Glencore confirms production and metals streaming deal with $500m upfront

Glencore has agreed a $500m gold and silver streaming deal from its Antapaccay mine in Peru to help ease its balance sheet woe, as well as impressing with fourth-quarter production numbers.

The debt-burdened FTSE 100 group, which also posted its 2105 production report, expects to receive the $500m advance payment via its wholly owned Narila subsidiary before the end of the month in return for delivering 630,000 oz of gold, 10m oz of silver.

Analysts said this further insulated Glencore from the potential of a downgrade to its credit rating.

After those amounts are delivered, Narila will supply 30% of gold production and 30% of silver production thereafter in exchange for ongoing payments of 20% of the spot gold and silver price per ounce delivered, increase to 30% of the respective spot prices after 750,000 ounces of gold, and 12,800,000 ounces of silver have been delivered.

This transaction forms part of Glencore's debt reduction plans announced on 7 September.

Production for 2015 was reported pretty much as expected by the market, with copper down 3% to 1.5m tonnes after a 6% fall in the fourth quarter, zinc up only 4% to 1.4m tonnes after fourth quarter production was cut 20%, nickel was down 5% to 96,200 tonnes, ferrochrome up 12%, coal down 10%, oil up by 44%.

For 2016 guidance was also mostly as expected with copper of 1.39m tonnes, zinc, 1.10m tonnes, lead 285,000 tonnes, nickel 116,000 tonnes, ferrochrome 1.58m tonnnes, coal 130m tonnes, though oil guidance was lowered to 8,500kbbl.

RBC Capital Markets said the Q4 production numbers appeared to be better than forecast, with copper 13% above its expectations, zinc production 4% ahead, coal lower, oil higher and agricultural remaining strong.

Guidance for the metals and mining division is primarily ahead of RBC's forecasts, notably copper, zinc and lead, with nickel in line, coal in line and oil lower.

On the streaming deal, RBC noted: "They could have sold more of the metal (as they produced 100koz of gold in 2015) to have raised more funds which is indicative that GLEN was focusing on maximizing value rather than revenue. This had been well flagged, but getting half a billion on the balance sheet only further insulates GLEN from the potential of a ratings downgrade."