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Dec 4, 2018

Hunt for good copper deals set to toughen after Teck stake sale

Teck sells 30% of copper project in Chile

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The global hunt for high-quality, low-risk copper assets that are ready for construction is about to get tougher after Teck Resources Ltd. sold a stake in one of the few deals available in the market.

Teck Resources agreed to sell a 30 per cent stake in Compañia Minera Teck Quebrada Blanca SA which owns the Quebrada Blanca phase 2 project in northern Chile to Sumitomo Corp. and Sumitomo Metal Mining Co. for US$1.2 billion. The project, which will require an estimated investment of US$4.7 billion, is set to start producing in 2021 and has the potential to double Teck’s copper business.

"This was one of the biggest and most sought-after deals in the market --there are few projects like that out there," said Cesar Perez-Novoa, an analyst at BTG Pactual in Santiago by telephone. "The transaction has closed at quite generous multiples, which shows that good quality projects ready for development are scarce."

The deal comes at a time when miners are struggling to keep up with demand after years of underinvestment. Inventories tracked by exchanges in New York, London and Shanghai are already at the lowest in almost four years. Miners are likely to remain focused on keeping their balance sheets clean and will probably tap into investors’ hunger for copper to bring in project partners who are willing to finance large expansions and new mines, according to Perez-Novoa.

The Quebrada project, known as QB2, is expected to produce about 300,000 metric tons of copper a year in its first five years. If a QB3 expansion follows, the asset would likely become the best project in Teck’s portfolio and one of the top-five copper mines in the world, producing about 500,000 tons of copper a year, plus molybdenum, Teck Chief Executive Officer Don Lindsay told analysts last month.

--With assistance from Jack Farchy