China's antitrust authorities removed the last obstacle to Glencore's $30 billion takeover of miner Xstrata after the commodities trader agreed to sell a $5.2 billion mining project to ease its grip on copper.
Xstrata's Las Bambas mine in Peru had been expected to be sacrificed to secure the approval of China's ministry of commerce, but Glencore also agreed 8-year commitments covering the supply of copper, zinc and lead to China.
Chinese regulators have rarely demanded asset sales to improve competition after a major tie-up, but the importance of the metals that Glencore mines and trades for China's economy meant the merger was unlikely to go through without changes.
In the event, the newest and least predictable of global regulators was also the toughest. Glencore had already signalled that Chinese authorities were focused on its hold on the copper market, reflecting China's appetite for metal and the political side of the regulator's mission, as much as Glencore's own weight.
Glencore and Xstrata combined account for roughly 7 per cent of global copper supply, and analysts and traders have estimated Glencore controls between 10 and 14 per cent of Chinese copper concentrate imports.
Under the deal, Glencore has three months to begin the process of selling Las Bambas, one of the group's biggest development projects, and must find a buyer by the end of August 2014.
The trader set a mininum price, however, as the mine will be sold at the higher of either a fair market price as established by two investment banks, or total costs incurred.
If it does not secure a deal for the mine - expected to produce an annual 400,000 tonnes of copper for at least four years from 2015 - it will have to find alternative sale candidates from among Xstrata's copper pipeline. It would have three months to offer up one of longer-dated projects - namely mines in the Philippines, Papua New Guinea or Argentina.
This would be unlikely to prove a wrench for Glencore, which has made no secret of its desire to slash the number of Xstrata "greenfield" mines, to be built from scratch. "Them being willing to sell Las Bambas shows there are no sacred cows in the eyes of the Glencore management. It shows they think a little differently - they've always shied away from greenfield projects," analyst Jeff Largey at Macquarie said.
"If they can pull value forwards on Las Bambas by selling it - rather than taking on all the operational and execution risk associated with building it (and) bringing it to production - I think the market will reward them."
Cash from the sale will also help cut Glencore's debt pile - Liberum analysts said a sale could free up around $3 billion of capital over the next two years. Satisfying China's appetite for concentrate, an intermediate product that feeds refineries and smelters, Glencore agreed to supply a minimum of 900,000 tonnes of copper to Chinese clients a year for 8 years from 2013.
The price for at least 200,000 tonnes will be priced in accordance with the benchmark level. Glencore also agreed to supply zinc and lead concentrate on "fair and reasonable" terms. Analysts said the conditions reflected China's desire to avoid being subjected to price movements created by external factors such as financing deals, which are locking away increasing amounts of metal into warehouses.
