GLNCY Glencore Plc (PK)

By Scott Patterson And Alex MacDonald 

Glencore PLC said late Tuesday it had entered a long-term deal to deliver silver to Silver Wheaton Corp. in exchange for $900 million and other payments.

The deal is a key part of the $10 billion debt reduction plan Glencore unveiled in September. The Swiss miner and commodities trader is scrambling to pare down its nearly $30 billion in debt amid concerns that the prices for the commodities it mines and sells could continue to fall sharply.

The "streaming" deal is expected to be made final by the end of November, Glencore said. The company said it would deliver about 34% of the silver produced by the Antamina mine in Peru, which is equivalent to its stake in the mine.

A Glencore spokesman said the silver provided to Silver Wheaton won't come entirely from Antamina, but will be based on the production of Glencore's share in the mine.

Streaming companies typically provide a chunk of cash upfront to miners in exchange for a "stream" of precious metals down the road. They can make a windfall if prices rise after the time they strike the deals.

Streaming deals have become increasingly popular for miners looking to raise cash quickly, but they are also a sign of rising stress in the mining industry, experts say, since miners are exchanging future revenue, and the potential upside in prices, for a quick infusion of funds.

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.

Silver Wheaton, 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.

On top of the $900 million payment, Silver Wheaton will pay 20% of the spot price of silver at the time of delivery. The deal will last as long as the Antamina mine is producing silver, Silver Wheaton said in a separate announcement Tuesday. After the delivery of 140 million ounces of silver, Glencore will provide about 23% of silver production from the mine.

Glencore announced in early September a raft of measures to safeguard its credit rating, promising to cut net debt by a third to about $20 billion by the end of next year. The company has 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, which could raise billions more.

But its stock has gyrated wildly since then, falling 29% in one day on Sept. 28 and then rising more than 70% since then. A downgrade of Glencore's credit rating by two notches to junk levels would harm its debt-fueled trading business by making it more expensive to finance its trades.

Glencore said in September it expects to get $2 billion from the sale of assets and streaming deals, in which the company agrees to provide a stream of gold or silver to another firm in exchange for an upfront payment of cash.

The deal's terms appear roughly in line with analyst estimates of what Glencore could fetch. Some analysts had expected Glencore to pull inasmuch as $1.5 billion from streaming deals.

The company could announce other deals in the near future.

Last month, Teck Resources Ltd. secured $610 million in cash as an advance on its 22% share of silver production from the Antamina mine in which Glencore and BHP Billiton each hold a 33.75% stake. Based on the Teck deal, Glencore could receive $915 million for a similar streaming deal, Glencore's corporate broker Citigroup estimated in a note then.

Glencore produced 955,000 troy ounces of gold and about 35 million ounces of silver last year. Antamina accounted for 4 million ounces or 12% of Glencore's total silver output last year.

Write to Scott Patterson at scott.patterson@wsj.com and Alex MacDonald at alex.macdonald@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

November 03, 2015 19:50 ET (00:50 GMT)

Glencore (PK) (USOTC:GLNCY)
Gráfico Histórico do Ativo
De Jun 2024 até Jul 2024

Glencore (PK) (USOTC:GLNCY)
Gráfico Histórico do Ativo
De Jul 2023 até Jul 2024