UPDATE 5-Anglo American, Chile's Codelco settle copper dispute
* Two sides end bitter battle over Chile assets * Codelco to buy 24.5 pct stake, Mitsui 5 pct * Codelco originally sought 49 pct of Anglo American Sur * Both companies say they gain from deal By Alexandra Ulmer and Clara Ferreira-Marques SANTIAGO/LONDON, Aug 23 (Reuters) - Anglo American ended a bruising 10-month legal battle with rival Codelco on Thursday by reaching an eleventh-hour deal to sell a stake in its coveted Chilean properties at a discounted sum of $2.8 billion. The cash deal will cut Anglo's stake in its Anglo American Sur holdings to 50.1 percent while giving Chile's Codelco and its financing partner, Japan's Mitsui & Co, a 29.5 percent stake - well below what Codelco originally sought. The agreement resolves a multibillion-dollar courtroom showdown that cast a cloud over Anglo's flagship Los Bronces mine, poised to become the world's No. 5 copper mine at its peak. Anglo has invested $2.8 billion in the mine, previously called La Disputada, "the disputed one" in Spanish. Codelco initially wanted to exercise an option to purchase 49 percent of Anglo American Sur. But Anglo's stunning sale of 24.5 percent of the properties to Mitsubishi for a hefty $5.4 billion last November thwarted Codelco's plans. "Codelco gets significant value from an option contract that seemed lost for many years," said Juan Carlos Guajardo, head of mining think tank CESCO in Santiago. "The most important thing for Anglo is that it has closed in a fairly reasonable manner a situation that could have generated significant problems. It's a good deal for all parties." The prolonged drama has been watched by the mining industry worldwide, as avid Chinese demand for metals pressures miners to scramble for the last few promising copper deposits left to exploit. The deal was reached a day before an agreed deadline. Copper prices are broadly unchanged since October but have plunged about 12 percent since a peak of $8,765 per tonne in February. Three-month copper on the London Metal Exchange hit a one-month high on Thursday. Anglo and Codelco executives both praised Thursday's deal. Anglo copper chief John MacKenzie, in a rare joint press conference with Codelco Chief Executive Thomas Keller in Santiago, said the company had done well for its shareholders. Anglo would have received $4.9 billion for the 49 percent stake rather than the equivalent of $7.19 billion agreed under the deal, indicating a $2.29 billion improvement, Goldman Sachs said in a note to clients. Anglo's shares shot up to close 1.65 percent stronger on Thursday, outpacing a 0.82 percent rise in mining stocks . Meanwhile, Keller said Codelco ended up with a stake in the most productive copper reserves district in the world at a highly attractive price. Codelco will pay $1.7 billion in cash for 24.5 percent, which it said marks a $775 million discount from the price suggested by its decade-old option. However, Codelco's powerful union federation slammed the company for buying less than 49 percent. And Anglo was forced to nearly halve its share in Los Bronces mine in less than a year. Mitsubishi will end up with a 20.4 percent stake in Anglo American Sur, also known as Sur. "I think it's a good deal. In mining terms, Mitsubishi wins," said Gustavo Lagos, a professor at Universidad Catolica's Mining Center in Santiago. "Codelco wins quite a bit too ... but obviously it's a loss on the political front because it didn't get everything it wanted." The two miners hope the deal leads to joint initiatives between Los Bronces and Codelco's promising Andina mine, Anglo said. Industry players have long speculated over potential synergies between the two, which geologically constitute one mega deposit. FINE PRINT Anglo Sur's profits will be distributed among the partners and all will now have pro-rata offtake. Anglo previously did all sales and marketing. Both Codelco and Mitsubishi will have a seat on Sur's board. Codelco will gain around 115,000 tonnes of copper annually during the first five years, which represents around 7 percent of its 2011 output, Keller told reporters. Keller, Codelco's former CFO and the architect of the state firm's financial operation to buy a stake of Sur, took the helm of the company after industry veteran Diego Hernandez stepped down in May due to differences with the board. Codelco will also get the undeveloped properties of Los Leones and Profundo Este adjacent to its flagship Andina mine, which it values at around $400 million. "One has to be cautious about grand imaginative schemes but (Los Bronces and Andina) are two big properties which have a high degree of contiguity and there are things which, even from the infrastructural side, we could be looking at doing jointly," said Peter Whitcutt, Anglo's director for strategy and business development, who led negotiations. Mitsui extended a $1.863 billion loan to Codelco for the purchase of the 24.5 percent stake in Anglo American Sur. Anglo said it intended to use income from the sales for "general corporate purposes." Mitsui, in the context of its partnership with Codelco, will buy a 5 percent shareholding for another $1.1 billion, with shares made up of 0.9 percent from Anglo and 4.1 percent from Mitsubishi. The 4.1 percent will be bought by Anglo from Mitsubishi for $890 million and then sold to the partnership. "It's clear Mitsubishi and Mitsui are betting heavily on Chile," said Guajardo. "Mitsui is a conglomerate that is going to strengthen its position in the country ... It's gaining a privileged relationship with Chile." Codelco and Mitsui could explore further mining opportunities together in Chile or internationally, Codelco said in a statement to Chile's regulator on Thursday. Last October, Codelco said it would exercise its option to buy a 49 percent stake in the Anglo Sur mining complex when the option window opened in January 2012. It secured a $6.75 billion bridge loan from Mitsui to exercise its option, with the right, but not the obligation, to pay off part of the loan via the sale of an indirect stake of half the shares acquired. Weeks later, Anglo surprised the market with a pre-emptive sale of a 24.5-percent stake in Anglo Sur to Mitsubishi. Anglo said the $5.4 billion deal secured better value for investors. Since then, the companies had been tussling over the properties, which also include the El Soldado mine, the Chagres smelter and Los Sulfatos and San Enrique Monolito exploration projects. Chile, the world's leading producer of copper, will reap more than $1.3 billion in taxes from the sale of stakes in Anglo American Sur, including Mitsubishi's purchase in November, Codelco said. Chile also avoids prolonged and potentially damaging court wrangling. "In the country's interest, one seeks the very best," said Andres Chadwick, the government's spokesman. "But you can't always achieve it, so a good settlement is much better than a long legal battle."
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