Glencore to receive $300m for royalty business, boosting windfall payment prospects

Light reflects off signage as the sun sets near the Glencore Plc headquarters in Baar, Switzerland, Friday, July 6, 2018. Photographer: Stefan Wermuth/Bloomberg via Getty Images

THE The prospect of Glencore paying an exceptional return to shareholders was bolstered by confirmation that it had completed the sale of BaseCore Metals, a company held in joint venture with the Ontario Teachers’ Pension Plan Board.

The buyer, Sandstorm Gold, will pay a total of $525 million for BaseCore, which handles base metal streaming and royalty deals. Of the total consideration, $425 million is in cash and the balance is to be paid in Sandstorm shares equal to 5% of the company.

Glencore said it expected to receive $300 million for the sale as well as Sandstorm shares for its stake in BaseCore Metals. Glencore said it contributed a select royalty portfolio worth $300 million.

“As net debt remains below $10 billion, we see additional potential for the business to increase shareholder returns through dividends or buybacks,” Goldman Sachs said in a report. today.

Last month, Glencore said its marketing business would earn more in the first six months of its 2022 financial year than expected for the full year. Half-year earnings before interest and tax (EBIT) would exceed $3.2 billion, which is the upper limit of its adjusted EBIT forecast of $2.2 billion to $3.2 billion for the full year.

“We continue to expect Glencore’s ability to return cash to be unmatched in the industry and the company remains structurally better positioned than its peers through an economic downturn, with the coal shortage helping to insulate profitability,” it said. said bank analyst Tyler Broda in a report last month.

Glencore is on track for a group ebitda (earnings before interest, tax, depreciation and amortization) of $29 billion for 2022, of which coal accounts for around 36% ($10 billion), according to JP Morgan Cazenove in a recent report. In cash, however, ebitda is closer to $40 billion, of which coal accounts for half.

“We expect coal prices to remain higher for longer due to the Russian-Ukrainian conflict and this will support Glencore’s exceptional cash returns over the next two years,” according to UBS analysts Myles Allsop and Daniel Major.

The sale of BaseCore Metals is part of Glencore’s ongoing rationalization process as it divests non-core or ‘tail’ assets. When reporting its year-end results in February, the company had 14 ongoing sales processes or discussions.