Exclusive: JPMorgan poised to sell U.S. metal concentrate unit

SANTIAGO (Reuters) - JPMorgan Chase & Co is close to selling its U.S. metal concentrates trading arm and could announce a deal as early as Monday, two sources who were informed of the deal told Reuters this week.

The divestment, while likely small in dollar terms, would come just months ahead of a deadline to sell off parts of the bank's enlarged commodity trading operation that do not meet Federal Reserve regulations. JP Morgan had two years to comply after it bought the bulk of RBS Sempra in 2010.

The size of the deal and identify of the buyer were not clear, but sources said most large merchant traders had examined the Stamford, Connecticut-based business, a mid-sized player in the niche market for trading concentrate ore that has been crushed and milled to remove waste and increase the metal.

Philip Bacon, who runs JPMorgan Metal & Concentrate LLC, told customers and traders at this week's CESCO copper industry conference in Santiago, Chile, that they hoped to announce a deal by Monday, two sources who met with the team told Reuters.

A JP Morgan spokeswoman declined to comment.

The concentrates team, which includes a handful of senior traders, had to miss Wednesday night's CESCO dinner, one of the metal and mining industry's biggest events of the year, to fly back to the United States to finalize the last remaining details of the deal, the sources said.

The announcement could yet slip a few days, but the team expects to inform customers by the end of next week, they said. The sale does not including the bank's physical copper and aluminum trading desks in Singapore and London and its much-larger metal futures trading and brokerage operations, which includes its London Metal Exchange ringdealing membership.

The unit trades copper, zinc and lead concentrates, as well as physical base metals, mainly copper and aluminum. The base metal book is run by Brian Ahern, they said.

"It makes sense. They'll have a full offering that way," said one source who had spoken to the team about the sale.

Bacon and Ahern did not return calls for comment. Speculation about the identity of the buyer was rife at the conference, but Bacon and his team told customers they would not disclose it until it was official.

Most large international trading houses have taken a look at the business, but did not pursue the purchase, one trader said.

"I don't know who's going to buy them, everyone's taken a look," said the trader, whose company - much larger than the JPM unit - had opted not to make a bid.

The sale seems unlikely to mar commodities chief Blythe Masters' recent success. After a rocky integration in 2010, Masters led the commodities division to record revenues topping $2.8 billion last year, exceeding long-time industry leaders Goldman Sachs Group Inc and Morgan Stanley for the first time.

The sale of the unit, initially reported by Reuters in March, has heightened speculation about the future of Wall Street's growing role in physical commodity markets.

While the Federal Reserve has over the past decade allowed a dozen banks to freely trade physical commodities such as crude oil, wheat and copper, it has drawn a line at allowing regulated banks to own and operate hard assets, unless they do so at arm's length under merchant banking terms.

Morgan Stanley and Goldman Sachs were given five years to comply with regulations after they converted to holding companies during the 2008 financial crisis. But JP Morgan had a tighter time frame after its $1.7 billion acquisition of RBS Sempra's global metals and oil business in July 2010.

Because concentrates are not traded on any derivative exchange, the U.S. Federal Reserve had already required RBS to divest or shut down the business within two years when it granted approval to the UK bank's acquisition of a stake in Sempra Commodities in 2008, according to its published order.

Now additional questions are being asked about the future of UK-based Henry Bath, the global metals warehousing firm, because the Federal Reserve previously barred the Royal Bank of Scotland Group Plc from owning such assets.

The bank has not received any explicit authorization from the Fed to carry on operating the business, sources told Reuters last month. Talks with the Fed are ongoing, sources say.

CONCENTRATED BUSINESS

The trading team is well respected, although it is thought to be dwarfed by the bank's London-based physical metal trading business, sources said. The unit traces its history back to MG Metals, the Metallgesellschaft operation that dominated the metals market in the 1990s and was later bought by Enron.

It can be a hugely profitable business through spot or long-term contracts. When mine output falls, so do charges that miners pay smelters to treat and refine their material as smelters scramble for raw material.

JPMorgan Metals & Concentrates has at least three agreements to buy concentrate that produce the equivalent of about 43,000 metric tons (47,399 tons) of copper metal and 23,000 metric tons (25,353 tons) of zinc metal per year from Australian copper and zinc mines run by companies, including Hillgrove Resources Ltd and Straits Resources Ltd .

(Editing by Andre Grenon)

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