Australian mining company South32 has signed an agreement with Sumitomo to buy a 45% stake in the Sierra Gorda copper mine in Chile for $2.05bn.

The transaction amount include an upfront cash payment of $1.55bn and a contingent price-linked consideration of up to $500m, which will be paid at threshold copper production rates and prices in the years 2022-25.

Located in the Antofagasta region, Sierra Gorda is a conventional open pit mine that was commissioned in 2014.

With a mine life of more than 20 years, it holds a copper-molybdenum-gold sulphide mineral reserve of more than 1 billion tonnes.

Sierra Gorda is estimated to produce 180kt of copper, 5kt of molybdenum, 54koz of gold and 1.6Moz of silver this year.

The deal involves the purchase of a 45% indirect interest in Sierra Gorda S.C.M. from Sumitomo Metal Mining and Sumitomo Corporation.

The acquisition is expected to enable South32 to have a joint control on the copper mine alongside 55% joint venture partner KGHM Polska Miedz (KGHM), a Polish miner.

South32 Chief Executive Officer, Graham Kerr said: “We are actively reshaping our portfolio for a low carbon world and the acquisition of an interest in Sierra Gorda will increase our exposure to the commodities important to that transition. Copper is a critical metal in the decarbonisation of the world’s energy networks and has strong long-term market fundamentals.

“Adding Sierra Gorda further improves our portfolio and is expected to immediately lift Group margins and earnings, supporting future shareholder returns while retaining strength and flexibility in our Balance Sheet.”

South32 intends to fund the transaction through a combination of cash on hand and an underwritten $1bn acquisition debt facility.

The transaction is expected to be completed around the end of 2021, subject to conditions including competition and regulatory approvals.

According to the company, Sierra Gorda mine has seen a capital investment of nearly $5bn to 2020 and benefits from advanced processing equipment.

The mine is serviced by existing infrastructure that consists of renewable power and a seawater pipeline. The operation also has access to the ports of Antofagasta and Angamos through freight rail and a national highway.

Kerr said: “The transaction expands our operating and development presence in the Americas and provides exposure to a long-life asset with a large resource base. The operation has existing opportunities to unlock further upside through improved production efficiency, resource expansion and exploration.”