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Glencore cuts supply cloth to fit demand coat

Ivan Glasenberg hand-in-hand with Education Minister Angie Motshekga at school opening.
Photo by Duane Daws
Ivan Glasenberg hand-in-hand with Education Minister Angie Motshekga at school opening.

4th May 2016

By: Martin Creamer
Creamer Media Editor

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JOHANNESBURG (miningweekly.com) – The mix of mining and marketing within the same company provides sensitivity to commodity price falls.

Continually highlighting the value of the mining-marketing mix is Glencore, which is quick to respond to market changes.

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The supply-savvy approach of the diversified global producer and trader of more than 90 commodities was again apparent in Wednesday’s first-quarter (Q1) production report.

The January-to-end-March production figures reflected “proactive production cuts announced and actioned in 2015”.

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The upshot was less copper, zinc, lead, coal and oil output, in line with what the company headed by CEO Ivan Glasenberg outlined as its “disciplined approach to supply at low points in the commodity cycle”.

One gets the sense that the trading skills of Glencore – which has operations on 150 mining and metallurgical sites – stop it from increasing tonnes that are not going to give a return.

On the issue of capital misallocation, Glencore has in the past cautioned against viewing the internal rates of return (IRRs) of expansions in isolation and has urged companies to view IRRs holistically to avoid being lured by their false attractiveness when viewed alone.

The company has also made the point that while it is important to cut costs, setting out to go down the cost curve by increasing supply can have the backfiring effect of lowering prices overall, as has happened in iron-ore.

FIRST-QUARTER PRODUCTION

In its latest Q1 production, own-sourced copper production was 4% lower at 335 000 t on African cutbacks; own-sourced zinc production was 28% lower at 257 100 t on Australian, Peruvian and Kazakhstani pruning; and coal production was 17% lower at 29.7-million tonnes on the loss of control of South Africa’s Optimum colliery from August last year as well as mining restrictions in Colombia.

But the company was unafraid to up the ante with Agricultural Products’ crush volumes, which skyrocketed on better macroeconomic conditions in Argentina.

While production remained suspended at Katanga and halved to 10 700 t at Mopani, the Mutanda opencast copper mine in the Katanga province of the Democratic Republic of the Congo produced 54 700 t of copper in Q1, a 6% increase on the comparable period last year.

In Australia, own-sourced production of 52 900 t of copper was 17% lower, following a third party train derailment between Mount Isa Mines and the Townsville refinery in December.

At Collahuasi, in Chile, Glencore’s share of copper production of 51 100 t was 11% higher, and it was 32% higher at 36 800 t at the Antamina copper and zinc mine, in the Andes mountains of Peru.

At Glencore’s own metallurgical assets, cathode production was a 2%-lower 113 900 t and anode production a 9%-higher 136 100 t on improved throughput at the Horne smelter in Canada, which is one of the world's largest processors of electronic scrap containing copper and precious metals.

ZINC PRODUCTION

Own-sourced zinc production was 28% lower at 257 100 t on cuts in Australia, Peru and Kazakhstan and own-sourced lead production a 6%-lower 71 000 t.

At Kazzinc, own-sourced zinc production was 7% lower at 42 900 t and including third party material, zinc metal production was an in-line 76 000 t on strong and consistent plant operations.

Own-sourced lead production was a 143% higher at 12 200 t on the positive impact of the inclusion of Zhairem material, now being processed at Kazzinc.

In Australia, zinc production was 36% lower at 124 000 t and lead production a 12%-lower 47 000 t.

In North America, zinc production was 4% lower at 27 000 t on lower zinc grades at Kidd mine.

In South America, zinc production was 33% lower at 49 100 t, owing to the suspension of the Iscaycruz mine, at Los Quenuales, in Peru, and lead production 31% lower at 11 800 t on lower head grade at Aguilar in Argentina.

Output from the Aguilar mine, which formerly fed the now-closed AR Zinc smelter in Argentina, is sold as concentrate.

In Europe, zinc metal production from custom metallurgical assets was an in-line 197 600 t and lead metal production 11% higher at 55 500 t on a strong performance at Northfleet in the UK.

NICKEL ASSETS

Own-sourced nickel production was 16% higher at 27 600 t on a higher mix of own feed treated at Nikkelverk, in Norway, and a strong performance at Murrin Murrin in Australia.

In New Caledonia, the Koniambo mine produced 2 400 t of nickel-in-ferronickel, with the direct current (DC) furnace 1 being operative in the three months to the end of March, and DC furnace 2 decommissioned.

FERROALLOYS PRODUCTION

Glencore’s attributable share of ferrochrome production at its operations in South Africa was a 4%-higher 400 000 t on the full ramp-up of the new low-energy Lion 2 ferrochrome plant.

Platinum group metals production from chrome operations in South Africa was a 23%-lower 27 000 oz on the Eland operation being placed on care and maintenance in October. Output from the Mototolo platinum mine near Burgersfort, in Limpopo, was 25 000 oz.

VANADIUM PRODUCTION

Vanadium pentoxide production of 5.6-million pounds was 0.3-million pounds, or 6%, higher than the comparable period as a result of improved plant recoveries at the company’s Rhovan operation, situated near Brits in South Africa’s North West.

Manganese production of 64 000 t from France and Norway was in line with the comparable period.

Glencore has kept its 2016 marketing earnings guidance unchanged at up to $2.7-billion.

GOLD MINE SALE

Confirming an earlier report in the Financial Times, sources told Reuters this week that Glencore had appointed Deutsche Bank and BMO Capital Markets as advisers in connection with the possible sale of its nigh-70%-held Vasilkovskoye gold mine in Kazakhstan.

The company's customers are industrial consumers, such as those in the automotive, steel, power generation, oil and food processing.

It employs some 160 000 people, including contractors, and provides financing, logistics and other services to producers and consumers of commodities.

As is indicated by the Mining Weekly Online picture heading this article, Glencore built a large R75-million school in South Africa’s Mpumalanga coalfields, from which it could well draw future employees. The picture shows Glasenberg handing over the school to Basic Education Minister Angie Motshekga.

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