Chile Codelco suspends Minmetals Gaby stake option

Codelco, Chile's state-owned copper miner, on Tuesday suspended a deal that gave a Chinese company the right to buy about half its newest mine, quelling domestic critics but potentially irking a major foreign partner.

Codelco said it had suspended indefinitely the deal giving China state miner Minmetals rights to buy about half of its newest mine, Gaby, in northern Chile.

The mine, with capacity to produce about 150,000t of copper per year, is one of the largest new sources of the red metal to enter an extremely tight market in recent years, at a time when prices are still very high.

"In the spirit of long-term cooperation, Codelco and Minmetals decided to set aside and suspend indefinitely the rights and obligations under the Gaby option agreement," Codelco said in a statement distributed at a news conference.

The agreement ends months of speculation about whether Codelco would be able to change the deal, signed in 2005 when copper traded at less than $2.00/lb. Critics called it a strategic misstep by the Chilean producer.

Codelco, a state miner, built the mine in large part thanks to a $550m investment from Minmetals.

In exchange, the company was to receive copper over the next 15 years at prices below the spot rate, as well as an option to acquire a stake of up to 49% of the mine.

Codelco's powerful union opposed the second part - selling the stake - from the start, saying it was a national asset and threatening national protests if Minmetals was allowed to exercise the option.

The first part of the agreement was unchanged.

It was not immediately clear what Minmetals would receive in lieu of the stake, but Codelco chief executive Jose Pablo Arellano said the new agreement signaled continued, long-term cooperation between the companies.

"This new understanding encourages and ratifies the decision of Minmetals and Codelco to work together with a long term view, in order to ensure strategic copper resources in their mutual benefit," Codelco said.

"With this purpose, some specific prospects have been identified to be jointly analyzed in the near future."

Codelco said it would continue to work with Minmetals in new business and exploration opportunities in copper mining, with a focus on Latin America and Africa.

The company said specific prospects had been identified to be analyzed jointly in the near future.

Global copper producers are racing to find new resources, whether through exploration, acquisition or joint venture, and Codelco is no exception, despite its massive copper resources.

Earlier this month, Codelco was listed as one of three major international companies looking at a potential joint venture partnership with a Canadian company to develop a major copper play in Ecuador.

The company has confirmed only that it is looking at opportunities in general in Latin America.

Arellano said Tuesday that Gaby, which entered production this year, would produce 80,000t of copper in 2008 and 150,000t of copper in 2009.

The Codelco chief executive said Codelco was watching international financial turmoil with concern but that the copper market has not been greatly affected so far.

"We are watching with attention what is happening with international financial markets given the possible repercussions in the real economy," Arellano said.

Reuters