London — Glencore, the world’s biggest commodity trader, reported a collapse in earnings due to a slump in raw material prices and announced plans to shutter a huge cobalt mine.
Falling profits are the latest blow to the company that has been hobbled by corruption probes, tumbling prices and operational problems at key copper mines. The move to shutter the Mutanda project in the Democratic Republic of Congo (DRC) shows Glencore wants to put a floor under the cobalt market that has been in freefall for the past year due to oversupply.
“Our performance in the first half reflected a challenging economic backdrop for our commodity mix,” billionaire CEO Ivan Glasenberg said in the statement. “Looking ahead, we are confident that commodity fundamentals will move in our favour and that our diverse commodity portfolio will continue to play a key role in global growth and the transition to a low-carbon economy.”
Despite concerns about the worsening outlook for commodities and the US-China trade war, the company maintained its plan to purchase $2bn in shares in 2019. It said it has $900m remaining in the buyback programme.
The company reported adjusted earnings before interest, taxes, depreciation and amortisation (ebitda) of $5.58bn for the first half, down 32% from a year ago. That compares with a $5.94bn average estimate of analysts surveyed by Vuma Financial and posted to the mining company’s website.
It was also a difficult period for Glencore’s trading business, which reported ebitda fell 29% to $1.08bn. The unit was hit by a $350m loss on cobalt that has been mined but not yet sold.
On a net income basis, Glencore reported $226m for the first half. That was due to impairment charges for a troubled oil business in Chad and in its African copper business.
Glencore’s move to close Mutanda will halt a fifth of the world’s cobalt production. Prices for the metal have been on a two-year roller-coaster as the industry adjusts to an era of expanding demand for the material for batteries used in electric vehicles. Prices are down more than 70% since April 2018, after a buying frenzy on concerns of a shortage gave way to an unexpectedly strong wave of new supply. The DRC produces more than two-thirds of the world’s cobalt.
On top of the hit from cobalt prices, Glencore has also missed out on an iron-ore rally that delivered windfall profits to its biggest rivals.
Glencore has underperformed its major rivals in 2019, even after announcing bumper share buybacks. While other producers benefit from the rally in iron ore, the pressure on Glencore’s shares from probes by the US Commodity Futures Trading Commission and department of justice has been compounded by a rout in prices for thermal coal, one of the company’s major profit drivers. The stock has tumbled 21% in 2019.