AngloSwiss mining giant Glencore PLC has struck a bargain with the Ontario Teachers’ Pension Plan to make a personal royalty and streaming company — among the first of its type in the base metals industry.
BaseCore Metals begins life with a portfolio of existing Glencore royalties in North and South America worth $300-million (U.S). , also includes a royalty on Highland Valley, a Teck Resources Ltd. copper mine in British Columbia.
According to a joint press release on Tuesday, Teachers paid money to Glencore because of its 50-per-cent share in the thing. The pension fund declined to comment further when requested by The Globe and Mail about the specific amount of its investment.
For years, royalty and flowing has turned out to be a successful business model in precious metals, but there are few players of dimensions in base metals. Under a mining firm agrees to sell a proportion of its future revenue or gain from a source in exchange for funds. Streaming entails delivering some of physical metals production in a set price in exchange for funds. Prices are often negotiated at rates significantly below market costs, which can make it a lucrative enterprise for the royalty and streaming businesses. The quid pro quo for mining companies is they receive much-needed funds in an era when conventional financing is more difficult to come by.
While BaseCore Metals’ first portfolio is deemed small compared to those of some of the big existing royalty and streaming firms for valuable metals, such as Franco-Nevada Corp., it plans to pursue new bargains.
“The production of BaseCore Metals is unique in the industry and will allow us to secure additional offtakes for our advertising firm,” Ivan Glasenberg, chief executive officer of Glencore, stated in the release on Tuesday.
In a meeting, Christopher LaFemina, an analyst with Jefferies amp; Co. in New York, said the success of this venture will largely be based on the economics of the streaming and royalty deals BaseCore Metal strikes, but at first blush, this is a good development for Glencore.
Mr. LaFemina said the new venture is in keeping with Glencore’s “capital light” approach to growing its business over the last few decades, which has led the company for as it decreased a debt burden that was punishingly high. The streaming and royalty business entails committing less capital than conventional mining, since it requires none of the direct costs of investing in properties. The organization also gives Glencore access to additional metals volumes which boosts its trading/marketing enterprise. On this side, Glencore transactions a selection of commodities from oil to copper.
BaseCore Metals will have its own board of directors and function separately from Glencore. Glencore turned to Scotia Capital Inc. for financial information while Morgan Stanley advised Teachers.
Shares in closed down 2.3 percent on the London Stock Exchange on Tuesday.
Streaming has gained in popularity because the amazing financial crisis of 2008-09, and in the last couple of years since the mining industry has grappled with lower metal prices. Toronto-based Franco Nevada pioneered the business model in precious metals in the 1980s, but others have followed, such as Wheaton Precious Metals Corp. of Vancouver.
Courtesy: The Globe And Mail