Glencore Halts Cobalt Mine After Lowest Profit in 3 Years
Glencore reported the weakest profit in three years and announced plans to halt about a fifth of the world’s cobalt production.
(Bloomberg) --
Glencore Plc reported the weakest profit in three years and announced plans to halt about a fifth of the world’s cobalt production after prices for the battery metal plunged.
Glencore will shutter the Mutanda project in the Democratic Republic of Congo for about two years in a move to put a floor under the cobalt market, which has seen prices fall more than 70% since April last year. Despite the plunge in profits, Glencore’s billionaire Chief Executive Officer Ivan Glasenberg struck an upbeat tone on the outlook for the rest of the year, saying he doesn’t see a big pullback in commodities demand because of the U.S. and China trade war.
“Demand is not that bad,” Glasenberg said on a call. Still, he acknowledged that “sentiment is not that great” from the trade war and customers are running down inventories.
Falling profits are the latest blow to Glencore, which has been hobbled by corruption probes, tumbling prices and operational problems at key copper mines. Investors punished the company, sending the stock down as much as 4.7% on Wednesday, a seventh day of losses. The shares have tumbled 22% this year to the lowest since 2016.
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Glasenberg’s decision to cut supply at a time of low prices is a bold strategy the company has employed in the past to turn around flagging markets. It’s a tactic rarely used by other mining companies because competitors can seize additional market share. In late 2015, Glencore slashed zinc production when prices where plunging, helping create shortages. Zinc prices responded with a 60% surge in 2016.
"The suspension of Mutanda should put a floor under cobalt prices,” said Colin Hamilton, an analyst at BMO Capital Markets. “This effectively removes the surplus we have in the cobalt market over the next couple of years."
Shares in major Chinese cobalt companies rallied on Wednesday. China Molybdenum Co., which also mines in the African nation, rose the most in four years in Hong Kong.
Another surprising aspect of Glencore’s new cobalt strategy is that it doesn’t plan to lay off any workers affected by the mine’s closure. It’s a move that could ease tensions with Congolese officials in the face of a long-running dispute over higher taxes and tougher mining regulation.
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To contact the reporters on this story: Thomas Biesheuvel in London at tbiesheuvel@bloomberg.net;Mark Burton in London at mburton51@bloomberg.net
To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Nicholas Larkin
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