Glencore shares soar after production cuts

 

GLENCORE shares have risen sharply by about eight percent following the company’s announcement that it was cutting its copper production in both of its mines in Katanga in the Democratic Republic of Congo (DRC) and Zambia’s Konkola Copper Mines (KCM).

Glencore, the Swiss company, is now expected to further reduce copper production by 455,000 tonnes, up from its previous forecast of 400,000 tonnes.

According to Bloomberg, Glencore has accused President Edgar Lungu of making it difficult for the owners of Mopani and Katanga mines by rejecting the company’s plans to lay off up to 4,000 workers.

The report alleges that President Lungu was making it difficult for Glencore to reassure nervous investors and creditors that the company could cope with its hefty debt load amid the latest commodities rout by undertaking massive retrenchments.

Shares in debt-laden Glencore 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 in Peru it co-owns with BHP. It is one of the world’s largest copper mines.

Glencore said it would cut its net debt to $25 billion by year-end and to $20 billion by the end of 2016.

The report said 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.

The stock was up almost 8 per cent to 128.85p in early afternoon trading in London, and almost 15 per cent 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 the Canadian Silver Wheaton over the Peru mine.

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 on Tuesday.

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 of 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.

Faced with diving metal 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.

President Lungu warned Glencore last week that if they had failed to run KCM they should surrender the mine to Government so that it can look for new investors to run the mine. – Bloomberg Reportsrs

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