UK Markets open in 4 hrs 1 mins

Glencore mulls spin-off company to snap up mining royalties

Jon Yeomans
A Glencore coal mine in Australia. It wants to launch a standalone company that would own mining royalties - © 2015 Bloomberg Finance LP

Glencore is considering creating a standalone company to acquire lucractive mining royalties around the world.

The spin-off business would be seeded with at least £300m of streaming agreements Glencore already owns, and would pursue deals in copper, zinc, nickel and cobalt with a view to an eventual stock market listing.

Glencore’s plan, first reported by industry title Global Mining Observer, would look to emulate the model of companies such as Canada-based Franco-Nevada, which does not own any mines but instead makes money by “streaming” supply from miners for resale. In return, the streaming company advances loans to the miner to help fund capital projects.

Glencore

The returns for streaming companies can be large, with Franco-Nevada recently outperforming many mining companies. Not owning assets means it can keep its costs low; it is, however, dependent on reliable supply to keep generating cash.

The new company would serve to feed supply to Glencore’s large trading arm, which ships commodities around the world, and the FTSE 100 giant may seek a “partner with deep pockets” to invest, a source familiar with the discussions said.

Glencore boss Ivan Glasenberg

The spin-off could be launched by the end of the year and would include the rights to stream product from the Antamina copper-zinc mine in Peru, which it co-owns with BHP Billiton. Though a number of companies currently own rights to gold and silver streams, Glencore’s bid would be the first attempt to bundle up royalties from base metals.

Glencore boss Ivan Glasenberg has said he is looking to forge more partnerships in the sector, citing the sale of a 49pc stake in its agriculture business to two Canadian pension funds last year as an example of how the company can grow without stretching its balance sheet.

At the same time Mr Glasenberg has signalled his appetite for more acquisitions, with a stalled takeover tilt for grains trader Bunge and a thwarted attempt to buy coal mines from Rio Tinto.

Glencore shares were up 2pc in afternoon trade at £3.22.