Swiss miner and commodities trader Glencore (LON:GLEN) is said to be about to close a $700 million deal with a Canadian pension fund to create a new base-metals royalty firm, the latest sign of the firm’s move from cost-cutting to pursuing growth.
Glencore, which owns and operates nickel, zinc, copper and coal mines around the world and also has a global portfolio of royalty assets, will bring royalty agreements from about 10 mines, people familiar with the matter told Bloomberg.
The Ontario Teachers’ Pension Plan, which manages benefits for retired for schoolteachers of that Canadian province, will contribute about $350 million in capital to allow the new firm acquire further royalty streams from other projects.
Glencore would bring royalty agreements from about 10 mines into the new vehicle, while Ontario Teachers’ Pension Plan would fork out nearly $350 million in capital.
Rumours of Glencore planning a spin-off of its mining royalties portfolio into a standalone company have been circulating for months.
The company’s plan is to emulate the model of companies such as Canada’s Franco-Nevada (TSX, NYSE:FNV), which does not own any mines but instead makes money by reselling a percentage of other firms’ output.
Those so-called “streaming” firms typically provide a chunk of cash upfront to mining companies to secure a certain supply of precious metals down the road. These kinds of deals have become increasingly popular between 2014 and 2016, as miners faced greater difficulty raising cash on stock and bond markets amid a global slump in commodity prices that dragged their value.
For the teachers’ pension plan, the new company would offer an option to invest in base-metals, such as copper, zinc and nickel, which prices have been on the rise this year and are likely to stay that way or increase further in the short-term.
The partners could eventually list the vehicle, one of the people told Bloomberg, but added there were no specific plans for an initial public offering at the moment.
Glencore’s royalty assets includes Antamina copper-zinc mine in Peru, which makes up the bulk of the value of the package. The portfolio also includes Horne gold project in Quebec, the Red Chris copper mine in British Columbia, the El Pilar copper deposit in Mexico and the Komarovskoye gold mine in Kazakhstan, sold last year but in which Glencore still holds royalty rights.