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These are trying times for Glencore, as the cobalt market price collapses due to surging supply and weak copper prices undermine the fundamentals for the miner’s Mutanda copper and cobalt mine in the Democratic Republic of the Congo.
The Financial Times reported Glencore will halt production at the world’s largest cobalt mine from the end of this year because it is “no longer economically viable.”
In a letter to employees, the firm states, “Unfortunately due to the significant decrease in the cobalt price, increased inflation across some of our key input costs (mainly sulphuric acid) and the additional taxes imposed by the mining code, the mine is no longer economically viable over the long term,” the Financial Times reported.
The price of cobalt has fallen 40% this year, contributing to Glencore reporting a 32% drop in earnings for the first half of this year and net income shrinking to just $200 million.
As a whole, Glencore’s African copper division reported a loss of $315 million in the first half of the year due to higher costs and lower prices, the Financial Times stated in a separate report.
As part of the miner’s ongoing pain, Glencore’s trading arm was forced to take a mark-to-market loss of $350 million on about 10,000 tons of cobalt inventory it owns but has yet to sell. The firm traditionally sells at spot rather than on long-term prices, although that would not necessarily have saved it from price falls; even longer-term contracts generally have an adjustment factor to reflect market price trends.
Glencore has a record of taking the hard decisions early and shuttering mines that are loss-making.
The miner closed zinc mines in 2015 in response to low global prices; its actions are credited with helping the zinc market recover as a result.
Cobalt demand has traditionally been driven by its use as an alloying element, but it is increasingly being seen as part of the lithium battery demand story because of its role in production of advanced batteries. The electric vehicle (EV) market, though, has failed to match up to its hype this decade. Although both lithium and cobalt prices have risen as a result of battery makers securing their supply chain, the reality is supply is perfectly adequate.
In the longer term, though the fundamentals remain solid, EV sales will rise over the next decade as prices become more affordable, ranges extend and charging infrastructure improves. Glencore is putting Mutanda on care and maintenance for the next two years, after which it will review its options.
Taking some 20% of global supply out of the market will put a floor under prices and shorten the time frame over which prices will recover.