Glencore raises US$900m by selling future silver output

TORONTO (BLOOMBERG) - Glencore sold a share of its future silver output in a deal that includes a US$900 million (S$1.25 billion) upfront payment, as the trading and mining company works to cut its US$30 billion debt pile by about a third amid tumbling commodity prices.

The deal includes Silver Wheaton Corp. paying 20 per cent of the spot price per delivered per ounce, Glencore said in a statement on Tuesday (Nov 3). Silver Wheaton will receive an amount equal to 34 per cent of silver production at the Antamina mine in Peru until the delivery of 140 million ounces and the equivalent of 23 per cent of silver production thereafter, said Glencore.

The agreement by Glencore follows a similar deal by Teck Resources Ltd. to sell its share of silver at Antamina to Franco-Nevada Corp. Surging credit costs and volatile stock markets have made so-called streaming deals attractive to producers seeking to contain debt as slumping prices squeeze margins. The deals give miners upfront payments in exchange for metal that's later sold.

Silver Wheaton is pursuing US$5 billion of streaming deals as tumbling metal prices pressure producers into selling, chief executive officer Randy Smallwood said in September.

Glencore shares rose 3.3 per cent to 119.45 pence in London trading on Tuesday. Trading of its Hong Kong shares was suspended on Wednesday (Nov 4) pending the release of details of production in the September quarter and a corporate update, it said in a separate statement.

Silver Wheaton said it expects the stream to boost its silver production to 55 million equivalent ounces a year by 2019, from 44.5 million this year. The stream will add 5.1 million ounces next year and in 2017, it said.

Glencore is seeking to cut its debt under a plan announced in September in response to investor concern about its capacity to repay borrowings after a commodities collapse. That plan includes the already completed sale of US$2.5 billion of new stock, asset sales, spending cuts and suspending the dividend.  Chief executive officer Ivan Glasenberg said Glencore would target at least US$2 billion from asset sales, including a minority stake in its agriculture unit and a precious metals streaming transaction.