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Glencore mulls spinning off mining royalties into new company

Glencore had hired Scotiabank earlier this year to find a buyer for its royalty portfolio, which includes a deal on the Antamina copper-zinc mine in Peru (pictured) and the Red Chris mine in Canada. (Image courtesy of Antamina.)

Swiss miner and commodities trader Glencore (LON:GLEN) is said to be considering to spin-off its portfolio of mining royalties into a standalone company, 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, also has a global portfolio of royalty assets, which will be grouped in the new company, the Global Mining Observer reported.

The spin-off business would help Glencore secure additional supplies of copper, cobalt, nickel and zinc producers for its vast trading division.

The spin-off business would go after royalty agreements in copper, zinc, nickel and cobalt, worth more than $300 million, while looking to attract a strategic partner to fund further deals.

The plan, the article said, 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.

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.

The Swiss firm had been looking to sell its portfolio of royalty assets to raise cash and hired Scotiabank earlier this year to find a buyer.

Streaming firms typically provide a chunk of cash upfront to mining companies to secure a “stream” 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.