The head of commodity trading and mining giant Glencore is seeing increasing demand for commodities on the back of decarbonisation initiatives, energy demand and industrial growth.

The Anglo-Swiss conglomerate operates in two competing worlds.

On one side it remains one of the world’s largest producers and suppliers of thermal coal for the seaborne market, with many of its mines in Australia.

On the other it is a major supplier of nickel, copper and cobalt, three commodities essential to the lithium ion battery supply chain.

Glencore largely performed in line with guidance in 2021, but fell short on 2020 production levels in all bar a handful of commodities.

It delivered 1.2Mt of copper, 1.12Mt of zinc, 223,300t of lead and 102,300t of nickel in 2021, down 5%, 4%, 14% and 7% respectively on 2020 production levels amid the backdrop of the Covid-19 pandemic.

Cobalt production was a rare area of improvement, increasing 14% from 27,400t to 31,300t due to the limited restart of Glencore’s Mutanda mine.

Meanwhile Glencore’s coal production volumes dropped from 140Mt in 2019 to 106Mt in 2020 and 103Mt in 2021, but expects to see output rebound to 121Mt, plus or minus 5Mt, in 2022.

Glencore, which paid US$558 million to buy the two-thirds of the Cerrejon mine in Colombia it didn’t own in 2021 from BHP and Anglo American, has been scathing of rivals like BHP who have attempted to sell out of thermal coal.

Instead, new CEO Gary Nagle who took over from long-term boss Ivan Glasenberg last year and formerly managed Glencore’s coal business said acquisitions like Cerrejon were part of its plan to manage the decline of its coal business over time.

“Overall, our operations largely performed in line with guidance expectations,” Nagle said.

“We completed the Cerrejon acquisition and Ernest Henry disposal in January, such transactions being consistent with our continued strategy to simplify and align our portfolio with the materials needed for the energy transition and the responsible decline of our coal business.”

Glencore’s plans to increase cobalt and nickel production as it sees heightened demand from the energy transition, although the sale of Ernest Henry, among other reasons, will see its copper production drop from 1.37Mt in 2019, 1.26Mt in 2020 and 1.2Mt in 2021 to 1.15Mt in 2022.

It is also known to be shopping its $1 billion rated Cobar mine in New South Wales.

Still Nagle said metals needed for decarbonisation initiatives were among those seeing strong demand.

“Maintaining production in 2021 became increasingly important as many of our products, so crucial for decarbonisation, energy supply and industrial output, saw higher levels of demand,” Nagle said.

Glencore also produced 1.47Mt of ferrochrome, 31.5Moz of silver and 809,000oz of gold in 2021, against 1.03Mt, 32.8Moz and 916,000oz in 2022.


Higher coal prices still to come: RBC

RBC Europe analyst Tyler Broda says Glencore is in a “very strong position” heading into its 2021 financial results.

RBC has an outperform rating on the stock, saying the recent run in coal prices is yet to be captured by Glencore.

With the Cerrejon transaction closing months earlier than expected and 1.5Mt of sales delayed into this year it stands well placed to benefit from extremely high coal prices so far in 2022.

“Glencore remains in a very strong position with high free cash yields (2022 base case of 21.9%) driving high cash returns,” Broda said.

“The recent run in coal prices has not been reflected in the shares, and we continue to see the Glencore commodity mix as favourable through 2022.

“Continued tail asset divestments and increasing cash payouts to investors (see our report here) leave us continuing to see GLEN as providing strong relative upside from current valuation levels.”


Austral Resources secures Glencore offtake

Glencore also is backing small Queensland copper producer Austral Resources (ASX:AR1) with a $21 million prepayment facility and offtake deal.

From the second half of 2022, Glencore will take 40,000t of copper cathode from Austral’s Anthill mine, covering the project’s initial 10,000tpa, four year life.

Austral CEO Steve Tambanis said the deal would shield Austral’s finances over the ramp up phase and enable the company to accelerate exploration activities.

“We are delighted to have Glencore marketing 40,000t of Austral’s Anthill copper production. Together with this offtake agreement, a A$21m prepayment facility enables us to accelerate our planned exploration programme and importantly, provides a solid financial buffer for Anthill’s start-up phase over the next five months,” he said.

“Glencore underwent a lengthy due diligence process to assess our production capabilities and is pleased with the high quality of Austral’s copper cathode. Going forward, there is potential to review other copper development opportunities in the region.

“Austral is on track to achieve a planned copper production rate of 10,000tpa from mid-2022 for a four year period.

“Exploration and development activities are being significantly expanded with the intention of fast-tracking discoveries. We have engaged a first-class team of explorationists to undertake this work, have a detailed exploration strategy in place and have funding to enable these programmes.”



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