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Mining Giant Glencore To Sell Gold & Silver Output To Pay Down Debt

by Steve St. Angelo, SRS Rocco Report:

In an ironic twist of fate, the mining conglomerate Glencore is seeking to pay down its massive debt by selling future gold and silver output.  While this is only part of its solution to pay down a third of its $30 billion in debt, it’s quite interesting that the company is selling forward production of two of the most despised monetary metals in the Mainstream Media.

According to the Bloomberg article, Glencore’s next step seen as selling future gold, silver output:

The company is seeking more than $1 billion in a so-called precious metals streaming deal linked to some of its mines in South America, according to two people familiar with the situation, who asked to not be identified because the talks with potential buyers are private.

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.

… 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 Corp., that specialize 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 Corp.

What wasn’t stated in the article was the selling of a percentage of Glencore’s gold and silver production was in fact a “Forced hedging strategy.”  Thus, Glencore’s massive debt burden has forced them to sell their future gold and silver at bargain-basement prices.

We must remember, Silver Wheaton pays between $4-$6 for silver and $400 for gold in its standard streaming agreements.  Glencore may start off by selling 10% of its gold production, but this might not be enough.  According to the Bloomberg article:

Glencore could raise $1 billion to $1.5 billion by selling 10 percent of its gold output through streaming deals, Macquarie Group Ltd. said in a report Tuesday. That means there’s “substantial scope” to conclude more of the transactions, the bank said. JPMorgan Chase & Co. 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 Sterck said. Glencore owns about a third of the Antamina copper operation in Peru. Teck Resources Ltd., which has a 22.5 percent stake in the mine, previously said it would consider selling silver streams to increasing liquidity.

The interesting part of the quote above we need to highlight is, JPMorgan Chase & Co. analysts wrote in a note to clients on Wednesday that it sees the company being able to raise more than $1 billion.”

 

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11 comments to Mining Giant Glencore To Sell Gold & Silver Output To Pay Down Debt

  • JD

    Who on earth would take on a streaming agreement with a company that is about to go bust???

    • glitter 1

      Good question,I’m sure that Silver Wheaton et al would require guarantees like ownership of the asset as collateral,otherwise SW forks over money only to stand in line to collect ? in the event of/during bankruptcy proceedings.I have to think/believe that they,SW,knows what they are doing.

      • Ed_B

        Here’s another good question… “Why would Glencore sell forward an asset for 30 cents on the dollar?”. Would it not make more sense to borrow cheap money on which to run the business and sell the current production at FULL value? It would to me. If the banks need some incentive, proof of mineral assets should be sufficient. If not, then make a deal with the Chinese or Indians for re-payment of any borrowed money in gold and silver at market value. Selling an asset forward for cheap is an act of desperation and is likely doomed to fail on more than one level. Buying some Glencore puts seems in order.

        • Christine

          Ed B,.

          Those are good comments. But this article appears to tell us everything we need to know: “…by selling future gold and silver output.” The key word is “future”. Glencore has no tangible assets, nothing in hand, not even a lousy, damn bird.

          Like every corporation worldwide, Glencore is overextended in fiat paper.

        • The Truth

          Yes @Christine. The only reason they would sell future production is because they have no current production. This is another way of rehypothecating an asset that does not exist based on the probability it would exist at a later time. If any of us did this, we would have jail built and named after us. Today Glencore, and tomorrow when everything crashes it will be Encore!

  • Sam

    but but but…the demand for the, “tradition,” as Bernack says it, is going off the charts…perhaps, the price will keep on going down in that failed, “tradition” formerly known as mining???…after all, the real money being printed and digitized into existence is plentiful for those who keep the faith in the debt note scheme 8-/

  • dan

    CHINA WILL TAKE THIS GOLD,,,,,

  • Ryan

    Well they are probably making a loss on every ounce with current prices. Perhaps if they mine even more they can make up for the losses.

    • Ed_B

      If they are losing money on every ounce, then increased production volume is unlikely to resolve their financial issues. In spite of this, how will selling their gold and silver forward for 1/3 of its current market value be of any help to this company? It seems to be circling the drain as we speak.

      • Christine

        “Futures”. Gold and silver not yet mined but heavily gambled on. Re-hypothecation to infinity. Empty projections upon which they already borrowed so much that the only way they can go is… down.

        They are going to croak the same way, one by one. And in the meantime, Russia and China have been mining their own backyards like crazy and they have had NO legal obligation to tell anyone what their true reserves are since what never leaves the country does not need to be reported anywhere, to anyone.

  • Ryan

    Well they are probably making a loss on every ounce with current prices. Perhaps if they mine even more they can make up for the losses.

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