South32 buys into copper by taking Sumitomo’s 45% stake in Sierra Gorda

South32 has entered into two binding conditional agreements with Sumitomo Metal Mining and Sumitomo Corporation (collectively Sumitomo) to acquire a 45% interest in the Sierra Gorda copper mine in Chile’s prolific Antofagasta copper region for an upfront cash consideration of $1.55 billion. Sierra Gorda is an operating mine in the prolific Antofagasta copper mining region, which is expected to produce 180,000 t of copper, 5,000 t of molybdenum, 54,000 oz of gold and 1.6 Moz of silver in 2021 (100% basis). The acquisition provides South32 with joint control alongside 55% joint venture partner KGHM Polska Miedz (KGHM), the global miner listed in Poland.

South32 Chief Executive Officer, Graham Kerr said “We are actively reshaping our portfolio for a low carbon world and the acquisition of an interest in Sierra Gorda will increase our exposure to the commodities important to that transition. Copper is a critical metal in the decarbonisation of the world’s energy networks and has strong long-term market fundamentals. Adding Sierra Gorda further improves our portfolio and is expected to immediately lift Group margins and earnings, supporting future shareholder returns while retaining strength and flexibility in our balance sheet. The transaction expands our operating and development presence in the Americas and provides exposure to a long-life asset with a large resource base. The operation has existing opportunities to unlock further upside through improved production efficiency, resource expansion and exploration.”

He adds: “Through our extensive due diligence of the opportunity over the past nine months, we believe we have identified an operation that is benefitting from significant historical investment and current, capital efficient de-bottlenecking work. The operation is serviced by excellent infrastructure, including access to renewable power and seawater for processing. Looking ahead we see an opportunity for continued strong performance at Sierra Gorda with our new partner, KGHM, that can deliver substantial value to South32’s shareholders.”

Sierra Gorda is a conventional open pit mine located in the Antofagasta region, at relatively low altitude  (1,700 m above sea level) in northern Chile. The Catabela open pit commenced construction in 2011, ahead of commissioning in 2014. The operation benefits from high quality, modern processing equipment, with historical capital investment to CY20 of ~$5 billion (100% basis). It is serviced by established infrastructure, including renewable power and a seawater pipeline, with freight rail and a national highway connecting the operation to the ports of Antofagasta and Angamos.

It is a large scale operation, with a copper-molybdenum-gold sulphide mineral reserve of more than 1 billion tonnes, and a mine life of more than 20 years. The scale and costs of the operation benchmark favourably with other top Chilean mines of similar scale with the operation on-track to produce copper equivalent production of 214,000 t in CY21 at operating unit costs of ~$1.29/lb.

There are a range of growth and improvement opportunities available to Sierra Gorda, including the capital efficient de-bottlenecking project that is underway to lift plant throughput by ~6% and copper recoveries by ~2% in the medium term. South32 said it was low technical risk and capital efficient. In the medium term, the project is expected to deliver ore milled of ~50 Mt/y (from 45 Mt/y in CY20), copper recoveries of ~85% (from 83% in CY20). The operation has already achieved an increase in ore milled to 47.5 Mt/y eight months ahead of plan. There is an $84 million spend for the proejct scheduled until the end of CY21 with
~$200 million to $250 million expected over CY22 and CY23 (100% basis) to complete the project.

It includes primary and secondary grinding performance improvement via installation of cyclone pumps, hydrocyclone battery and three vertical mills to improve mill power and grinding capacity due by CY23. Already completed work includes pulp conditioning with nstallation of three additional agitator tanks for attrition scrubbing; installation of a fourth copper concentrate filter to handle additional throughput and two additional flotation column cells to improve cleaner recovery done. A conveyor upgrade to increase transmission capacity of conveyor belts and improve maintenance procedures is also due by CY23, while installation of an additional thickener to ensure waste concentration density is due in CY22.

A feasibility study is also underway for a brownfield Oxide Project which is assessing the opportunity to process material stockpiled at the mine. It will be a low-cost heap leach and conventional SX/EW processing >100 Mt of stockpiled oxide material, the majority of which has already been mined and is stockpiled on surface in close proximity to a future plant location.

Potential also exists for further exploration upside at the Pampa Lina deposit and across the regional land package. Pampa Lina Located 3 km north-east of current operations between the Catabela pit and BHP’s Spence mine. Pampa Lina is a copper-molybdenum-gold porphyry at an exploration stage with the possible long-term opportunity to extend the operation’s life by leveraging established infrastructure.