Antofagasta to Sell Water Unit for About $960 Million -- 2nd Update

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By Alex MacDonald

LONDON--Chilean copper producer Antofagasta PLC (ANTO.LN) said Thursday that it has agreed to sell its water division to Colombia's water and energy utility Empresas Publicas de Medellin for 596 billion Chilean pesos ($960 million)

The water unit, known as Aguas de Antofagasta SA, operates a 30-year water distribution concession in Chile's Antofagasta region which it acquired from state-owned Empresa Concesionaria de Servicios Sanitarios SA in 2003.

The division provides potable desalinated water to domestic and industrial customers, including mining camps, in the region, obtaining water from mountain catchment areas and the sea and distributing it through its 1,140 kilometer pipe network.

The sale comes at a pivotal time for Antofagasta as it gears up to invest billions of dollars in six copper growth projects between now and the end of the decade or so. Just this year and next alone, the company plans to invest $1.5 billion to expand its Antucoya, Encuentro Oxides and Centinela operations and up to $950 million to keep its mines operational.

For municipal state-owned Empresas Publicas de Medellin, the purchase is a timely investment in a country that has suffered from drought conditions for more than five years, particularly in the country's northern Atacama desert. The area received some respite last month when severe rainfall prompted many miners in the region to temporarily suspend operations.

Antofagasta's shares rose 5.6% to close at 785 pence a share while the FTSE 350 mining index closed up 2.6%.

Liberum Capital Ben Davis said the sale was "bang in line" with his valuation for the unit and will strengthen the company's healthy balance sheet even further. The company had group net debt of $1.6 million as of the end of last year. Mr. Davis noted that the sale would allow the company to better use its capital to expand its core mining business given that the water division only accounted for 3%, or $75 million, of the group's earnings before interest, taxes, depreciation and amortization last year. The water division's only connection to the mining business is the supply of potable water to mining camp sites.

Mr. Davis said it is also possible that the company may consider selling its transportation division at some point to raise further funds. The transportation division accounted for about 3%, or $68.7 million, of group Ebitda last year but is valued around the same amount as the water division, according to Mr. Davis.

A person close to the company said there were no plans to sell the unit, which constituted the company's principal business when it listed its shares in London more than a century ago.

The transport division operates the main cargo transport system in the Antofagasta region of Chile, moving goods and materials, such as sulphuric acid and copper cathodes, to and from mines by road and on its 900-kilometer rail network. It also operates a railway in Bolivia.

Write to Alex MacDonald at [e-mail]

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