LONDON (ShareCast) – (ShareCast News) – Shares (Berlin: DI6.BE – news) in Antofagasta (Other OTC: ANFGF – news) slumped after the Chilean miner said it has agreed a $ 1.01bn deal to acquire a 50% interest in the Zaldivar copper mine from Barrick Gold (Hanover: ABR.HA – news) . The immediately earnings-enhancing deal will be funded from the company balance sheet and consists of $ 980m upon closing and five annual payments of $ 5m per year, starting in 2016.
Analysts at Credit Suisse (NYSE: CS – news) suggested the valuation appeared full and will likely rule out a special dividend for the foreseeable future.
Zaldívar is located in the Andean Precordillera in region of northern Chile, approximately 1,400km north of Santiago and 175km southeast of the port city of Antofagasta.
In 2014, it produced around 100,000 tonnes of copper and generated $ 224m of income before tax. As of the end of December 2014, Zaldivar had 2.5m tonnes of contained copper in proven and probable reserves, which supports a current reserve life of approximately 14 years and gross assets of $ 1.4bn.
Chief executive officer Diego Hernandez said: “This transaction is consistent with our strategy to focus on our core copper mining business, and represents a rare opportunity to acquire a substantial interest in an established, low-cost mining operation that generates strong cash flow. ” The deal is expected to close in the fourth quarter of 2015.
Goldman Sachs (NYSE: GS-PB – news) said the amount paid is not much more than the company received for its water business in April, adding that in effect, it has swapped its water business for the 50% stake in Zaldivar.
Goldman said that while Antofagasta has the cash on its balance sheet for such a deal, the fundamental issue is whether more copper in Chile is going to significantly change the investment case for the stock. “We don’t believe so,” it said.
Shore Capital said: “We do not doubt that Zaldivar will be accretive to earnings and cashflow, but we do expect margins and returns on equity to deteriorate slightly.” Meanwhile, RBC Capital Markets said that while the deal is positive from an earnings perspective, the purchase has not come cheap.
At 12:19, Antofagasta shares were down 4.2% at 556p.
