Glencore is seeking to raise more than $1 billion by selling future production of gold and silver as it works to stave off criticism over its debt load, according to sources.
The company wants to raise money in a so-called precious metals streaming deal linked to some of its mines in South America, according to the sources.
The transaction is part of Glencore’s broader restructuring to reduce its $30 billion debt pile by about a third and bolster its finances to withstand a continuing slide in commodities.
“They do have a lot of options that could be of interest to people,” Edward Sterck, an analyst with BMO Capital Markets, said.
Possible deals could include selling silver output from its Collahuasi or Antamina operations in South America, he said.
Glencore, faced with a collapsing share price and credit default swaps that signal a 50 per cent chance of default in five years, is battling worries that the company accumulated too much debt during the years of soaring commodity prices.
It endured its two biggest share-price swings ever this week, with the stock plunging 29 per cent on Monday and then rebounding 17 per cent the next day. It rose as much as 14 per cent on Wednesday.
A spokesman for Glencore declined to comment.
The company produced 35 million ounces of silver last year and 955,000 ounces of gold from mines in South America, Kazakhstan and Australia.
The company’s negotiations in the streaming deal are likely to attract interest from the small group of companies, such as Silver Wheaton, that specialise in the transactions, which give miners upfront payments in exchange for metal that’s later sold.
Other companies involved in those kind of sales include Franco Nevada.
Silver Wheaton chief executive officer Randy Smallwood said last week he was interested in bidding on streams that Glencore may want to sell. He is pursuing $5 billion of royalty deals, another term for the transactions.
Some of the world’s biggest mining companies including Barrick Gold and Brazil’s Vale have sought the sales to increase cash as commodity prices slump.
Glencore could raise $1 billion to $1.5 billion by selling 10 per cent of its gold output through streaming deals, Macquarie Group said in a report on Tuesday. That means there's "substantial scope" to conclude more of the transactions, the bank said.
JPMorgan Chase analysts wrote in a note to clients on Wednesday that it sees the company being able to raise more than $1 billion.
Aside from its South American mines, Glencore could also look to sell a gold and silver stream from its Kazzinc project in Kazakhstan, BMO’s Edward Sterck said.
Glencore owns about a third of the Antamina copper operation in Peru. Teck Resources, which has a 22.5 per cent stake in the mine, previously said it would consider selling silver streams to increasing liquidity.
Macquarie estimates that a precious metals stream for 100 per cent of production at Glencore’s Antamina, Collahuasi and Antapaccay mines is worth $1.3 billion. ‘
“They are in jurisdictions the North American streamers are very comfortable working in,” Michael Siperco, vice president of mining equity research at Macquarie, said. David Harquail, the CEO of Franco-Nevada, declined to comment on whether it’s interested in Glencore assets.
- Bloomberg
