Highlights of call
- Sterlite has announced that it has signed a new agreement with ASARCO LLC (Asarco), a Tucson based mining, smelting and refining company, for purchase of substantially all the operating assets of Asarco.
- The Company is acquiring the operating assets of the Company net of any liabilities so they would be free from any liabilities or claims. The Company has been subject to claims on environmental issues.
- The final court approval will take 4-5 months. The agreement is subject to the approval of the U.S. Bankruptcy Court for the Southern District of Texas. Hypothetically, there could be counter bids. However, Sterlite holds the first right to re-bid.
- The purchase consideration comprises of: a cash payment of US$ 1.1 billion on closing; and a senior secured non-interest bearing promissory note for US$ 600 million, payable over a period of nine years as follows: US$ 20 million per year from the end of second year for a period of seven years; and a terminal payment of US$ 460 million at the end of the ninth year, totaling to US$ 600 million. The principal amount of the Note will be adjusted for any variations in working capital on closing.
- In the event that the annual average of daily copper prices in a particular year increases beyond US$ 6000 per tonne, the annual payment in that year will be proportionately increased subject to a maximum of US$ 66.67 million and the terminal payment in the ninth year will be correspondingly reduced, keeping the total payment at US$ 600 million.
- The total payment thus would be US$ 1.7 billion and would be non-recourse and non-interest bearing.
- Asarco has reserves of about 5 million tonne of copper, 23 million ounce of Silver and 44 million tonne of molybdenum. The reserves are for the next 25 years.
- The Company plans to increase production to 270000 tonne of finished copper production from the current 200000 tonne.
- The current cost of production is US$ 1.40 with the selling price at US$ 1.75. The selling price would go up by 10-11 cents on premium of products.
- The Company targets to bring down the cost of production by 15-20%. Asarco is in the third quartile in terms of cost of production. The acquisition has been done taking into consideration the value to be paid.
- In calculating the acquisition cost, the EBITDA is taken at about US$ 1000 per tonne with production of 200000 tonne and the IRR arrived at is 16%.
- The total value of the deal is US$ 1.7 billion of which working capital is about US$ 250 million and balance US$ 1.45 billion would be capitalized. There would be no goodwill in the deal. Also, the Company would be revaluing the assets.
- Sterlite has cash of about US$ 2 billion and the deal would be funded through cash.
- The deal would be earnings accretive at current copper prices.
- There would not be any major capex in Asarco.
- The reserves of Asarco are: Mission Mine 1.2 million, Silver Bell – 0.5 million and Ray – 3.3 million, all 3 in Arizona.