Glencore (LON:GLEN) May Sell Its Gold and Silver Streams

October 1st, 2015 by

If there’s one story in the mining sector that commodity investors simply cannot stop talking about, it’s the apparent swift demise of Glencore Plc (LON:GLEN). Glencore is among the world’s leading copper miners; until recently, it operated the world’s largest copper mine at the Gasberg Mine in Indonesia. Over about the last 3 weeks, the company’s share price has halved. This is a continuation of a broader downward slide: the stock had lost as much as 80% of its value over the preceding 52 weeks until shares of GLEN rallied the past few trading days. What once traded at nearly $350 per share just a year ago is currently worth less than $100/share.

glencoreAs part of its larger debt restructuring plans, Glencore now plans to sell off some of its future gold and silver production at mines in Australia, Latin America, and Central Asia. Although far better known for its copper business and its massive commodities trading desk, Glencore does produce about 1 million ounces (over 30 tonnes) of gold and 35 million ounces (over 1,000 tonnes) of silver each year.

The company hopes to raise $1 billion through the asset sales.

While Glencore searches for ways to raise funds and pay down debt even amid stubbornly low commodity prices, shareholders have been searching just as desperately for exits from their positions. Panicked selling of Glencore stock has sent daily trading volumes for GLEN over the last 6 weeks skyrocketing to 4x to 5x their previous averages. Where 50 million trades during one session was a pretty busy day in the past, Glencore has been seeing nearly 300 million of its shares changing hands in single trading days during September.

Note the pattern of trading volumes at the bottom of the chart. Source: Google Finance

Note the pattern of trading volumes at the bottom of the chart. Source: Google Finance

Shares of GLEN were about 60¢ lower (-0.67%) on Thursday morning. Meanwhile, competitors like BHP Billiton (LON:BLT; NYSE, ASX:BHP) (+2.5%), Anglo American (LON:AAL) (+1.3%), and Rio Tinto (LON, NYSE, ASX, SWX:RIO) (+0.8%) all looked to gain at Glencore’s expense.

After Glencore Example, Barrick Follows Suit

While Glencore’s attempts to cut its debt and revamp operations is looking more and more like an inevitable train wreck, they are far from the only miner forced to deal with such hard realities. Barrick Gold (NYSE, TSX:ABX), who has similarly seen its shares fall by 50% over the course of the last 6 months, is being forced to explore the same debt-slashing measures as their larger counterpart.

Source: BullionStreet.com

Source: BullionStreet.com

Barrick has reached a deal to spin off its stake in Australia’s largest open-pit gold mine, a joint venture with Newmont Mining (NYSE, SWX:NEM; TSX:NMC) that is known as the Super Pit. The sale is reportedly worth a total of $2.8 billion.

Moreover, Barrick will also be selling its ownership in the Pueblo Viejo gold and silver mine in the Dominican Republic. The buyer, Royal Gold Inc. (NASDAQ:RGLD; TSX:RGL), will be entitled to portions of the gold and silver output from Barrick’s Pueblo Viejo operations in a tiered agreement where Royal Gold pays Barrick a fraction of gold’s spot price in return for the stream of metals.

The bite of lower prices is hurting companies across the mining industry—particularly those that focus on precious metals. Junior miners who are less deeply entrenched in mature mining ventures have outperformed the majors of late, but a reversal in the downtrend for PM prices would change the landscape very quickly.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.