Glencore to detail African copper asset restructuring at August 7 interim announcement

Katanga Mining

GLENCORE announced a non-cash $350m mark-to-market loss on cobalt inventory and prepared the market for restructuring of its African copper assets in an interim production report today that also guided to a 10% reduction in ferrochrome output.

Restructuring of Katanga Mining in the Democratic Republic of Congo (DRC) had been largely expected. The company, which Glencore controls but is listed in Toronto, issued its own announcement saying there would be a six month delay in the commissioning of its cobalt project until the second quarter of 2020.

Ivan Glasenberg, CEO of Glencore, said the firm’s African copper business “did not meet expected operational performance”, adding the company had already implemented management changes at Katanga as part of an operational review. Details of the review will be published on August 7, the date set aside for its interim results.

Regarding the Zambia copper assets, the company was nearing the end of “transformational projects” which included a new copper concentrate in mid-2020 and the development of three new mining shafts. Repairs to the Mopani smelter were due by the end of the current calendar year.

“Our African copper assets retain significant potential and will play a key role in the transition to a low carbon economy,” said Glasenberg. “We have developed detailed turnaround plans.”

The mark-to-market impact on the cobalt sales was a non-cash item and exists because the marketing division decided not to sell into a heavily pressurised cobalt market. Excluding the adjustment to inventory, the marketing division would produce earnings before interest and tax (EBIT) of $1.3bn, largely in line with expectations.

Regarding the miss on ferrochrome, Glencore had decided to extend the winter shut-down programme in South Africa. Some 160,000 tons in production would be affected.

Morgan Stanley, which is bullish on the Glencore investment case, calculated a 1% downside risk to Glencore’s interim EBITDA taking into consideration the lower volumes in certain areas of the business.

Goldman Sachs said the company was “a little light on production” in the first half of the group’s financial year. Shares in Glencore softened 2.1% in mid-afternoon London trade.