PanAust in Talks To Buy Glencore Copper Project-Source

   By David Winning and Rhiannon Hoyle 
 

SYDNEY--Australian copper-and-gold miner PanAust Ltd. (PNA.AU) is in talks to buy Glencore Xstrata PLC's (GLEN.LN) majority stake in one of Asia's biggest undeveloped copper deposits, a person familiar with the matter said.

PanAust is seeking to take control of the Frieda River deposit in Papua New Guinea from Glencore, which owns 82% of a project that it previously estimated would cost US$5.6 billion to build, the person said.

The talks signal that deal-making in the resources sector globally is starting to recover amid a brighter economic outlook in China, which is the world's biggest buyer of industrial commodities like copper.

On Thursday, South African miner Gold Fields Ltd. (GFI.JO) agreed to buy three mines in Australia from Canadian peer Barrick Gold Corp. (ABX) for about US$300 million. Weeks earlier, Rio Tinto PLC (RIO) agreed to sell its controlling stake in the Northparkes copper-and-gold mine in Australia to a Chinese company for US$820 million.

PanAust is no stranger to operating mines in impoverished Southeast Asian nations lacking in infrastructure and skilled workers. It has two active pits in Laos that produce copper and gold, and the Brisbane-based company accounts for about 30% of that country's exports.

"The company continues to evaluate potential acquisition opportunities that complement the existing asset portfolio and corporate strategy," PanAust, which has a market value of 1.42 billion Australian dollars (US$1.28 billion), said in a half-year report Thursday.

Glencore inherited the Frieda River project through its multibillion dollar takeover of Xstrata PLC earlier this year, but has signaled a preference for owning active mines that produce commodities it can sell through its trading arm.

Highlands Pacific Ltd. (HIG.AU), which controls the remaining 18% stake in Frieda River, said in July that Glencore Xstrata was in ongoing talks to sell its interest in the project. However, Highlands said it was "unaware of the likely outcome and timeframe for conclusion of this process."

It also pointed to local media reports in Papua New Guinea, which had suggested the government there may be interested in taking over the project. The Papua New Guinea government already has the right to acquire a 30% stake in the project under the terms on the original joint venture agreement.

Switzerland-based Glencore Xstrata has been conducting a review of its assets, and is due to update investors on Sept. 10. Chief Executive Ivan Glasenberg this week declined to say whether the company intended to sell any assets as a result of that review. Earlier this year, the company had agreed with Chinese regulators that it would sell the US$5.2 billion Las Bambas copper project in Peru as a condition of getting its takeover of Xstrata approved.

If Glencore fails to enter a binding agreement on the sale of Las Bambas in time, it has committed to the rapid sale of one of four other copper projects: Tampakan in the Philippines, Alumbrera or El Pachon in Argentina, or Frieda River.

Glencore Xstrata, on a website dedicated to the project, describes Frieda River as one of the largest undeveloped copper-and-gold deposits in the Asia-Pacific region.

Xstrata had estimated the project, near the border of the Sandaun and East Sepik Provinces of northwest Papua New Guinea, could produce 204,000 metric tons of copper and 305,000 troy ounces of gold annually in an operation lasting around two decades.

PanAust is targeting production of 62,000-65,000 tons of copper, 160,000-175,000 ounces of gold, and about 1 million ounces of silver in 2013 from its Phu Kham and Ban Houayxai mines in Laos. The miner this week lowered its annual profit guidance, however, as falling commodity prices dragged its first-half net profit down by a third.

-Write to David Winning at [e-mail] and Rhiannon Hoyle at [e-mail]

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