By Ben Dummett
JXTG Holdings Inc., a Japan-based mining and energy conglomerate, is exploring the sale of its majority-owned Caserones copper project in Chile, in a deal that could fetch about $1 billion, according to people familiar with the matter, in the latest sign that rising prices for the industrial metal are driving deal making in the mining sector.
The sale effort comes amid expectations of sustained strength in copper prices. This is being driven in part by a lack of investment in new mines and burgeoning demand for electric and hybrid vehicles, in which the metal is used more heavily than in ordinary cars.
Copper is up more than 9% in 2019 at about $6,465 a metric ton and some analysts forecast that the metal could reach $7,165 a ton by 2023.
That outlook has helped spur recent deals. In April, Canada's Lundin Mining Corp. struck an $800 million pact to acquire the Chapada copper mine in Brazil from Yamana Gold Inc. That came after Lundin lost out in September to China's Zijin Mining Group Co. Ltd. for the $1.41 billion acquisition of Nevsun Resources Ltd., a producer of copper and other metals.
A global operator, JXTG's metal business is focused on activities like mining, refining and smelting. The company is the biggest operator of gasoline stations in Japan. It is also involved in oil-exploration businesses and the development of petrochemicals and lubricants, among other products.
JXTG, along with Mitsui Mining & Smelting Co. Ltd. and Mitsui & Co. Ltd. -- one of Japan's largest trading houses -- acquired the Caserones mine project in 2006 for $137 million. Backed by loans from the Japan Bank for International Cooperation and other lenders, the Japanese companies, which own the project through SCM Minera Lumina Copper Chile, developed the project into an operating mine over the next eight years.
As a producing mine, Caserones could prove attractive to companies that want copper without spending the money and time required to develop an operation. The project highlights the financial risks of developing a project from the ground up, as its capital costs ballooned to $4.2 billion from original estimates of about $2 billion.
The project could also appeal to potential bidders because Chile is viewed as a favorable mining jurisdiction. Located in the Andes mountains in central Chile, the Caserones project has a mine life of 28 years, and for the first three quarters ended Dec. 31 produced 103,000 metric tons of copper concentrate -- a raw material used in smelting -- and copper cathode, which manufacturers use in the manufacture of wires and pipes.
That said, the mine's problems could deter buyer interest. JXTG took a Yen65 billion ($580 million) impairment loss in connection with the mine for the year ended March 31, 2018 because of higher-than-expected operating costs and production shortfalls. The owners also face a possible fine of more than $35.9 million over charges filed against SCM Lumina Copper Chile by Chile's Superintendency of the Environment for extracting too much water from wells for the project.
Kosaku Narioka and David Hodari contributed to this article.
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