Thursday, March 4, 2010

Glencore Looking To Buy Back Prodeco Coal Mines

Commodity trader Glencore is expected to buy back its Prodeco coal mines in Colombia from Xstrata for about $2.5 billion. Glencore was forced to give up the operations last year for $2 billion when it was short of cash, but it got an option to buy them back that expires later today.

The repurchase price is higher than the amount Glencore sold the mines for, reflecting the deal Glencore reached with Xstrata, however analysts noted the value of the mines could be higher still because of a rise in the price of thermal coal used in power stations.

Analysts expect a decision to be announced on Friday.

Glencore may seek a partner to help buy back Prodeco and was last month was reported to be holding talks with four possible parties. Brazilian miner, Vale, US coal miner, Alpha Natural Resources, Singapore sovereign wealth fund GIC and US private equity fund, First Reserve Corp. were all touted as possible partners.
The Prodeco operations include two opencast mines, port facilities and part ownership of a railway in Colombia.

Glencore agreed to sell the mines last year to pay for its share of a $5.9 billion rights issue by Xstrata as it did not have enough cash at the time. Glencore is Xstrata’s largest shareholder with a 35 per cent stake. The two parties struck an option for Glencore to buy back the mines for a price of $2.25 billion plus capital spent on the mines by Xstrata plus earnings from the business during the option period.

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