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Glencore To Close Massive Metals Mine As Trumponomics Takes Toll (#GotBitcoin?)

Closure will remove around 20% of the global market’s cobalt supply. Glencore To Close Massive Metals Mine As Trumponomics Takes Toll (#GotBitcoin?)

Glencore PLC’s first-half earnings fell by a third and the commodities giant said it is closing one of its largest copper and cobalt mines, as concerns over the global economy and the trade war between the U.S. and China hit commodity prices.

As one of the world’s largest producers of cobalt, Glencore was expected to benefit from a revolution in electric vehicles—the metal is a key ingredient in the lithium-ion batteries that power them. But the demand for the current biggest user of this metal, cobalt-heavy consumer electronics like lap tops and tablets, has waned, while supply has increased, leading to a 58% fall in cobalt’s price in the first half of 2019 compared with the same period last year.

The Anglo-Swiss miner and commodities trader said it would suspend operations at its Mutanda mine in the Congo by the end of 2019 due to a slump in cobalt prices. The closure will remove around 20% of the global market’s cobalt supply, according to Macquarie, and around 0.5% of the copper market.

The company’s share price was down 1.71% in late morning trade in Europe.

Copper and cobalt prices were broadly stable.

The global economic outlook “is affecting sentiment in the market, there is no doubt about it,” Glencore Chief Executive Ivan Glasenberg said Wednesday.

The U.S. has increased tariffs on Chinese goods and Beijing has retaliated, adding to pressure on the global economy. That has, in particular, knocked industrial metals like copper, which fell 11% in the first half over the same period last year.

Glencore said in February that it would curb production at the Mutanda mine as it explored new copper-mining methods for the facility.

Adjusted earnings before interest, taxes, depreciation and amortization—a key metric for the company, which strips out exceptional items—for the six months ended June 30 fell to $5.58 billion from $8.18 billion compared with the year earlier. An estimate taken from 12 analysts’ forecasts and compiled by Vuma Consensus expected adjusted Ebitda of $5.94 billion.

Glencore said net profit for the first half of the year fell 92% to $226 million. It said the fall in profit was largely due to lower commodity prices and impairments across its portfolio. Revenue fell to $107.1 billion, from $108.6 billion in the first half of 2018, it said.

The company’s African copper operations were particularly hard hit, amid higher costs and the fall in copper.

The business is expected to create a continuing headache for Glencore, including a rift with the Democratic Republic of Congo over a new mining code and mine invasions by illegal miners which left more than 40 dead earlier this year.

“Closing Mutanda is the right thing to do, it’s what mining companies should do more of and not dig stuff out of the ground they are not going to make money from,” said Colin Hamilton, an analyst at BMO Global Commodities.

Glencore temporarily suspended mining operations at its majority-owned Katanga Mining Ltd. in Congo in 2016 following a sharp downturn in copper prices. That move caused copper prices to shoot higher. The company launched a review in April to look at improving operations and said full-year output of copper and cobalt was expected to be less than the previous guidance of 285,000 tons and 26,000 tons respectively.

Following the completion of the first stages of the review, Glencore said it now expects production at Katanga in 2019 of 235,000 tons of copper and 14,000 tons of cobalt.

Analysts were caught out by the poor performance in Africa and an increase in debt, but said other parts of the business were in line with expectations.

Mr. Glasenberg said that while sentiment has deteriorated, demand for metals, particularly from China, hasn’t. Moreover, low inventory levels of key metals should help support prices, he said.

BMO’s Mr. Hamilton said that, with cobalt inventories coming down, the closure of Mutanda should put a floor under the metal’s price.

Cobalt hit a peak of around $40 a pound in late 2017 and is now trading at around $12.50 a pound. Glencore To Close Massive,Glencore To Close Massive,Glencore To Close Massive, Glencore To Close Massive
,Glencore To Close Massive

Fall In Copper Prices Threatens To Drive Metal Shortages

Copper is about 13% below the $3-a-pound level believed to make many long-term projects viable.

The recent slide in copper prices threatens to limit investment in new mines, a trend that industry analysts and executives say could lead in coming years to sizable shortages of the material critical to manufacturing and renewable-energy projects.

Prices fell to two-year lows recently on fears that trade tensions will weaken the global economy and crimp demand. Because copper is heavily used in construction and manufacturing, its price movements are closely tied to momentum in the world economy, and particularly in China, which accounts for about half of global demand.

Some investors say the downturn in prices could actually lead to an even bigger rally years from now because of the time needed to extract metal from new projects. Many of those mines also require capital commitments to finish and are located in risky operating jurisdictions around the world.

Ore grades also decline over time, potentially leading to lower usable supply than expected as demand from electric vehicles and new technologies is likely to ramp up in the mid-2020s, analysts say.

Copper is now about 13% below the $3-a-pound level that investors say makes many long-term projects viable. It last closed above that level in June 2018, when President Trump approved tariffs on about $50 billion of Chinese imports.

“We have this great inventory of opportunities, but like other projects in the industry, they require prices higher than today’s price to develop,” Richard Adkerson, chief executive of copper miner Freeport-McMoRan Inc., said in an interview. “If global growth turns down, then we won’t be in a position to invest in these resources.”

Copper fell to $2.54 a pound on Monday, its lowest level since May 2017, before rebounding to $2.60 on Thursday.

Jefferies projects a 1 million metric ton deficit in 2024 without more capital commitments from miners. Commodities consultancy Wood Mackenzie recently forecast a roughly 4 million metric ton supply gap by 2028, based on annual production of about 25 million metric tons at that time.

Driving those projections is a belief that copper will be critical to long-term shifts toward electric vehicles and cleaner technologies in transportation and energy storage. Electric and hybrid cars use more copper than conventional vehicles, and analysts project hefty demand increases from the implementation of EV charging stations. Fast-growing countries such as India also are expected to continue investing in copper-intensive infrastructure projects.

Another reason some investors remain confident that prices will eventually rebound: Operating mines in places such as Indonesia continues to come with a high degree of risk.

Many expect Freeport-McMoRan’s success in the coming years to be defined by its ability to transition a giant copper and gold mine in Indonesia into an underground operation. Late last year, the Indonesian government took a 51% stake in the mine—Grasberg—by paying nearly $4 billion to Freeport and Australian miner Rio Tinto RIO -3.56% PLC. While the transition underground continues, Freeport is posting lower revenue and higher capital costs.

In another sign of the challenges facing miners, Rio Tinto last month said it will take much longer than expected and cost more to complete a mine in Mongolia’s southern Gobi Desert.

The difficulties ahead for industry leaders Freeport and Rio Tinto could portend delays in the years ahead for other companies pursuing complicated projects, analysts say. While there are plentiful opportunities in countries such as Chile and Australia, extracting the metal could prove trickier than expected.

“These projects take a long period of time to bring on line,” said Christopher LaFemina, a metals and mining analyst at Jefferies. “The market should be very, very tight as long as we don’t have a recession.”

Still, many investors say it is difficult to invest in the metal and shares of companies that produce it as trade uncertainty continues to hammer copper prices. They have fallen 13% from a peak in April. Shares of Freeport are down 34% in the past year, and other mining stocks such as Southern Copper Corp. have also taken a beating.

“Investors continue to be reticent about our sector,” Mr. Adkerson said. “That’s likely to be the case until there’s some clarity on the direction of this trade issue.”

 

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