Glencore puts brakes on risk as it eyes electric cars
Company signed deal to supply cobalt to Glencore from its mine in Australia
Glencore Inc’s penchant for risk has long been mining industry lore, but the company is quickly expanding into a part of the world that would have been improbable just a few years ago: Minnesota.
The Swiss-based commodity trader took majority control last June of PolyMet Mining Corp, which is developing a mine in the Midwest state near the Canadian border estimated to hold a century’s worth of copper and nickel, critical to the development of electric vehicles. It is the first time that Glencore has controlled a major mining project in the US, where President Donald Trump has cut mining regulations and red tape in a bid to encourage domestic mining, a marked change from predecessor Barack Obama, who favored stricter oversight of the sector and slowed or halted several large mining projects.
Glencore for years has operated in regions considered high-risk,
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high-reward, making its shares a draw for some investors who saw the more conservative investing policies of peers, including BHP Group, as too tame.
But displeasure from institutional investors and the electric vehicle industry with cobalt mining techniques and dangerous conditions has risen. In June, at least 41 illegal miners were killed at Glencore’s Congo operations. In the last year, Glencore’s shares have underperformed global peers BHP and Rio Tinto, which have largely avoided the fray in part by sticking with higher margin bulk commodities, including iron ore and coking coal, both ingredients for steel-making.
“It’s hard to tell if Glencore is doing enough to mitigate risk, but they seem to be taking initiative,” said David Neuhauser of Livermore Partners, which holds Glencore shares. Alongside Minnesota’s PolyMet, Glencore has invested in Canada’s First Cobalt Corp to restart an Ontario refinery, started a new copper concentrates blending facility in Taiwan, and also is searching for non-Russian sources of aluminum, expressing an interest in buying Rio’s operations in Iceland. Glencore has also held very early discussions about cobalt in Kazakhstan, industry sources said, talks that come after the company said it will halt output of the metal in Congo for at least two years. That is a sign that “the (automakers) are paying more attention to the geography and reputation risk of their supply chain,” forcing change at Glencore, said Frances Hudson of Aberdeen Standard, which holds the company’s shares. A Glencore spokesman declined to comment for this article.
A BMO Capital Markets analyst earlier this week cut its price target on Glencore, citing in part uncertainty around the company’s Congo operations. Glencore said last month that its profit in the first half of the year fell 32 percent due to weakness in the company’s cobalt operations and sliding prices for the metal, results that sent its shares to their lowest level since 2016.
Glencore has operated for years in Australia and other countries considered safe havens for miners.
The company inked a deal this year to supply cobalt to BMW , but only cobalt produced from its Murrin Murrin mine in Australia. Glencore took majority control of PolyMet in a debt-for-equity swap that boost its stake from about 30 percent of the smaller miner’s shares to about 72 percent. That transaction made PolyMet debt-free. PolyMet earlier this year received the last of the permits it needs to begin construction of the open pit Northmet mine in the state’s Iron Range, a rural region about 200 miles (322 km north of Minneapolis.) Once operational, the mine is expected to produce 255 million tonnes of copper and nickel over the next century.