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BHP Sells Smallest Copper Mine in Chile for $320 Million

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BHP Billiton Limited (BHP - Free Report) has agreed to sell its smallest copper mine — Cerro Colorado in Chile to private equity manager, EMR Capital for as much as $320 million. Cerro Colorado is one of two copper mining operations of BHP’s Pampa Norte division and is located in the Atacama Desert in northern Chile. BHP Billiton had been searching for a buyer for the mine for almost a year.
The sale is expected to close during the fourth quarter of calendar year 2018, pursuant to fulfillment of customary closing conditions. On closure, the company will receive a total cash consideration of $230 million plus around $40 million from the sale of certain Cerro Colorado copper inventory. It will also receive a contingent payment of up to $50 million in the future, depending upon copper price performance.
The booming market for electric vehicles will significantly impact demand for copper over the next decade. Going forward, copper prices are likely to be influenced by demand from China, India and emerging markets, as well as economic activity in the United States and other industrialized countries. BHP Billiton along with other miners like Rio Tinto plc (RIO - Free Report) , are consequently keen to invest in copper assets to capitalize on the long-term fundamentals of the metal. The sale of the Cerro Colorado is in sync with BHP Billiton’s plans to focus in large-scale projects.
Notably, the Cerro Colorado mine produced 65,000 ton of copper cathode in fiscal 2017. It is a much smaller operation given that BHP Billiton’s flagship Escondida operation also located in Chine produced 232,000 tons of copper cathode and 539,600 tons of payable copper in fiscal 2017 and the Spence mine produced 189,600 tons of copper cathode.
Over the last year, BHP Billiton’s shares yielded a return of 41.3%, outperforming 36.6% gain recorded by the industry . The company is gaining competency on the back of sturdier productivity and remains on track to deleverage balance sheet over time. It is making operations more efficient driven by smarter technology adoption across the entire value chain along with reducing capital and exploration expenses.
BHP Billiton currently carries a Zacks Rank #3 (Hold).
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