Glencore Says It Is Cutting Debt Faster Than Expected
Commodities group is aiming to reduce net debt by $10 billion by the end of the next year\
By
Alex MacDonald and Scott Patterson
Updated Nov. 4, 2015 8:11 a.m. ET
LONDON— Glencore PLC is cutting its net debt faster than expected and its trading arm is on track to meet earnings expectations this year, the Swiss commodities giant said Wednesday.
The company aims to cut $10 billion in net debt by the end of 2016. Analysts said those plans seem to be running ahead of expectations, with the company on track to reduce net debt from nearly $30 billion to $25 billion by the end of this year, just four months after announcing its reduction plan.
Glencore’s share price, which had been falling all year, tumbled almost 30% in one day on Sept. 28 as investors grew concerned that the company couldn’t weather a prolonged slump in the price of commodities it mines and trades, such as copper and coal.
The share price has recovered more than 70% since then—it was up 7.5% late Wednesday in London. But stock in the world’s third-largest miner by market capitalization has been trading unpredictably on a near daily basis and is still down more than half for the year.
The company has been issuing regular updates on its progress toward cutting its debt. People close to the company said it is actually aiming to reduce more debt than announced in a bid to improve its credit rating, which, while investment grade, is two notches above what is commonly called junk. Such a rating is high for a trading company but low among the world’s top miners.
A combination of moves has put Glencore on a faster track for debt reduction: It issued $2.5 billion in new stock, is raising $900 million from a sale of the rights to some of its silver and has made meaningful progress to reduce its working capital, long-term loan advances and capital spending.
“This was as good a denouement to the end of very volatile quarter as one could realistically expect,” Barclays analysts said in a note.
The company also suspended two dividend payments valued at $2.4 billion, helping the company repay $2 billion in debt and repurchased $400 million in bonds since the end of September. On Wednesday, the company said it was close to securing a second deal similar to its sale of its silver production as part of its plan to raise $2 billion from asset sales.
Glencore also sought to reassure investors about its trading division, which became a flash point in recent months as investors fretted that the company could lose its investment-grade status. That could increase the cost of funding the company’s commodities trading and eat into profits of a division that drives a large part of its earnings.
Glencore said the trading arm, which the company calls its marketing division, is on track to generate between $2.5 billion and $2.6 billion in adjusted earnings before interest and taxes this year.
“Marketing was stronger over the quarter, with improved contributions from metals and minerals and agricultural products,” Glencore said.
Glencore normally doesn’t provide a quarterly update about the trading division, which has been dubbed a “black box” by some investors because of its lack of transparency.
The company also said it would reduce its copper output by a further 55,000 metric tons, on top of the 400,000 tons already announced.
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Wed Nov 4, 2015 6:50am EST
UPDATE 2-Glencore agrees streaming deal with Silver Wheaton to cut debt
By Nicole Mordant
VANCOUVER Nov 4 (Reuters) - Glencore Plc has agreed to sell future silver output to Silver Wheaton Minerals for $900 million in cash in a so-called "streaming" deal, the two companies said on Tuesday.
Glencore, a global miner and trading company whose shares have been under pressure due to investor concerns about its debt, said it will use the funds to reduce debt.
It said it would be using its share of production at the Antamina mine in Peru as a reference point to deliver silver from elsewhere across it portfolio.
Glencore owns 33.75 percent of Compañía Minera Antamin (CMA), which owns and operates the Antamina mine. CMA was not a party to the agreement, Glencore said.
Streaming transactions are a type of alternative financing in the mining industry where funds are provided upfront to a miner in exchange for the sale of a fixed amount of future, usually by-product, production at a discounted price.
This type of alternative finance has been emerging as the new go-to funding for miners bowed by debt as weak share prices, courtesy of a four-year commodities' downturn, make raising equity and other types of finance expensive and difficult.
Glencore said in September that about $2 billion of a $10 billion debt reduction plan it had unveiled will come from asset sales, which could include precious metals streaming transactions.
In terms of the transaction, Vancouver-based Silver Wheaton will also make ongoing payments of 20 percent of the spot price for silver for every ounce of metal delivered.
Glencore will deliver silver equivalent to 33.75 percent of silver produced at Antamina to Silver Wheaton until 140 million ounces is reached. After that, the stream will be reduced to 22.5 percent of the silver produced at Antamina.
Reuters reported in September that Glencore was in talks with Franco-Nevada Corp, Silver Wheaton, Royal Gold Inc and two other companies to sell portions of the future production of three South American copper mines, including Antamina.
Silver Wheaton pioneered the streaming concept more than a decade ago.
The company said it would fund the $900 million from cash on hand and also dip into its $2 billion revolving credit facility.
Glencore's partners in the Antamina mine are BHP Billiton , also with 33.75 percent, Teck Resources with 22.5 percent and Mitsubishi Corp with 10 percent.
Teck Resources did a streaming transaction on its stake in the Antamina mine last month, raising $610 million, to help cut its debt. (Reporting by Nicole Mordant in Vancouver; Additional reporting by Olivia Kumwenda-Mtambo in Johannesburg; Editing by Bernard Orr and Susan Fenton)
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(it appears that Glencore has weathered the storm......... editorial note by JP) |
