Glencore shares soar on faster than expected debt reduction

Glencore’s CEO Ivan Glasenberg is trying hard to reassure nervous investors and creditors that the company can cope with its hefty debt load amid the latest commodities rout.

Shares in debt-laden Glencore (LON:GLEN) climbed on Wednesday after the mining and commodities giant said it is turning it around faster than expected following a series of asset sales, production cuts, and a key silver streaming deal from the Antamina copper mine it co-owns with BHP.

The stock was up almost 8% to 128.85p in early afternoon trading in London, and almost 15% higher than the opening price on Monday, after Glencore said it would cut its net debt to $25 billion by year-end and to $20 billion by the end of 2016.

The news, contained in a quarterly production report, reinforced the positive sentiment that followed the company’s late Tuesday announcement of a deal with Canadian Silver Wheaton (TSX, NYSE:SLW).

Under the agreement, the Vancouver-based miner owns the rights to Glencore’s future silver output from Antamina for $900 million upfront plus ongoing payments equal to a fifth of the market price of the precious metal.

The deal will last as long as the Antamina mine is producing silver, Silver Wheaton said in a separate announcement Tuesday.

Source: Yahoo Finance.

Streaming companies typically provide a chunk of cash to metal producers in exchange for a “stream” of their output down the road.

These sorts of contracts are becoming popular among miners in need to cash, but they are also a sign of increasing stress in the industry, experts say, since companies are exchanging future revenue, and the potential upside in prices, for a quick funds injection.

More cuts

Faced with diving metals prices, the Swiss company has also announced major production cuts for two of its most important mined commodities, copper and zinc, in an effort to boost prices that have dropped to the lowest level since the financial crisis due mainly to China’s slowdown.

Glencore now expects to reduce copper production by 455,000 tonnes, up from its previous forecast of 400,000 tonnes, by suspending operations at two mines in Africa — Katanga in Democratic Republic of Congo and Mopani in Zambia.

But Zambia’s President Edgar Lungu, is planning to make Glencore’s plan difficult, as he said in state television late on Tuesday that he would not let the company’s local unit to cut about 4,000 jobs, Bloomberg reports.

He added that the country, which is Africa’s No.2 copper producer, will find other investors to take over mining operations if the current owners can’t keep them running.