Rare earth metals might have become a hot topic due to the ongoing trade war between the U.S. and China, but industry experts have been paying close attention
to the sector for a while now and one closely watched metal is cobalt.
A key component in lithium-ion batteries for electric vehicles, cobalt has seen its price fall by more than 40% this year.
In response, many of the world's leading miners have no other choice than to shut down key cobalt mining facilities, putting the global supply in jeopardy.
That's exactly what happened with Glencore (OTC: GLNCY), an international mining giant based out of Switzerland with a market cap of $36.7 billion.
Earlier in August, the company announced it was mothballing one of the world's top cobalt and copper mines located in the Democratic Republic of Congo, known as the Mutanda mine.
A blue Tesla A blue Tesla More Image Source: Tesla
Since this news broke, prices for the rare metal jumped by more than 20% with many experts anticipating cobalt prices to shoot even higher.
For struggling miners, a turnaround in cobalt prices would be a breath of fresh air.
However, companies that rely on cobalt for manufacturing – such as those in the electric vehicle sector – will be hard hit by both rising prices and shrinking global supplies.
Not economically viable In a letter to its employees, Glencore said it would close down the mine because it was no longer economically viable:
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.
Glencore's African division reported a loss of $315 million in the first half of 2019 due to higher operating costs and lower prices.
Its trading arm was also forced to absorb a mark-to-market loss of $350 million on approximately 10,000 tons of stockpiled cobalt inventory it failed to sell.
The Mutanda mine, which accounts for around 20% of the world's global cobalt supply, will be closed toward the end of the year and will remain inactive over the next 24 months,
after which Glencore will review its options on what to do with the facility. While the company has other cobalt-producing mines in Australia, Norway, and Canada, the Mutanda mine remains the single largest cobalt producing facility in the world,
Implications for Glencore Glencore has a history of shutting down unprofitable mines early on rather than waiting and hoping for the situation to get better.
This willingness to make hard decisions early has helped it stymie unnecessary losses.
According to a supplementary Q2 earnings call slide deck, the company has generated healthy cash flows despite falling commodity prices, with adjusted EBIDTA of $5.6 billion, down 32% from 2018.
Net income, however, ended up at a measly $200 million, down a whopping 92% from last year.
While shares of Glencore have fallen substantially over the past quarter, down 34% from its high in mid-April, the aforementioned financial results didn't have as much of an effect on its stock price.
Glencore's challenges go beyond the bottom of the barrel commodity prices.
The company has come under repeated corruption investigations from U.S. regulators, including the Department of Justice as well as the Commodity Futures Trading Commission.
In December, Glencore's former head of its copper business,
Aristotelis Mistakidis, was fined $1.8 million by Canadian regulators and banned from working as a company director for four years after a subsidiary in Congo issued misleading financial statements, according to regulators.
Market Data 
Markets 
AI
