South32 (ASX:S32) pays US$1.6b on a copper rush

Company News

by Melissa Darmawan

South32 (ASX:S32) has eyed a Chilean copper mine and put down a US$1.6 billion ($2.1 billion) payment to acquire a 45 per cent stake in Sierra Gorda.

The miner has also agreed to pay up to US$500 million to the sellers, Sumitomo Metal Mining and Sumitomo, contingent on copper production rates and prices in the years 2022 to 2025.

Sierra Gorda is an operating mine in the Antofagasta copper mining region in Chile. It is expected to produce 180 kilotonnes of copper. The mine can also produce molybdenum, gold, and silver.

The acquisition provides South32 joint control with fellow global miner based in Poland, KGHM Polska Miedz, which owns 55 per cent.

The company expects the transaction to be immediately earnings accretive, with the upfront purchase consideration benchmarking favourably to historical investment, production and valuation multiples (3.3x FY21 underlying EBITDA).

The deal will be funded via a combination of cash on hand and an underwritten US$1.0 billion acquisition debt facility. The company believes that this will maintain the company’s balance sheet strength and flexibility.

At the end of September, the miner’s unaudited net cash balance sat at US$660 million.

Shares in South32 (ASX:S32) are trading 5.3 per cent higher at $3.85.

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