South32 pivots towards greener metals with Chile acquisition

Sierra Gorda another step in accelerating global energy transition

THE SOUTH32 $2.05 billion (R30.47bn) cash acquisition of 45 percent of Chile mine Sierra Gorda represented another step in the group’s pivot to extract resources for the accelerating global energy transition, chief executive Graham Kerr said yesterday.

The strategy at the Australia-based international resources group has been to move away from the likes of coal and manganese toward base metals.

Earlier this year, South32 sold its South African thermal coal business to black-owned Seriti Resources and it was reportedly considering selling its stake in the Eagle Downs coal project in Australia as well.

Last month, South32 acquired an additional 25 percent stake in Mozambique’s Mozal aluminium smelter – aluminium is widely used in low-carbon energy supply such as solar-panel frames. In 2018, the zinc, lead and silver mine was acquired from Arizona Mining for $1.3bn in cash.

Copper – which Sierra Gorda mines – has also become sought after among large diversified global mining groups because of its use in low-carbon technologies and the electricity grid.

Electric vehicles are estimated to use about four times as much copper as gasfuelled cars.

Wind and solar farms also use copper. The copper price has soared in the past year due to supply constraints.

Noah capital mining analyst René Hochreiter said the outlook for copper was “pretty good” taking into account the global shift towards a “greener future”, and from that point of view the acquisition was in the right direction for South32.

The Sierra Gorda stake was bought from Japan’s Sumitomo Metal Mining and Sumitomo Corporation, and the price included a future sum capped at R500 million over four years linked to production rates and metal prices. The deal would be partially funded with a $1bn debt facility.

Sierra Gorda, a mine in the prolific Antofagasta copper mining region, is expected to produce 180 000 tons of copper, 5 000 tons of molybdenum, 54 000 ounces of gold and 1.6 million ounces of silver in 2021, Kerr said.

The acquisition provided South32 with joint control alongside 55 percent joint venture partner KGHM Polska Miedz, a global miner listed in Poland.

Kerr said the deal was expected to be immediately earnings accretive. The group had $660m in cash at the end of September.

Deal Leaders International Corporate and Advisory chief executive Andrew Bahlmann said although South32 appeared to be paying a premium for its stake, it remained a good deal for two reasons.

“Firstly, the mine last year reached a point at which it no longer needs financial assistance and can expect to be on a cash-flow positive basis from now on. This was especially given the mine is a long-life asset.”

“Secondly, it gives South32 a foothold in the world’s largest copper-producing country ahead of an expected boom in demand for the metal, used in everything from household appliances to electric vehicles,” said Bahlmann.

He said big miners were vying to increase their exposure to metals including copper, nickel and cobalt that will be needed in the switch to cleaner forms of energy.

With big deposits in mining-friendly jurisdictions becoming more difficult to buy into, they were looking at acquisitions as a way to boost their production of these future-facing commodities.

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