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:
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.
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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.