South32 will acquire 45% stake in Sierra Gorda Copper Mine, which has a production capacity of 150000 tons of copper concentrate and 7000 tons of molybdenum

South32 (ASX, LON, JSE: S32) said on Thursday that it would continue to acquire a 45% stake in Chile's Sierra Gorda copper mine because project partner KGHM Polska Miedz SA (WSE: KGH) chose not to increase its stake in operation.

The Australian mining company signed two binding conditional agreements with Japan's Sumitomo Metal Mining and Sumitomo in October. The two companies jointly own nearly half of Sierra Gorda, with $1.55 billion in cash, plus price-linked consideration of up to $500 million in fiscal year 2022-2025.

Poland's KGHM owns 55 per cent of the open-pit business in northern Chile and has a pre-emptive right to buy Sumitomo's stake, but will not exercise it.

"it's not easy to find copper production assets of this scale to sell, but South32 did," BMO Metals and Mining analyst David Gagliano wrote last month.

The deal marks the Perth-based mining company's entry into the world's largest copper producer ahead of an expected boom in copper demand.

It is also the miner's second-largest deal since it was spun off from BHP in 2015.

South32 bought an 83 per cent stake in Arizona Mining for $1.3 billion in 2018, which owns a zinc, lead and silver project in the US.

The company believes that Sierra Gorda, which has a capacity of about 150000 tonnes of copper concentrate and 7000 tonnes of molybdenum, will add 70000 to 80000 tonnes of copper to its portfolio.

A feasibility study for the brownfield oxide project is also under way, which is assessing opportunities to process the mine's stock materials and has the potential to further explore the Pampa Lina deposit and land packages throughout the region.

KGHM, which took control of the mine in 2012, has been criticized for its huge investment ($5.2 billion and growing) allocated to the development of the Chilean mine.

Sierra Gorda began production in 2014, but failed to meet expectations due to challenging metallurgy and difficulties in using seawater for processing.

The Polish miner, which wants to sell foreign mines and reinvest the proceeds in domestic operations, said it had no plans to put Sierra Gorda on the chopping block. However, KGHM has ruled out full ownership.

The open-pit mine is located 1700 meters above sea level and has enough ore to support mining for at least 20 years. South32 expects to produce 180000 tons of copper concentrate and 5000 tons of molybdenum this year.

The deal is expected to close in early 2022.