Glencore warns of $350m hit on copper unit

Glencore CEO Ivan Glasenberg. (Image: Screenshot of ComLikes video | YouTube.)

Mining and commodities giant Glencore (LON:GLEN) warned on Wednesday that it would take a $350 million hit when reporting first-half earnings next week, due to its African copper business failing to meet expected operational performance and an ongoing slump in cobalt prices.

The Swiss company said that setbacks at its mines in the Democratic Republic of Congo (DRC) and Zambia caused copper production to fall 5% to 663,000 tonnes in the six months leading up to June.

Production was also affected by the recent closure of two “uneconomic” shafts at its Mopani Copper Mines business in Zambia and a landslide at a copper and cobalt mine in Congo, run by its subsidiary Katanga Mining, which killed more than 40 illegal miners.

As a result, Glencore signalled it is likely to cut the target for copper production this year, adding that it would reveal a detailed turnaround plan for the division next week. 

Its trading arm will have to take a mark-to-market loss of $350 million on around 10,000 tonnes of cobalt inventory Glencore has yet to sell

“Our African copper assets retain significant potential and will play a key role in the transition to a low-carbon economy,” chief executive Ivan Glasenberg said in a statement. “We have developed detailed turnaround plans and I look forward to taking you through these plans along with our financial performance on August 7.”

While African copper is a relatively small part of Glencore’s overall business, the division’s performance is closely watched by analysts and investors alike. The operations are one of the company’s key drivers of growth, but also a source of legal and operational risks.

The company’s production of cobalt, a key electric vehicle battery ingredient, was up by 28%, but falling prices offset the results.

After quadrupling in two years, the coveted metal is now trading at the lowest prices since 2016 and Glencore has been impacted.

The company said the loss from cobalt will be mainly non-cash and described the inventories it’s holding as an “unrealized profit lag.”

Excluding that hit, Glencore expects first-half trading profit of about $1.3 billion. It said previously that full-year profit for the unit would be toward the middle of its $2.2 billion to $3.2 billion long-term range.

Mounting issues

Glencore, which has underperformed its major rivals this year, continues to face several legal challenges.

The firm is being investigated by the US Department of Justice, the Federal Bureau of Investigation and Brazilian authorities in the Car Wash scandal. The case, involving also Trafigura Group and Vitol Group, centres around alleged bribes to employees of Brazilian oil company Petróleo Brasileiro SA (Petrobras), in return for better terms on trading contracts.

Glencore has also been subpoenaed by the US Justice Department (DOJ) for documents relating to possible corruption and money laundering in Nigeria, DRC and Venezuela. The US Commodity Futures Trading Commission is also investigating the company for possible corrupt practices.

In December, its subsidiary Katanga Mining (TSX: KAT) was fined by Canadian regulators for issuing misleading financial statements. It has also been forced to a build a new system to remove uranium from its cobalt supplies.

(With files from Bloomberg)