Tax Issues Halt Sale of Freeport-McMoRan's Candelaria Copper Mine in Chile

The sale of Freeport-McMoRan Copper & Gold (NYSE:FCX)’s Candelaria copper mine in Chile has been sidetracked as major changes to the South American country’s tax regime take effect.

The US based company, which is currently in negotiations to sell the mine to Canadian miner Lundin Mining (TSE:LUN) for $2 billion, is awaiting clarity on Chile’s new tax reform before the sale can be completed.

According to the Wall Street Journal, Chile’s tax reform, which was approved by the Senate in July, was sent back to the country’s lower house of congress for approval. The legislation is required before the sale can be approved.

Freeport McMoRan, which has a working partnership with Lundin for the Tenke Fungurume copper mine in the Democratic Republic of the Congo, has been working to diversify into the oil and gas market to alleviate its $20.90 billion debt. The mining giant announced in May a deal to sell its Eagle Ford Shale assets for $3.1 billion.

"This might not be the best time to sell a copper asset but they promised to reduce their debt," says Charles Bradford, an analyst with Bradford Research Inc.

"And Candelaria's a good property that can generate some cash, and there are people out right now with money to spend."

Candelaria – a joint venture between Freeport-McMoRan (80 percent) and Japanese trading company Sumitomo Corp. (20 percent) is company’s fifth biggest mine overall by number of employees and second largest in Chile.

The mine, which consists of an open-pit copper mine and underground copper mine, produced 370 million pounds of copper and 87,000 ounces of gold last year.

The US miner operates four copper mines in South America – Cerro Verde in Peru, the El Abra, Ojos del Salado and Candelaria in Chile.