Glencore talking to possible partners for Prodeco

LONDON (Reuters) - Commodity trader Glencore GLEN.UL is holding talks with four possible partners to help buy back its key Prodeco coal operations in Colombia from mining group Xstrata XTA.L, a source close to the situation said.

Negotiations are being held with Brazil's Vale (VALE5.SA) (VALE.N), U.S. coal miner Alpha Natural Resources (ANR.N), Singapore's sovereign wealth fund GIC and U.S. private equity fund First Reserve Corp, the source said on Monday.

Swiss-based Glencore, which declined to comment, was forced to give up the prized Prodeco operations last year when it was short of cash, but it has an option to repurchase them which expires next week.

Two of the possible joint venture partners -- GIC and energy-focused First Reserve -- already have a relationship with Glencore after they invested in some of the $2.2 billion convertible bonds Glencore issued in December.

The bond issue was one step toward a public listing that could value privately held Glencore at more than $35 billion.

Negotiations with possible partners for Prodeco are expected to continue up to the wire close to March 4 when the option expires, the source said.

If the price was not right, Glencore could still decide to go it alone in buying back the high-grade, low-cost Prodeco operations that include two opencast mines, port facilities and part ownership of a railway in the South American country, the source added.

Some of that $2.2 billion raised in December could be used to buy back Prodeco, but as commodity prices rise, Glencore has higher working capital requirements and may prefer to spread the risk.

Prodeco also has high capital expenditure requirements in coming years and a partner could help fund those.

Glencore agreed to sell Prodeco last year to pay for its share of a $5.9 billion rights issue by Xstrata since it did not have enough cash.

Glencore, Xstrata's biggest shareholder with a 35 percent stake, got an option to buy Prodeco back within a year for $2.25 billion plus any capital spent by Xstrata on the mines, estimated at around $300 million.

Xstrata's Chief Executive Mick Davis declined to comment on Prodeco last week when its results were released, saying the option was a decision for Glencore.

(Reporting by Eric Onstad; Editing by Louise Heavens)