EVN Evolution Mining Ltd

SYDNEY—Glencore PLC has struck a fresh deal aimed at cutting its debt pile: Selling future output of gold and other metals from an Australian mine to another producer for 880 million Australian dollars (US$670 million).

Glencore said it has agreed to sell a 30% economic stake in the Ernest Henry mine in northwest Queensland to Australian gold company Evolution Mining Ltd. that will entitle Evolution to all future gold production from the site and some of the silver and copper output.

For Glencore, the arrangement is part of a plan to strengthen its balance sheet amid a downturn in its main markets including coal and copper.

Tumbling commodity prices last year forced Glencore Chief Executive Ivan Glasenberg—who transformed Glencore from a trading house into one of the world's biggest miners, with such deals as the US$29.5 billion acquisition of coal miner Xstrata in 2013—into retreat. He scrapped the company's dividend, issued more stock and said Glencore would sell assets to cut debt.

It has since agreed to offload a stake in its agricultural business to a large Canadian pension fund, and sell a Kazakh gold deposit.

At the end of 2015, Glencore's net debt dropped to US$25.9 billion from US$29.6 billion midyear. That figure doesn't include billions of dollars of borrowings that fuel its trading business.

Glencore, which is scheduled to report first-half earnings later in the global day, is publicly targeting net debt of US$17 billion to US$18 billion by the end of 2016.

The latest deal specifically entitles Evolution to 30% of future copper and silver output, and 100% of future gold production, from an agreed area around the mine until 2027, the companies said in separate statements on Wednesday. Evolution will contribute toward production expenses and other costs at the operation.

The Ernest Henry mine produces roughly 80,000 troy ounces of gold a year, and 60,000 metric tons of copper.

Evolution said it intends to raise roughly A$401 million through an accelerated renounceable entitlement offer to partly fund the purchase.

For the Australian miner, the deal is the latest in a string of M&A activity aimed at turning it into a sizable player in the gold market that last year included the purchase an Australian gold operation from Barrick Gold Corp. Evolution is now Australia's No. 2 listed gold miner, behind Newcrest Mining Ltd.

The company—formed in 2011 through a merger of Catalpa Resources Ltd. and Conquest Mining Ltd., and the concurrent acquisition of Newcrest's interests in the Cracow and Mt Rawdon mines, also in Queensland state—has a market value of A$3.6 billion. Its share price has almost doubled since the start of this year and quadrupled since the beginning of 2015.

In June, the company said it would double its dividend payouts to 4% of revenue in what it described as a signal of increased confidence in its ability to generate cash.

Evolution said on Wednesday that it has set up a broader "strategic alliance" with Glencore that could include the pair jointly pursuing acquisitions near the Ernest Henry mine, which started as a pit in 1997 and became an underground operation in 2011.

Those efforts are more likely to be spearheaded by Glencore's Australian partner. "We are more, dare I say, growth-oriented at this stage," Evolution Executive Chairman Jake Klein said in an interview. "They are in this deleveraging phase and are quite happy for us to take the initiative when looking at those opportunities."

The companies also agreed to explore the surrounding grounds for more minerals, with the aim of extending the life of the operation. Mr. Klein said he "conservatively" estimates the companies will be able find enough reserves to keep the mine running until 2032.

Glencore said the mine has "significant potential." Glencore unit Ernest Henry Mining Pty. Ltd. will continue to manage the site and the deal is expected to be completed in the final quarter of 2016, it said.

Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com

(END) Dow Jones Newswires

August 23, 2016 23:35 ET (03:35 GMT)

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