Glencore plans to suspend cobalt production in DRC

By Théau Monnet

Chief Executive Officer of Glencore Ivan Glasenberg attends a session of the St. Petersburg International Economic Forum (SPIEF), Russia June 6, 2019. REUTERS/Maxim Shemetov

Glencore will be suspending production at one of the world's largest cobalt mines by the end of the year.

The Swiss mining company and commodity trader, is bracing for a new wave of taxes while battling poor results in the first half of 2019.

• Net income fell 92% to $226m.
• Operating income declined 32% to $5.6bn.

Cobalt market crashes

The price of cobalt has plunged in recent years due to relatively low demand. Glencore’s Mutanda mine in the Democratic Republic of the Congo has about 10,000 tonnes of unsold cobalt.

• Cobalt is prized for its use in smartphone batteries, and electric cars.
• Prices rose in 2017, reaching its peak in March 2018 at $94,500 per tonne.
• Glencore increased production during the boom years, but now cobalt prices are falling => The price of cobalt hovers around $26,000 per tonne today

Glencore targets mining code 

Glencore also wrote to employees at its Mutanda mine, citing DRC’s new mining code as among the reasons for shutting down the mine.

“Due to the significant decline in the price of cobalt, increased inflation in some of our main inputs (mainly sulphuric acid) and additional taxes imposed by the mining code, the mine is no longer economically viable in the long term,” wrote Glencore’s group management in a letter seen by the Financial Times newspaper.

The DRC promulgated the new mining code in 2018, placing an additional financial burden on the group.

• Increases royalties on “strategic” minerals from 2% to 10%
• Requires mining companies to allocate 0.3% of their turnover to the development of community projects.

Glencore has announced the suspension of activities at the Mutanda mine by the end of the year.

This will make it possible to carry out “temporary care and maintenance activities, linked to its reduced economic viability,” according to its press release.

Corruption probe

• There are many reasons for Glencore’s poor performance in Africa.
• Last June, some 40 miners died at an artisanal mine operated by Glencore’s local subsidiary in Lualaba, DRC.
  Authorities in the United States are investigating Glencore for suspected breaches of corruption and money laundering regulations.

But Ivan Glasenberg, Glencore’s Managing Director, remains optimistic about the business.

• “We are convinced that commodity prices will evolve in our favour and that our diversified portfolio will continue to play a key role in global growth. “

The DRC produces most of the world’s cobalt supplies, but the country’s 81m citizens derive few benefits from it.

• Economic growth has slowed, falling from 9.4% in 2014, to 3.9% in 2018.
  With a GDP of $42.6bn, the IMF ranks the DRC at 92 out of 192 countries.
  Inflation averaged 25% in the last decade.

Bottom Line: In the long run, Glencore seems to be betting on the world’s growing appetite for smartphones and electric batteries. For now, it’s planning to shut down a major operation in the DRC until favourable headwinds return.

Thanks for reading. Follow the page and Share it.