The purchase includes a large open pit mine, three underground mines, two concentrators and a deep-water port.
In addition to paying $1.8bn in cash, Lundin may be required to pay $200m over the next five years if the average copper price exceeds $4 a pound. The acquisition of the Chilean mine will allow Lundin to increase copper production to around 124,800t a year, and also enter into South American markets.
Lundin Mining CEO and president Paul Conibear said: "The acquisition of Candelaria is a unique opportunity to acquire a large-scale, high-quality copper operation with strong cashflows in an excellent mining jurisdiction.
"Candelaria is a well run, renowned asset with superb infrastructure and an experienced operating team.
"This transaction further enhances our company by providing increased operational and geographic diversification, using a balanced financing structure which allows us to maintain a strong balance sheet going forward."
Lundin plans to finance the deal through $1bn in new senior-secured debt, $600m from the sale of shares and $648m from the sale of 68% of Candelaria’s gold and silver production to Franco-Nevada.
The Candelaria mine is expected to produce 156,000t of copper, 97,000oz of gold and 1.9 million ounces of silver this year, with a further 14 years of mine life and a possibility of an extension to it.
Japan’s Sumitomo will continue to own the remaining 20% in the mine.
Proceeds from the sale of the Chilean copper operations will allow Freeport to reduce its debt, which is currently around $20bn. The company expects to gain $450m after-tax from the transaction.
Freeport said in a statement: "This transaction represents another important step in our on-going debt reduction plan and follows the completion of our $3.1bn sale of Eagle Ford shale assets in June."
In July, the company announced plans to reduce its debt to $12bn by 2016 by selling onshore energy assets worth $4bn to $5bn, Bloomberg reported.