The Switzerland-based commodity trader Glencore has announced it will buy back its prized Prodeco coal operations in Colombia from the international mining giant Xstrata.
Baar, Switzerland-based Glencore sold Prodeco last year for $2 billion (approximately Ôé¼1.4 billion) when it was short of funds, but it had an option to repurchase them, which it will now do for $2.25 billion (Ôé¼1.6 billion). However, this figure is believed to be below the current market value of the mine.
Zug, Switzerland-based Xstrata has said it will use the cash from the sale for its own $19 billion, three-year growth programme.
Mick Davis, XstrataÔÇÖs CEO, said: ÔÇ£The acquisition of the Prodeco operations last year facilitated an orderly rights issue process during very challenging market conditions.┬á
ÔÇ£GlencoreÔÇÖs decision to exercise its option provides XstrataÔÇÖs shareholders with a robust cash return on the initial purchase price and provides additional financial flexibility as XstrataÔÇÖs capital expenditure programme ramps up to deliver 50 per cent volume growth by 2014, including a 50 per cent increase in coal and copper production and a doubling of current nickel volumes.ÔÇØ
Xstrata is currently the worldÔÇÖs biggest exporter of coal used in power stations. Last year, Prodeco contributed 11 per cent of XstrataÔÇÖs coal output.
Prodeco has a saleable reserve base of more than 250 million metric tons of coal. The operation consists of two open-pit coal mines, port facilities at Santa Marta on the Caribbean coast of Colombia and a 40 per cent stake in a railway in Colombia
During the year ending 31 December 2009, the Prodeco operations produced 10.5 million tonnes of coal, generated approximately $259 million (Ôé¼190 million) of earnings and $159 million (Ôé¼117 million) of operating profit for Xstrata.
Glencore, XstrataÔÇÖs largest shareholder with almost 35 per cent of the Swiss-based mining group, was unable to raise the funds to take part in the company's rights issue last year. An asset swap was agreed so the Swiss trader could maintain its stake, which resulted in Glencore selling Prodeco.
Strategically, now is a good time for Glencore to buy back the unit, since demand for coal is now increasing worldwide.
Glencore has not yet made clear whether it will bring in a partner to repurchase the unit and finance growth of the mines.
However, there have been reports that Glencore may be holding talks with up to four possible partners to help it buy back the unit.
 
