By Scott Patterson
The next installment in Glencore PLC's plan to cut its debt is
likely to be a fund-raising method called "streaming" that is
becoming popular among miners in need of cash, and is a sign of
mounting pressure on the industry.
Glencore executives, including Chief Executive Ivan Glasenberg,
said in a meeting with fund managers in New York on Wednesday that
the company expects to raise between $1 billion and $1.5 billion
from streaming deals, according to people familiar with the
presentation.
In these deals, miners get an upfront, lump-sum payment from
so-called streaming companies in exchange for the future delivery
of precious metals like gold and silver. The streaming companies
take delivery of the materials--the "metal stream"--which they
either sell or store, hoping prices rise.
Glencore needs cash quickly to follow through on a pledge to cut
its net debt by $10 billion this year. It has already issued $2.5
billion in new shares, promised another $2.4 billion by cutting
dividends, and is trying to sell a stake in its agricultural
business. The company is also looking for buyers for some its
oil-and-gas assets, according to people familiar with the
matter.
Investors concerned about Glencore's net debt of nearly $30
billion have sent the Swiss miner and trader's stock price on a
wild ride. The stock is down more than 50% this year, and it
plunged nearly 30% on Sept. 28 before recovering in recent days.
Glencore has said its business "remains operationally and
financially robust" and that the company has "absolutely no
solvency issues."
The company joins other miners increasingly seeking out
streaming deals, market experts say. A slide in commodity prices,
sparked by an economic slowdown in China, has depleted
mining-company balance sheets, and high debt loads are raising
concerns.
Miners are also having trouble raising cash on the stock market,
because investors generally aren't enthusiastic about investing in
the companies as commodity prices hover near multiyear lows.
Streaming deals are an alternative source for a quick infusion of
funds.
Silver Wheaton Corp., a Vancouver streaming company, launched
the industry in the early 2000s. Now, there are about 50 firms
offering streaming deals, roughly double the number five years ago,
according to Neil Passmore, chief executive of Hannam &
Partners, a London firm that advises clients on streaming
deals.
"There's tens of billions of capital available" for miners
interested in the deals, Mr. Passmore said.
In 2014, Silver Wheaton pulled in 25.7 million ounces of silver
from streaming deals, nearly 60% more than it got from such deals
in 2009.
"This is the best I've ever seen it in terms of opportunities,"
said Randy Smallwood, chief executive of Silver Wheaton, speaking
of the market for streaming deals.
Miners enter the deals for a variety of reasons. They might use
the cash to expand their operations or purchase other assets. They
might also need it to finance ongoing operations and pay off
debt.
But the deals also carry risks, experts say. Miners are
exchanging future revenue, and the potential upside in prices, for
a quick infusion of cash.
They can also be seen as signs of desperation, indicating
trouble with mining operations and concerns about a miner's ability
to fund its business in a commodity downturn.
Mr. Smallwood of Silver Wheaton said a number of deals his
company has done recently are "repairing" balance sheets of miners.
"We're applying medicine," he said.
Glencore has become the poster child for such concerns and is
racing to raise cash.
The streaming deals could be a quicker way to raise cash than
asset sales.
A deal to sell some of the firm's agriculture assets, for
example, isn't likely to be reached before year-end because of its
complicated nature, according to a banker familiar with the talks.
Japanese trading house Mitsui & Co. and Singapore's
sovereign-wealth fund have expressed interest in a sale that could
fetch between $2 billion and $3 billion, according to people
familiar with the discussions.
The streaming deals could be announced within days or weeks, say
people familiar with the discussions. The miner has been holding
discussions with streaming specialists such as Silver Wheaton and
Franco-Nevada Corp., according to people familiar with the talks.
Franco-Nevada didn't respond to a request for comment.
Glencore previously struck a deal to provide silver to Silver
Wheaton in 2006. Silver Wheaton agreed to purchase up to 4.75
million ounces of silver a year for 20 years from Glencore's
Yauliyacu mining operation in Peru in exchange for $285 million,
plus about $3.90 per ounce of silver as it is delivered. As part of
the deal, Silver Wheaton has the right of first refusal on any
future silver streaming deals offered by Glencore.
Last week, Teck Resources Ltd., a Vancouver miner, said it
struck a deal to deliver silver from its share of the Antamina mine
in Peru to Franco-Nevada for $610 million.
Citigroup Inc. analysts said the deal is a "positive
development" for Glencore, which owns about one-third of the
Antamina mine. Glencore has said it is also holding discussions to
sell silver from the mine.
Citigroup said Glencore could get about $915 million from a
silver streaming deal at Antamina, based on the deal with Teck
Resources, which owns 23% of the mine.
Glencore is also in discussions to sell precious metals in
streaming deals from its stake in a Chilean copper mine,
Collahuasi, and Antapaccay, a copper mine in Peru.
Write to Scott Patterson at scott.patterson@wsj.com
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(END) Dow Jones Newswires
October 11, 2015 10:56 ET (14:56 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.
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