Glencore to receive $300m for royalties business boosting bumper payout prospects

Light reflects on signage at sunset near the Glencore Plc headquarters office in Baar, Switzerland, on Friday, July 6, 2018. Photographer: Stefan Wermuth/Bloomberg via Getty Images

THE prospect of Glencore paying a bumper return to shareholders was boosted with confirmation 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 $525m for BaseCore which deals in base metals streaming and royalty deals. Of the total consideration, $425m 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 $300m for the sale as well as Sandstorm shares for its stake in BaseCore Metals. Glencore said it had contributed a portfolio of selected royalties valued at $300m.

“Given the net debt remains below $10bn, we see these as further potential for the company to increase returns to shareholders through dividends or buybacks,” said Goldman Sachs 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 previously forecast for the entire year. Half-year earnings before interest and tax (ebit) would exceed $3.2bn which represents the upper end to its full-year $2.2bn to $3.2bn adjusted ebit guidance.

“We continue to expect that Glencore’s ability to return cash is unsurpassed in the sector and the company remains structurally better positioned than peers through an economic downturn with coal tightness helping to insulate profitability,” said the bank’s analyst Tyler Broda in a report last month.

Glencore is on course for group ebitda (earnings before interest, tax, depreciation and amortisation) of $29bn for 2022 of which coal comprises around 36% ($10bn), according to JP Morgan Cazenove in a recent report. At spot, however, ebitda is more like $40bn of which coal is half.

“We expect coal prices to remain higher for longer due to the Russia/Ukraine conflict and for this to underpin exceptional cash returns by Glencore over the next one to two years,” according to UBS analysts, Myles Allsop and Daniel Major.

The sale of BaseCore Metals is part of Glencore’s ongoing streamlining process in which it is divesting of non-core or ‘tail’ assets. As of its year-end results presentation in February, the company had 14 sales processes or discussions underway.