Codelco vs. Vale and the Asset Inbetween
Issue 127, June 2015
Two of the world's largest mining companies, Chile's Codelco and Brazil's Vale, entered a legal fracas last week over an exploration license that is almost unheard of by investors.
Stuck inbetween is Lara Exploration. Valued at less than C$10m ($7.5m), the company is sitting on a copper discovery that appears to be of keen strategic interest to both groups.
Neither company announced the news, but state-owned Codelco is suing Brazil's iron giant Vale, as well as the Brazilian Department of Mines, over an 8,500 hectare copper prospect in Brazil's Carajas district, known as Liberdade.
Lara, which reported the legal action on Tuesday, staked the project in 2010 and was awarded an exploration license, before bringing in Codelco as a joint-venture partner to fund drilling. After reporting long copper intercepts from surface, Codelco ran into licensing difficulties at Liberdade in 2013, with Vale claiming a license to the property dating back to 1986.
“Brazil's a very delicate place at the moment,” according to one mining investor in the country, who says he spends a significant chunk of his budget in Brazil on lawyers. “Somebody can go into the department of mines, hand over a bag of cash and have a license issued on top of your license, or have a technicality used to cancel your license, or both.”
Codelco is the world's largest copper producer and has spent $3.3m exploring Liberdade, immaterial for a group of its size, suggesting both sides to the lawsuit see value in the discovery not currently visible to the market. The tussle is an unwanted complement to Lara, which holds 49 per cent of the project, sliding to 25 per cent if Codelco drills out a 500,000 tonne copper resource, under the terms of their original deal.
The company is led by chairman Miles Thompson, also chairman of Reservoir Minerals, which has used an almost identical joint-venture structure with copper giant Freeport to fund drilling in Serbia that led to the mammoth Timok copper discovery.
Market rumours and preliminary drill results in 2013 suggested Liberdade could be a discovery of equal size, but Lara and Codelco are targeting a deposit more comparable to Vale's Sossego mine in the Carajas, Miles Thompson told Global Mining Observer before the lawsuit was announced.
Vale stumped up $43m for Sossego in 2001, building it into Brazil's first copper mine. It has a 3km strike length and the world's largest bucket shovel, producing 110,000 tonnes of copper like clockwork each year, running until 2024. The mine's reserve grade of 0.7 per cent copper is strikingly similar to Codelco's drill results at Liberdade, including 197m at 0.72 per cent copper equivalent.
“They're long intercepts from surface, they're the same grade, the same type of mineralisation,” Miles Thompson says. “Codelco is in the business of producing millions of tonnes of copper a year. They're not looking for small deposits.”
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