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Old 09-25-2015, 07:56 AM   #1
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Doodoo ZH: Glencore the next AIG (Lehman precipitator)?

Quote :
...
Long story short: if and when Glencore loses its Investment Grade rating, it's more or less game over, if not for the company's already mothballed mining operation then certainly for its trading group, where "junking" would lead to numerous collateral shortfalls and margin call waterfalls, reminiscent of the ratings agency downgrade of AIG that culminated with the US bailout of the insurer.
...
Why is Glencore's IG rating so critical? As explained above, Glencore is really not so much the Lehman as the AIG of the commodity world: without an investment grade rating, a self-reinforcing collapse will begin that could ultimately terminate Glencore's trading desk, in the process liquidating one of the world's biggest commodity trading counterparties.
...
For those who enjoy playing with numbers, here is Goldman's real "Doomsday" scenario: the one which sees Glencore's IG rating stripped. As Goldman admits, all it would take is a small 5% drop in commodity prices from here:
...
http://www.zerohedge.com/news/2015-0...ce-next-lehman

TBTD (too big to downgrade)... Expect credit rating agencies to get creative in their need to readjust definitions, thresholds and requirements for various ratings if they need to...
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Old 09-25-2015, 10:15 AM   #2
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With the slow meltdown in China, that Glencore implosion is likely to come sooner than later. I don't see why they just don't unwind those positions rather than let it become Armageddon.
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Old 09-25-2015, 10:49 AM   #3
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Maybe they can't* unwind them.

*politically (think PPT lever) or economically
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Old 09-25-2015, 11:24 AM   #4
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Well, if they can't unwind them, they had best get ready for a global reset, because there isn't enough money in all the worlds treasuries to cover a collapse.
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Old 09-25-2015, 02:46 PM   #5
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Glencore down another 5.81% so far today. [GLCNF]

Not looking so hot.
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Old 10-02-2015, 08:02 AM   #6
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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. ...

According to the Bloomberg article, Glencore’s next step seen as selling future gold, silver output:
Quote :
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.
...
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:
Quote :
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.
https://srsroccoreport.com/mining-gi...pay-down-debt/

10% of one years production would be roughly 95K ounces gold (x $1150 = $10,9250,000) and 3.5M ounces silver (x $14.50 = $50,750,000). So at full market value, one year's worth of production is roughly $62M on the high side. Forced hedging means they are getting less than market value. Not sure how much less, but they must be selling 15-20 years worth of 10% production to make $1B. I wonder how stable their mine production is to work such a long term deal.
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