Keeping Las Bambas could pressure Glencore's credit rating-Moody's

LONDON, April 7 Mon Apr 7, 2014 1:28pm EDT

LONDON, April 7 (Reuters) - A decision by Glencore Xstrata to abandon the sale of it Peruvian copper mine Las Bambas would likely enhance the long-term growth of the mining group, but could put its credit rating under pressure, Moody's Investors Service said.

Glencore has been in talks with China's Minmetals for the last few months about a sale of Las Bambas, an asset it agreed to sell to secure approval from China's competition authorities for its $46 billion takeover of Xstrata last year.

Negotiations, however, have been dragging for longer than expected, as the two parties have not yet been able to reach an agreement over the price, sources close to the matter said.

"Glencore Xstrata's keeping the Las Bambas asset could enhance the company's long-term growth prospects but is likely to leave limited headroom within the current Baa2 rating," Moody's senior analyst Gianmarco Migliavacca said in a report.

Credit rating agency Moody's said, however, that the most likely scenario was the divestment of Las Bambas, with the proceeds of the sale being split between debt reduction, shareholder returns and a cash buffer for future growth.

"(This) would boost its already solid liquidity and improve its metrics at a time when they remain weakly positioned for the Baa2 rating," Migliavacca said.

"However, despite what would be a credit positive development, we do not expect any immediate positive rating pressure because debt reduction would only reposition the company's debt metrics so they are more in line with the current guidance for the Baa2 rating."

As a condition imposed by the Chinese competition authorities, Glencore has got until September to sell Las Bambas, which could fetch around $5-6 billion.

Alternatively, it was asked to sell one of four other mining assets which include three early-stage greenfield copper projects: Tampakan, Frieda River and El Pachón, or the Alumbrera copper and gold mine in Argentina.

Glencore has already agreed to sell its majority stake in the Frieda River project to Australia-based PanAust Ltd .

Failure to sell Las Bambas however, a much bigger asset, could irritate China, the world's largest consumer of cooper, industry experts said. (Reporting by Silvia Antonioli; Editing by Mark Potter)