The demand for environmentally protective ‘green’ metals is increasing exceptionally fast, boosted by a 59% increase in electric vehicle production in China, Glencore CEO Ivan Glasenberg said on Wednesday.
In response to Mining Weekly Online during a post-results conference call, Glasenberg reiterated that Glencore had the right range of metals for which demand was poised to rise as the world decarbonised.
But while demand growth remained positive, supply was low, with easily accessible high-quality resources running out.
The London- and Johannesburg-listed Glencore is a producer and a marketer of metals including copper, nickel and cobalt, which are all well positioned for future outcomes, despite the cobalt price being down currently.
A slide displayed during the results presentation projected that up to 620-million electric vehicles would be on the roads by 2040.
“We’ve got the right metals. Demand is growing for these. You see the amount of electric vehicles, which is growing, especially the production in China, which is increasing exceptionally fast.
“Year-on-year, the amount of electric vehicles in China increased by something like 59% from the one year to the last. Europe is a little bit slower. I think the growth in electric vehicles in Europe occurs towards the second half of this year towards the fourth quarter and then we should start having the European electric cars growing.
“The green economy is on its way. There is no doubt it’s coming. With the batteries we get the benefit of nickel and cobalt. At the charging points more copper. The electric vehicle uses more copper than a regular vehicle. So, yes, I think we’ve got the right commodities and we should start seeing the benefit in the market as we get more of this decarbonisation occurring,” he said.
His comments come against the background of visible metal stocks in the company’s core commodities being low.
The Mutanda copper-and-cobalt facility in the Democratic Republic of Congo (DRC) is to be closed, while the services of all DRC nationals will be retained and studies continued on the potential of the sulphide project extending operation for many years continue, Glencore industrial assets head Peter Freyberg outlined.
On the possibility of Mutanda remaining closed for less than the projected two years, Freyberg said: “I don’t think that it is likely. What would bring Mutanda back is the right macro environment. If we make progress with tax structure discussions with the government of the DRC it would help. We are in the process of doing a study around the sulphide. The oxide ores in that area are near depletion and we would have to invest some more money for the longer term operations there.
“It is a good orebody and we do see it as a high value prospect for the future, but we think at best it is probably two years, and depending on those macros and those other conditions, we’ll see when we restart it.
“In our discussions with the government, we’ve indicated that we are going to hold on to the national workforce and in fact use this period, whilst we are doing the studies and whilst we’re on care and maintenance, there is work to be done, but also use the opportunity to upskill that workforce so that when we do restart in the future, we can do it with a higher percentage of nationals, which is beneficial to the business and the local community,” Freyberg said, adding that 3 000 nationals were employed at Mutanda.
The first-half performance of Glencore reflected a challenging economic backdrop for the company’s commodity mix, along with setbacks to its ramp-up and development assets, which contributed to a 32% drop in earnings before interest, tax, depreciation and amortisation (Ebitda) of $5.6-billion.
But the rest of the business performed well and, looking ahead, the company is confident that commodity fundamentals will move in our favour while playing a key role in the transition to a low-carbon economy.
Excluding the company’s African copper assets and the Koniambo nickel mine in New Caledonia, its metals and coal delivered Ebitda mining margins of 39%.
In particular, its copper business, excluding African copper, recorded an Ebitda mining margin of 52% and a full unit cash cost of 72c/lb.
Glasenberg said there was no doubt that the current global trade dispute was creating a negative sentiment around the world and described copper as the undisputed bellwether of world sentiment.
“Whenever they talk of getting closer to a resolution, the copper price moves and vice versa. It would definitely help if the trade war could be resolved because sentiment is weak. Some of the buyers sit on the fence. They don’t want to restock when they’re not sure of the outcome and they keep stock levels at a minimum level. When they get more positive or certain about the future, they restock and the sentiment changes.
“There’s not much we can do about it. It affects the commodity price and like we’ve done at Mutanda for various reasons, if you’re not making money at operations, the only thing you can do that’s under your control is shut or reduce tonnages, like we’ve done in the past with zinc - we’ve done it with coal and we’re doing it now with cobalt. That’s the only part that’s under our control,” Glasenberg said.
The South Africa-focused coal business again generated margins of more than $30/t, based on a $46/t thermal unit cash cost. Coal production of 68.2-million tonnes was 10% higher year-on-year, reflecting the contribution of interests in the Hunter Valley Operations and Hail Creek, in Australia, higher production at Prodeco, in Colombia, and a strong operational performance in South Africa. This was partially offset by lower production at Cerrejón, in Colombia, to meet air quality requirements.
Glencore’s marketing business is tracking towards the middle of the full-year Ebit guidance range of $2.2-billion to $3.2-billion, after adjusting for $350-million worth of noncash first-half cobalt losses.
Glencore CEO Steve Kalmin said the company’s generation of $4.8-billion of free cash flow should enable it to bring down debt towards the end of the year and accelerate debt towards the middle of 2020, by which time the company would be closer to the one-times debt ratio.
“We’ve got no concerns about the levels of debt we’re at. Debt’s very strongly at about one-and-a-quarter times. It’s a very comfortable balance sheet in terms of positive free cash flow. We’re even looking to conservatively create more flexibility by making sure that one-and-a-quarter times goes south rather than north over the next six to 12 months, and looking to driving it towards one times,” he said.
On the safety front, the company suffered 11 fatalities in the half-year, six of them at the Mopani copper mine in Zambia. Mopani is being redeveloped with three new shafts.