State-backed KGHM Polska Miedz SA, Europe’s second-largest copper producer, currently holds a 55% operating stake in Sierra Gorda. The reminder belongs to Japan’s Sumitomo Metal, which put its interest up for sale a year ago with the help of RBC Capital Markets.
KGHM has been criticized for the steep investment allocated to developing the Chilean mine ($5.2 billion and counting). Sierra Gorda, which began production in 2014, has constantly failed to meet expectations due to challenging metallurgy and difficulties in using seawater for processing.
The Polish miner, which is looking to sell foreign mines and reinvest the proceeds in its domestic operations, has said it has no plans of putting Sierra Gorda in the chopping block. KGHM, however, has ruled out the possibility of taking on full ownership of the mine.
The open-pit mine is located at an altitude of 1,700 metres and has enough ore to support at least 20 years of mining. Last year, it produced almost 150,000 tonnes of copper concentrate.
If a South32 and KGHM reach a deal, it will be the second-biggest acquisition the Australian miner make since it was listed in 2015 after being spun out of BHP.
The world’s largest miner paid $1.3 billion in 2018 for 83% of Arizona Mining, which had a zinc, lead and silver project in the US.
Rough path
KGHM took control of the copper and molybdenum project in 2012, after completing the acquisition of Canadian rival Quadra FNX, in what was the largest-ever foreign acquisition by a Polish company.
The miner had planned to expand Sierra Gorda earlier, but the 2015-2016 rout in commodity prices forced the company to place the project on the backburner.
Two years later, KGHM secured environmental approval for a $2 billion expansion and upgrade of the mine in order to extend its productive life by 21 years.
The options to expand production include building an oxide circuit and doubling the throughput of the sulphide plant. Planned output at Sierra Gorda was about 140,000 tonnes of ore per day, but the asset has only delivered 112,000 tonnes in its best year of operation to date.
The oxide expansion would add 40,000 tonnes of ore per day for eight years, and the sulphide expansion another 116,000, BMO Metals estimates.
While Sierra Gorda is a low-grade deposit, one of its main attractions is having an “extremely flat grade profile,” which is expected to remain around 0.34% for the foreseeable future. This, BMO analysts have said, would potentially move the mine from a tier four to a tier two asset in time.
