Glencore to End Mutanda Cobalt Production

Anglo-Swiss mining giant Glencore (LSE:GLEN) is pulling the plug on the world’s largest cobalt mine at the end of 2019, citing a fall in prices as the reason why.

As reported by the Financial Times, in a letter to employees, Glencore said the Mutanda mine in the Democratic Republic of Congo (DRC) is “no longer economically viable.”

The price of cobalt has fallen significantly in 2019 on the back of a glut in production from the DRC, with even artisanal miners choosing to mine copper instead.

In early 2018, cobalt sulfate was fetching prices near US$110,000 a tonne (or almost US$50 a pound), according to Benchmark Mineral Intelligence, while as of July this year the metal was nearing US$22,000 a tonne (around US$10 a pound) and continuing to fall.

In a tweet, Chris Berry, energy metals strategist with House Mountain Partners, suggested that the closure is akin to the DRC “killing the goose that laid the golden egg,” putting the blame for Glencore’s decision on higher input costs and taxes in the DRC.

Berry told the Investing News Network (INN) that Glencore’s recent US$350 million loss due to cobalt prices makes its decision look sensible, but added that there is likely more to the story.

“Their claim is that production of cobalt is uneconomic at current prices, but it was always viewed as a by-product of copper production anyways.”

He said that if Mutanda — which he described as the “absolute best copper/cobalt asset in the world” — is deemed “uneconomic” by Glencore, it doesn’t bode well for cobalt projects elsewhere.

“… But my sense is that higher input costs and taxes are the real killers here rather than commodity prices,” he added.

Looking at other projects in development, Berry suggested that the Mutanda closure could be a silver lining for the cobalt space, as it opens a window for non-DRC cobalt developments — though any further investments will require higher prices.

Speaking of prices, Berry said that whether cobalt has further down to go “couldn’t be reliably answered” given the size and opaqueness of the market.

“But I still think there’s an equilibrium price in the mid-$20 per pound range in the next decade as overall demand should outweigh evolving battery chemistries using less cobalt per battery.”

Investors needn’t look far to see why the DRC is a challenging jurisdiction to operate in despite the attractive copper and cobalt deposits there.

Only a month ago, Glencore made headlines globally after 43 artisanal miners were killed on a Glencore copper concession. The company has also fought negative press in the African nation and globally all the way through 2018 and up to now, with higher taxes being piled on by the Kinshasa government.

Speaking to INN as H1 drew to a close, Benchmark Mineral Intelligence Senior Analyst Caspar Rawles said that he doesn’t expect the cobalt price to make any significant recovery in 2019 given the rate of production in the DRC.

Mutanda produced 27,000 tonnes of cobalt in 2018 along with 200,000 tonnes of copper. The mine will be placed on care and maintenance when 2019 comes to an end.

The DRC government has made no comment on the decision.

Glencore was trading down by 1.55 percent of the London Stock Exchange on Tuesday (August 6), falling to GBX 231.35.

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Securities Disclosure: I, Scott Tibballs, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.