Glencore Guts Spending, Sells Copper Assets as Mining Market Stays Stuck in the Pits

Researched by Industrial Info Resources (Sugar Land, Texas)--A rally in commodity prices late in the first half of 2016 wasn't enough to put global mining company Glencore plc's (Baar, Switzerland) earnings in the black, and the company is continuing to push a debt-reduction plan that involves paring back capital spending. Once known for its wide-ranging acquisitions, Glencore has no major asset purchases in the works. Capital expenditures stood at $1.6 billion, about 51% lower than the first half of 2015. Industrial Info is tracking $16.62 billion in active projects involving Glencore.

Glencore reported a $369 million net loss for the six months through June, compared with a $676 million net loss for the same period last year. Starting in 2015, Glencore began reducing its coal, copper, oil and zinc production in response to weak commodity prices and a global glut in supply. It has agreed to $3.9 billion in asset sales so far this year, with a goal of between $4 billion and $5 billion in such sales by the end of the year.

As part of its debt-reduction efforts, Glencore will sell 30% of its stake in its Ernest Henry mine in Australia to Evolution Mining (Queensland, New South Wales) for $670 million. As part of the agreement, Evolution will be entitled to all of the mine's gold production, although the mine mostly produces copper. Industrial Info is tracking a $2.28 million, planned plant-wide shutdown at the Ernest Henry mine that is expected to last seven days. For more information, see Industrial Info's project report.

The two commodities that most dragged down results were copper and coal. In fact, the largest active project in Glencore's books is the $3 billion El Pachon copper mine in San Juan province, Argentina. As designed, the open-pit mine would produce 400,000 tons per year of fine copper (and molybdenum as by product) over a 30-year mine life, but it has been stuck in the planning stages for years as the company and Argentine government await more favorable economic conditions. Similarly, the planned, $1.8 billion Sukunka coal mine and preparation plant in Chetwynd, British Columbia, is highly unlikely to begin operations anytime soon, as it has been mired in the permitting process since the British Columbian government rejected an environmental application last year. For more information, see Industrial Info's project reports on the El Pachon and Chetwynd mines.

Glencore only has four copper-related projects valued at more than $4 million under construction, all of which are in Africa:

• $437 million: Copper ore leach plant addition in Komoto, Democratic Rep of Congo
  For more information, see Industrial Info's project report.
• $327 million: Copper mine shaft deepening in Mufulira, Zambia
  For more information, see Industrial Info's project report.
• $323 million: Shaft expansion at Nkana Copper Mine in Kitwe, Zambia
  For more information, see Industrial Info's project report.
• $232 million: Deepening at Mindola Copper Mine in Kitwe, Zambia
  For more information, see Industrial Info's project report.

Still, Glencore executives are optimistic that the recent upswing in commodity prices will continue and pull the global mining industry out of its years-long funk. Ivan Glasenberg, the chief executive officer of Glencore, pointed to increased demand from China as a major reason why coal and zinc prices have grown 43% and 30%, respectively, since the beginning of the year.

"So where do we see [coal], going forward? [There's] no new supply--that is good for the market," Glasenberg said in a half-year earnings call. "Demand is generally increasing in Asia; in the Pacific world, demand is increasing for new coal; and India has been relatively strong and maintains its strong imports of about 175 million tonnes. But the big factor is going to be what China does: Will they continue importing 150 million tonnes, or will they produce, if they do start increasing production?"

Glasenberg also pointed to nickel as a strong performer in the first half of the year, "by virtue of the nature of grades coming through, particularly in Canada." According to Industrial Info's project database, Glencore's largest proposed nickel projects are in Canada, although some have been mired in the economic evaluation and permitting stages for several years:

• $547 million: Underground nickel-copper mine in Onaping, Ontario
  For more information, see Industrial Info's project report.
• $500 million: Addition to Nickel Rim South underground nickel-copper mine in Sudbury, Ontario
  For more information, see Industrial Info's project report.
• $300 million: Addition to Raglan underground nickel mine and concentrator in Kangiqsujuaq, Quebec
  For more information, see Industrial Info's project report.
• $200 million: Addition to Strathcona nickel-copper mill in Onaping, Ontario
  For more information, see Industrial Info's project report.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.