MAC: Mines and Communities

Xstrata Buys Stake In Philippine Mine - Copper-gold Deposit Biggest In Philippines

Published by MAC on 2006-12-21
Source: Bloomberg News

Xstrata buys stake in Philippine mine - Copper-gold deposit biggest in Philippines

By Madelene Pearson and Luzi Ann Javier Bloomberg News

December 21, 2006

MELBOURNE: Xstrata, the world's fourth-largest copper producer, said Thursday it would take over the biggest untapped copper and gold deposit in the Philippines, increasing the country's chances of benefiting from its raw materials wealth.

Xstrata will exercise an option to acquire 62.5 percent of Indophil Resources's Tampakan deposit and take over management of the project on March 30, Xstrata, which is based in Zug, Switzerland, said Thursday in an e-mailed statement. The project will likely cost $1.4 billion to develop, Indophil of Melbourne said Nov. 1.

Copper prices have quadrupled in the past five years, spurring more than $170 billion of mining industry takeovers. the chief executive of Xstrata, Mick Davis, who bought Falconbridge this year for $17 billion, wants to operate on five continents to rival BHP Billiton, Rio Tinto Group and Anglo American.

Xstrata's takeover of Tampakan "reduces the level of risk that the project might not be developed," said Chris Brown, an analyst at ABN AMRO Morgans in Brisbane, Australia. "This gives credibility to the project from a world class mining company."

The Philippines aims to attract $6.5 billion in investment to help develop mining and benefit from rising prices for its deposits of raw materials, including copper, gold and nickel, which the government estimated in March could be worth as much as $1 trillion.

A study submitted by Indophil to Xstrata on the mine showed the Tampakan deposit on the southern island of Mindanao contains 11.6 million tons of copper and 14.6 million ounces of gold.

"The decision to exercise our option to acquire a 62.5 percent controlling interest in the Tampakan project will further expand our position globally," Xstrata Copper's chief executive, Charlie Sartain, said in the statement.

"Promising mineral resource estimates at the deposit indicate the project should become a new long life copper asset for Xstrata," he said.

Xstrata Copper currently has annual managed production of over one million tons of copper, with projects in Peru, Chile, Argentina and Papua New Guinea.

"This gives Xstrata access to an interest in developing a major copper and gold resource. It's a very large deposit," said Brown, who rated Indophil shares a "buy." "Xstrata has the technical and financial capacity to see the project through." South Korea targets mines

South Korean companies plan to spend at least $577 million on overseas mineral projects next year, a record, reflecting efforts by the third-largest Asian economy to secure supplies as competition and prices increase.

The spending figure is more than double the estimated $280 million invested this year, the highest investment so far, the South Korean Ministry of Commerce, Industry and Energy said in a statement Thursday. The numbers for this year are based on companies' reports to the ministry, while the 2007 estimates are based on a Korea Resources survey of 21 companies.

South Korea, which imports almost all of its raw material needs, is increasing overseas investments in mines and mining companies. Contract prices for iron ore have risen for four straight years and gained 19 percent to a record this year as China almost doubled output of steel. Prices of copper, zinc and nickel have all climbed to records this year on the London Metal Exchange.

"It would have been better if South Korea had been more aggressive in overseas investments before prices rose so much and before competition heated up with China and India, but it's better late than never," said Chung Ji Yun, an analyst at CJ Investment & Securities. "Competition for natural resources is only going to increase."

The $280 million that South Korean companies have invested so far this year in 23 projects is an 82 percent increase from 2005, the ministry said. Targets include coal, gold and copper projects in countries like Australia, Indonesia and China.

In 2007, South Korean companies are expected to plan ventures in nations like Kazakhstan, Russia and Myanmar.

The government plans to increase its budget to support overseas investment for minerals by 55 percent next year to 136.7 billion won, or $148 million, the ministry said. The government also plans to form a mineral fund to attract private funds in overseas projects.

Orica sees results of buyouts

Orica, the world's largest explosives maker, said trading in the first two months of its full year has met its expectations.

The company will see the benefits in 2007 from changes taken this year, including its purchases of some Dyno Nobel assets and the mining services company Minova, Graeme Liebelt, managing director of Orica, said Thursday.

"The further impact of Dyno synergies, the contribution of Minova, the up- rate of several of our plants, and the many growth opportunities across the businesses, give us cause for optimism," he said.

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