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Glencore PLC has agreed to sell its business of coal-haulage in the New South Wales state of Australia to U.S. railroad operator Genesee & Wyoming Inc. for about 1.14 billion Australian dollars, citing it as the latest deal by the company in order to cut its debt load.  

The mining and trading giant has made a pledge to sell its operations last year to reduce borrowings as debt increases, while declining commodity prices had sent shares to drop.

Hence, the company had no other choice but to carve off parts of its operations, along with a 40% stake in its agricultural business, which was sold to Canada Pension Plan Investment Board – the largest pension fund of Canada for about $2.5 billion.    

Based on the most recent data, Genesee & Wyoming will sell down 49 percent of the business to funds run by Macquarie Infrastructure and Real Assets (MIRA), along with Aurizon Holdings and Pacific National – Australia’s top two coal haulers during the bidding.

“The sale of the GRail business forms another significant part of Glencore’s debt-reduction program,” the Swiss commodities trader and mining company said in a statement Thursday.

Glencore’s raised price was in line with anticipations, which sent its asset sales to hit $4.7 billion this year, posting within its target range, which added an optimism to reduce net debt ranging between $16.5 billion and $17.5 billion for this year.   

Genesee & Wyoming claimed that the acquisition would expand its Australian business, doubling its size and boost its earnings before interest, tax, depreciation and amortization (EBITDA) by approximately A$100 million in 2017.

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According to G&W President Jack Hellman, “We are pleased to be enhancing our existing relationship with Glencore through a two-decade rail haulage contract that provides for exclusive rights to rail shipments from some of the premier steam coal mines in the world.”

After the deal discloses, Darien, Conn-based Genesee & Wyoming would mostly run Glencore’s coal-transport in Australia’s Hunter Valley region with a 20-year contract, according to the company.  

However, the deal should be first approved by Australia’s foreign-investment regulator, the mining and trading company said.

Moreover, disclosure of the deal is expected on Dec 1, assuming Australia’s Foreign Investment Review Board approved the agreement.

Current Stance of Glencore Shares

The chart below illustrates Glencore stock’s movement amid agreement to sell Australia’s coal haulage business to Genesee & Wyoming Inc.

Given the previous trend shown, market participants were given the signal for opening Buy position on the third candle, which in fact did rally in a light trading volume. However, the stock price attempted a break out in the next session and continued a bullish tone.

In essence, the stock prices tried to break out on the downside in today’s session as it almost positioned below the support line.     

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Conclusion

As shares of Glencore is mostly affected by the settlement between G&W, we conclude that the shares will decline if the next session will settle in the red.   

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