ENERGY MINERALS

Glencore suspends Kamoto cobalt sales

A quarter of the world's cobalt supply will be suspended for the first half of 2019, after Glencore (LSE:GLEN) subsidiary Katanga Mining (TSX:KAT) stopped cobalt exports after finding "unacceptable" levels of uranium in its hydroxide concentrate.

No cobalt will be sold from Kamoto until the second half of 2019

No cobalt will be sold from Kamoto until the second half of 2019

Katanga said it had suspended exports and sales "until further notice", with 1,472 tonnes of finished cobalt already impacted.

RBC's Tyler Broda said in a note the suspension meant that 25% of global cobalt sales were to be delayed until the second half of 2019.

One positive given by Katanga was that the low levels of radioactivity detected had not presented a health and safety risk, although Katanga said the levels were over the acceptable limit allowed for export through main African ports to customers.

To combat the issue, the company will build a US$25 million ion exchange system to remove the uranium, with commissioning expected by the end of June 2019 quarter, subject to approvals.

It said finished cobalt output would be stored until it could be processed through the exchange, with the processing and sales of all the stored product likely to be completed before the end of 2019.

Katanga said the suspension was "expected to negatively impact revenue" during the December 2018 quarter and the first half of 2019.

It added that this revenue was expected to be realised during the September and December quarters of 2019.

Broda said the suspension would delay cash generation and cause a build up in working capital at Kamoto, but this should be offset by the impact of the halt on cobalt prices, boosting revenues from Mutanda and Glencore's other cobalt assets.

According to the LME, cobalt prices hit a year-to-date low of $44,500 per tonne on Friday, but had jumped to $50,000/t Tuesday.

Broda said the suspensions could actually end up being an economic benefit for Glencore, depending on on the price reaction of the wider cobalt market. 

"Our published estimates anticipate that Glencore will produce around 22,000t of cobalt between Q3 2018 and Q2 2019. At spot prices, this would account for a delay of $700 million of revenues. But this also accounts for, on an annualised basis, 25% of the world's cobalt supply (30,000t of 120,000t)," he said.

"Over this period, Mutanda will produce 16,500t and Nickel will produce around 5,000t as a by-product. Assuming there are no uranium issues that this uncovers elsewhere, this production will benefit from any positive price impact".

From within the industry, TechMet CEO Brian Menell said the news was expected to result in short-term volatility in the cobalt price, but the company remained of the view that increasing demand for cobalt would require a "positive price shift to encourage new production over and above already planned projects and expansions".

Katanga's shares dropped 25% Tuesday to C48c (US37c), while Glencore's shares were down 3.28% at £3.11 (US$4.07).

A growing series of reports, each focused on a key discussion point for the farming sector, brought to you by the Kondinin team.

A growing series of reports, each focused on a key discussion point for the farming sector, brought to you by the Kondinin team.

editions

Mining Journal Intelligence Investor Sentiment Report 2024

Survey revealing the plans, priorities, and preferences of 120+ mining investors and their expectations for the sector in 2024.

editions

Mining Journal Intelligence Mining Equities Report 2023

Access an exclusive, inside look on the quarterly mining IPOs and secondary raisings data and mining equities performance tables with an annual Stock Exchange Comparisons supplement.

editions

Mining Journal Intelligence World Risk Report 2023 (feat. MineHutte ratings)

A detailed analysis of mining investment risks across 121 jurisdictions globally, built on 11 ‘hard risk’ metrics and an industrywide survey.

editions

Mining Journal Intelligence Global Leadership Report 2023: Social licence

Gain insights into social licence trends and best practices from interviews with 20+ top mining company executives and an industrywide survey.