FT reported that Anglo American faces a tax bill of almost USD 1 billion if Chile’s state owned mining company goes ahead with a plan to buy a stake in Anglo’s assets in the country adding insult to the injury of the forced sale of nearly half of one of its most prized mines.
Codelco has told Anglo it intends to exercise a long standing option to purchase 49% of Anglo Sur, a group of copper assets that includes Los Bronces, one of the London listed company’s premier growth prospects. The exact price is yet to be determined but Codelco said that it will be less than USD 6.75 billion the value of a bridge loan it has secured with Mitsui the Japanese trading house to finance the acquisition.
According to people familiar with the situation, Anglo faces a potential capital gains tax bill of about USD 900 million on the transaction. Anglo purchased the assets for USD 1.3 billion in 2002, inheriting the Codelco option that dates back to 1978. In January 2012 when the option is due to be exercised, the capital gains tax rate is expected to be 18.5% implying a tax bill of roughly USD 900 million if Codelco pays USD 6 billion to USD 6.5 billion for the assets as expected.
In a clear sign that it is unhappy with the forced sale, Anglo has attempted to buy back the option twice according to people familiar with the matter most recently earlier this year and three years ago when it was last exercisable.
The likely tax bill will come as a fresh blow to Anglo, which has recently invested USD 2.8 billion to more than double output at Los Bronces. Although the transaction would deliver a healthy profit to the company on paper it would dilute the miner’s growth profile, which is based on the delivery of four large projects including the expansion of Los Bronces.
Moreover the price Codelco pays, based on the profits of the assets over the past 5 years may significantly undervalue them, some analysts believe. Mitsui struck a separate deal with Codelco that values the 49% stake at USD 9.76 billion.
The deal is a sweet one for Codelco. Jefferies an investment bank, estimates the option is worth USD 3 billion to the Chilean miner, helping to finance a USD 17.5 billion investment program over the next 5 years. The government, under fire after months of massive student protests demanding free higher education, also stands to gain a tax windfall at a time of strong resource nationalism in Chile.
(Sourced from www.ft.com)
