The Polish KGHM owns 55% of the surface mining in northern Chile and has a pre-emptive right over Sumitomo’s stake, which it will not exercise.
“Finding a copper producing asset of this size for sale is not easy, but South32 did it,” David Gagliano, analyst at BMO Metals and Mines, wrote last month.
The deal marks the Perth-based miner’s entry into the world’s largest copper-producing country before an expected boom in demand for the metal.
It is also the miner’s second-largest deal since its IPO in 2015, after being separated from BHP.
South32 paid $ 1.3 billion in 2018 for 83% of Arizona Mining, which had a zinc, lead and silver project in the United States.
The company expects Sierra Gorda, which has a production capacity of approximately 150,000 tonnes of copper concentrate and 7,000 tonnes of molybdenum, will add between 70,000 and 80,000 tonnes of copper to its portfolio.
A feasibility study is also underway for a brownfield oxide project, which assesses the desirability of processing materials stored at the mine, and there is further exploration potential at the Pampa Lina deposit and across the all regional lands.
KGHM, which took control of the mine in 2012, has been criticized for the large investments allocated to the development of the Chilean mine ($ 5.2 billion and more).
Sierra Gorda, which started production in 2014, still fell short of expectations due to difficult metallurgy and difficulties in using seawater for processing.
The Polish miner, who is looking to sell foreign mines and reinvest the proceeds in its domestic operations, said he had no plans to put Sierra Gorda on the chopping block. KGHM has however ruled out the possibility of becoming full ownership.
The surface mine is located at an altitude of 1,700 meters and contains enough ore to withstand at least 20 years of operation. South32 expects to produce 180,000 tonnes of copper concentrate and 5,000 tonnes of molybdenum this year.
The agreement is expected to be finalized in early 2022.