Focus: Glencore's risk appetite dwindles, fueling focus on safer regions

Polymet Mining

05/09/2019 06:00

By Ernest Scheyder and Barbara Lewis
    Sept 5 (Reuters) - Glencore Inc's  GLEN.L  penchant for risk
has long been mining industry lore, but the company is quickly
expanding into a part of the world that would have been
improbable just a few years ago: Minnesota.
    The Swiss-based commodity trader took majority control last
June of PolyMet Mining Corp  POM.TO , which is developing a mine
in the Midwest state near the Canadian border estimated to hold
a century's worth of copper and nickel, critical to the
development of electric vehicles. 
    It is the first time that Glencore has controlled a major
mining project in the United States, where President Donald
Trump has cut mining regulations and red tape in a bid to
encourage domestic mining, a marked change from predecessor
Barack Obama, who favored stricter oversight of the sector and
slowed or halted several large mining projects.
    Glencore for years has operated in regions considered
high-risk, high-reward, making its shares a draw for some
investors who saw the more conservative investing policies of
peers, including BHP Group PLC  BHPB.L , as too tame.
    But displeasure from institutional investors and the
electric vehicle industry with cobalt mining techniques and
dangerous conditions has risen. In June, at least 41 illegal
miners were killed at Glencore's Congo operations. For a
FACTBOX, click  urn:newsml:reuters.com:*:nL2N23Y14T
    In the last year, Glencore's shares have underperformed
global peers BHP and Rio Tinto  RIO.L , which have largely
avoided the fray in part by sticking with higher margin bulk
commodities, including iron ore and coking coal, both
ingredients for steel-making.  urn:newsml:reuters.com:*:nL2N240099  urn:newsml:reuters.com:*:nL1N22E1PD
    "It's hard to tell if Glencore is doing enough to mitigate
risk, but they seem to be taking initiative," said David
Neuhauser of Livermore Partners, which holds Glencore shares.
    Alongside Minnesota's PolyMet, Glencore has invested in
Canada's First Cobalt Corp  FCC.V  to restart an Ontario
refinery, started a new copper concentrates blending facility in
Taiwan, and also is searching for non-Russian sources of
aluminum, expressing an interest in buying Rio's operations in
Iceland. 
    Glencore has also held very early discussions about cobalt
in Kazakhstan, industry sources said, talks that come after the
company said it will halt output of the metal in Congo for at
least two years.  urn:newsml:reuters.com:*:nL8N24H3ZI urn:newsml:reuters.com:*:nL8N24538Y
    That's a sign that "the (automakers) are paying more
attention to the geography and reputation risk of their supply
chain," forcing change at Glencore, said Frances Hudson of
Aberdeen Standard, which holds the company's shares.
    A Glencore spokesman declined to comment for this article.
    A BMO Capital Markets analyst earlier this week cut its
price target on Glencore, citing in part uncertainty around the
company's Congo operations. 
    Glencore said last month that its profit in the first half
of the year fell 32 percent due weakness in the company's cobalt
operations and sliding prices for the metal, results that sent
its shares to their lowest level since 2016.  urn:newsml:reuters.com:*:nL4N2531PX
    To be sure, Glencore has operated for years in Australia and
other countries considered safe havens for miners.
    The company inked a deal this year to supply cobalt to BMW
 BMWG.DE , but only cobalt produced from its Murrin Murrin mine
in Australia. 
    
    IRON RANGE
    Glencore took majority control of PolyMet in a
debt-for-equity swap that boost its stake from about 30 percent
of the smaller miner's shares to about 72 percent. That
transaction made PolyMet debt-free. 
    PolyMet earlier this year received the last of the permits
it needs to begin construction of the open pit Northmet mine in
the state's Iron Range, a rural region about 200 miles (322 km
north of Minneapolis. Once operational, the mine is expected to
produce 255 million tonnes of copper and nickel over the next
century. 
    A former steel mill near the deposit is being renovated to
hold processing equipment. PolyMet had previously committed to
providing all of its ore to Glencore.
    "PolyMet has potential and has the right zip code," said
Neuhauser of Livermore Partners.
    PolyMet will remain the mine's developer and operator. The
company plans to produce 310 million pounds of copper annually
when fully operational, about 3 percent of the copper that
Glencore produced in 2018.
    Glencore is moving to incorporate PolyMet into its financial
reporting and having it use Glencore's own auditor, Deloitte
 DLTE.UL . PolyMet had previously used PricewaterhouseCoopers. 
    Glencore, which added its longtime executive Peter Freyberg
to the PolyMet board, has also begun organizing meetings with
potential financiers for the project, with PolyMet needing about
$1 billion to develop Northmet.
    Operating in the United States does present its own set of
challenges. The United Steelworkers union, which represents
miners in the country, has given Glencore a "silver medal" in
"corporate irresponsibility" due in part to what it has labeled
tax evasion and anti union-intimidation. The union says it
represents 850,000 workers in the United States, though it does
not break that figure down by industry.
    The Minnesota Center for Environmental Advocacy said
Glencore's safety record "should concern every Minnesotan."
    PolyMet Chief Executive Jon Cherry said opponents to mining
were putting up a "false choice between environment and
technology."
    "These metals will be mined somewhere in the world," he told
Reuters. "The discussion should be around how you mine and
making sure it's done responsibly."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
FACTBOX-Glencore mining fatalities in recent years   
 ID:nL2N23Y14T 
Glencore's Congo tragedy highlights security conundrum for
miners     ID:nL2N240099 
Cobalt, Africa setbacks shrink Glencore's first-half profit   
 ID:nL4N2531PX 
Rio Tinto's Icelandic aluminium plant attracts Glencore    
 ID:nL8N24538Y 
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Additional reporting by Gui Qing Koh in New York; editing by
Edward Tobin)
 ((ernest.scheyder@thomsonreuters.com; Twitter: @ErnestScheyder;
+1-713-210-8512; Reuters Messaging:
ernest.scheyder.thomsonreuters.com@reuters.net))