited. Southern Cross Fertilisers was originally acquired by BHP Billiton as part of the acquisition of WMC Resources Limited. In early March, BHP Billiton revealed that it has offered A$7.85 per share in cash to purchase the whole issued capital of WMC Resources, for a total value of US$7.3 billion. WMC fertilisers business was identified as a non-core asset at the time of the acquisition.

Meanwhile, in early 2005, BHP Billiton and Anglo American plc sold Samancor Chrome to the Kermas Group, a producer of ferrochrome and chrome chemicals, for an enterprise value of US$469 million. Samancor Chrome, a producer of ferrochrome, is a unit of Samancor, fully operated and owned 60% by BHP Billiton, and 40% by Anglo American.

In October, 2004, BHP Billiton and Alcoa Inc. (AA | charts | news | PowerRating) revealed their agreement to sell 100% of their respective equity interests in Integris Metals to Ryerson Tull for US$410 million in cash plus assumption of Integris' debt. Alcoa and BHP Billiton each owned 50% of Integris Metals. The transaction was expected to be completed by early 2005.

Meanwhile, in December 2003, BHP Billiton entered into agreements to sell its 33.6% interest in Highland Valley Copper mine for US$73 million, and 100% interest in Robinson mine for US$18 million, to Quadra Mining Ltd. Again in 2003, BHP Billiton's fully owned subsidiary Rio Algom agreed to sell its 25% stake in the Alumbrera copper-gold mine in Argentina to Wheaton River Minerals Ltd. for a purchase price of US$180 million.

Among the array of sales, BHP Billiton, on April 11, 2006 said it acquired exploration and production rights offshore Colombia, South America, for an undisclosed price. The company signed contracts with the national hydrocarbon agency of Colombia, Agencia Nacional de Hidrocarburos on April 7, 2006, which allow for oil and gas exploration and production from two offshore blocks in Colombia's Caribbean sector. BHP Billiton holds a 75% interest in each block and is the designated operator.

Among the rivals, Alcoa in mid-April revealed that it plans to divest its Alcoa Home Exteriors business, which manufactures and markets premium products for the residential construction and remodeling markets in the United States. The company noted that its Home Exteriors business has 1,400 employees, and generated revenues of about $600 million in 2005.

Meanwhile, Alcoa formed a joint venture recently with Shanxi Yuncheng Engraving Group of China to produce aluminum brazing sheet in Kunshan City, China, near Shanghai. According to the joint venture, the New York-based Alcoa would invest more than $95 million by acquiring 70% interest in the Shangai facility.

During the first half of fiscal year 2006, ended December 31, 2005 BHP Billiton reported profit attributable to members of BHP Billiton of $4.36 billion or $71.9 per share that climbed from $2.95 billion or $47.5 per share in the same period a year ago. Six- month Revenue was $15.29 billion, up from $12.80 billion last year.

Recently, a strike over the issues of wage increases, job security and vacation time, rocked BHP Billiton's Ekati diamonds mine.

During the third quarter, BHP Billiton had to face increased industry wide pressures. A shortage of people, equipment and supplies had led to tight labor markets and difficulty in sourcing construction and drilling plant and machinery, which in turn led to rising input costs. Further, currency strength against the US dollar added pressure. According to the company, these mounting difficulties challenge the ability of BHP Billiton to deliver development projects to budget. However, most projects currently remain on or ahead of schedule despite difficulties. In the opinion of BHP Billiton, the imbalance in demand and supply, caused by the demand growth in emerging economies and the lack of latent mine capacity, together with the pressures on construction costs, the availability of skilled labor and raw materials look set to continue for at least the next several years. However, the company said it is in strong position as they bring on new volumes to take advantage of strong demand and high relative prices.

On April 5, Credit Suisse raised its 2006 and 2007 earnings estimates for many of the metal and mining companies in its universe, on the strong start to the year and continued strength in key metal price drivers.Analyst David Gagliano noted that first quarter of 2006 was strong but volatile with quarterly average prices for the major metals exceeding the brokerage's forecasts by an average of approximately 20%, despite the mid-quarter weakness.

In early February, Prudential Financial lowered its rating on the copper industry to 'Neutral' from 'Favorable'.

In February itself, Prudential maintained its 'Underweight' rating on the BHP shares, with a price target of $25. Amid the protests by locals and various governments enacting royalty/tax bills on projects, the analyst viewed that mining companies are looking at riskier, non-traditional mining areas, like Russia and the sub-Saharan Africa.

BHP closed Monday's regular trading session at $44.80, down $2.99, on a volume of 6.82 million shares. For the past 52-weeks, shares traded in a wide range of $23.46 -$50.74.