Glen­core close to cre­at­ing min­ing roy­alty com­pany

The Globe and Mail (BC Edition) - - REPORT ON BUSINESS - TOM WIL­SON SCOTT DE­VEAU JACK FARCHY

Glen­core PLC is close to fi­nal­iz­ing a $700-mil­lion deal with the On­tario Teachers’ Pen­sion Plan to cre­ate a new base-me­tals roy­alty com­pany, ac­cord­ing to peo­ple fa­mil­iar with the mat­ter.

The Swiss com­mod­ity gi­ant will bring roy­alty agree­ments from about 10 mines, while On­tario Teachers’ will con­trib­ute about $350mil­lion in cap­i­tal to al­low the com­pany to buy fur­ther roy­alty streams from other projects. Glen­core and On­tario Teachers’ will each have a 50-per-cent stake in the new ve­hi­cle and the deal is ex­pected to close in the next few weeks, the peo­ple said, ask­ing not be to iden­ti­fied as the talks are con­fi­den­tial.

The deal would cre­ate the world’s first ma­jor base me­tals-fo­cused roy­alty com­pany and is the lat­est move by Glen­core chief ex­ec­u­tive of­fi­cer Ivan Glasen­berg to ex­pand his con­trol of key com­modi­ties with­out ex­tend­ing his com­pany’s bal­ance sheet.

Glen­core and On­tario Teachers’ de­clined to com­ment.

The largest roy­alty stream in­cluded in the pack­age is Glen­core’s 33.75-per-cent stake in An­tam­ina in Peru, which pro­duces cop­per, zinc and sil­ver. Glen­core will also con­trib­ute sev­eral smaller streams it owns from other mines in South Amer­ica and Canada, the peo­ple said.

Roy­alty com­pa­nies nor­mally re­ceive a reg­u­lar per­cent­age of fu­ture metal sales in re­turn for up­front cap­i­tal to help bring a mine into pro­duc­tion. For On­tario Teachers’, the ve­hi­cle of­fers a new way to in­vest in the me­tals mar­kets as the out­look for ma­te­ri­als in­clud­ing cop­per, zinc and nickel strength­ens. While roy­alty and stream­ing com­pa­nies such as Franco-Ne­vada Corp. and Wheaton Pre­cious Me­tals Corp. have been suc­cess­ful in pre­cious me­tals, there’s no large roy­alty com­pany spe­cial­iz­ing in base me­tals.

For Glen­core, the roy­alty com­pany will also pro­vide a way to se­cure fur­ther metal sup­plies for its pow­er­ful mar­ket­ing busi­ness with­out us­ing its own bal­ance sheet. Through the new ve­hi­cle, Glen­core will be able to use On­tario Teachers’ cash con­tri­bu­tion to fi­nance ju­nior min­ing com­pa­nies in re­turn for roy­alty streams and ex­clu­sive mar­ket­ing deals.

Glen­core is the world’s big­gest com­mod­ity trader and de­pends on its close re­la­tion­ships with pro­duc­ers to ac­cess vol­umes to trade. It deals in al­most 100 raw ma­te­ri­als, in­clud­ing oil and agri­cul­tural prod­ucts, de­liv­ered from a com­bi­na­tion of its own mines, in­dus­trial fa­cil­i­ties and third-party sup­ply con­tracts.

The trans­ac­tion fol­lows a se­ries of steps it has taken to stream­line its bal­ance sheet since a col­lapse in its shares in 2015 driven by con­cerns about its in­debt­ed­ness. It sold 49 per cent of its agri­cul­ture unit to two Cana­dian pen­sion funds last year, cre­at­ing a new com­pany with its own bal­ance sheet, which isn’t guar­an­teed by Glen­core it­self.

Glen­core cut its net debt to $13.9bil­lion by June, down more than 60 per cent from mid-2014, and has re­cently an­nounced ac­qui­si­tions in­clud­ing a stake in Latin Amer­ica’s top zinc miner and an­other in some of Chevron Corp.’s African oil as­sets.

The roy­alty deal comes as bankers and bro­kers say large in­vestors are look­ing to re­turn to in­dus­trial me­tals af­ter sev­eral years on the side­lines. Some in­vestors have even placed bets on cop­per re­turn­ing to record highs above $10,000 a met­ric ton.

Glen­core and On­tario Teachers’ could even­tu­ally seek to list the ve­hi­cle, one of the peo­ple said, but added that there were cur­rently no con­crete plans for an ini­tial pub­lic of­fer­ing.

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.