August 23, 2016 / 11:10 PM / 2 years ago

Glencore speeds up debt reduction with Australian copper mine deal

MELBOURNE (Reuters) - Glencore Plc (GLEN.L) has agreed to sell all the gold and a 30 percent stake in its Ernest Henry copper mine in Australia to Evolution Mining (EVN.AX) for A$880 million ($670 million), advancing the Swiss giant’s effort to pay down debt.

The logo of commodities trader Glencore is pictured in front of the company's headquarters in Baar, Switzerland, September 30, 2015. REUTERS/Arnd Wiegmann/File Photo

The deal will take Glencore nearer to its target of cutting debt to between $17 billion and $18 billion by the end of this year, while Evolution, Australia’s second-largest gold miner, said the stake would boost its gold output and cut its costs.

“This agreement recognizes Ernest Henry Mine as a world class copper-gold-silver mining operation with significant potential going forward,” Glencore said in a statement.

Glencore, which reports its half-year results later on Wednesday, is targeting asset sales of up to $5 billion this year, on top of $1.4 billion it has reaped from sales of future output of precious metals.

It has already raised $3.1 billion from the sale of just under half of its agricultural business, and is in talks to sell its Cobar copper mine and its coal rail business in Australia, which together could fetch close to $1.5 billion.

Evolution approached Glencore to buy the Ernest Henry mine some time ago but was told it was not for sale, Executive Chairman Jake Klein told Reuters.

So instead, Evolution, advised by Royal Bank of Canada, came up with the proposal to buy the mine’s gold and set up a partnership with Glencore by taking an economic stake. It is also in talks to drive exploration around the mine.

“This was a meeting of the minds,” Klein said in an interview. “It’s one of those innovative transactions where each party has got what they want out of the deal. For us it’s gold and for them copper.”

Evolution would receive all of the gold produced by Ernest Henry for its current 11-year mine life, as well as 30 percent of the copper, which it would sell back to Glencore, offsetting gold production costs.

The deal will boost Evolution’s gold output by about 88,000 ounces a year, extend the life of its reserves, and lower its all-in sustaining cost of production by 7 percent to A$930 an ounce. That compares with the current gold price at A$1,760.

“It definitely improves the quality of our portfolio,” Klein said.

Evolution plans to raise A$401 million through a sale of new shares priced at A$2.05 a share, a 16 percent discount to its close on Tuesday, to help fund the deal.

Evolution produced 735,000 ounces of gold last year from six mines, excluding the Pajingo mine which it recently agreed to sell.

Reporting by Sonali Paul; Editing by Richard Pullin

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