Home Estate Planning Glencore remains bearish on nickel outlook as it writes off £3.2bn investment

Glencore remains bearish on nickel outlook as it writes off £3.2bn investment

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Mining giant Glencore is exiting its 49 per cent stake in a major nickel mine, weeks after lowering expectations for its performance in a slumping global market for the commodity.

The firm inherited its stake in the Koniambo nickel operation when it acquired Xstrata a decade ago and has since run it on behalf of the Societe Miniere du Sud Pacifique via the French government, which controls the territory.

The Swiss mining group has piled around $4bn (£3.2bn) into the mine to date, but said yesterday that the high operating costs and market conditions meant the project was no longer fit for its portfolio as a shareholder burden.

Indeed, the writing has been on the wall for some time, with Glencore saying back in September: “We has been working for years to identify a path toward a cost effective, reliable Koniambo Nickel business that can meet production and financial targets.

“While significant progress has been made in productivity performance and reliability, KNS continues to struggle financially and incur significant losses largely due to factors outside of its control relating to cost structures and market conditions.”

The Financial Times reported today that the French government offered €200m (£171m) in support of the project and remains “totally enagaged” with finding a new investor.

The crucial electric vehicle metal is in a somewhat unique space within commodities.

For one thing, the market is bullish on its outlook over the long term, owing to a mining bonanza coming to light in Indonesia in 2022 – now estimated to account for 50 per cent of the world’s supply.

But with the market glutted, demand has crashed along with prices and Indonesia along with its fellow global player China are eyeing cuts to their supply starting with a slash of at least 100,000 metric tonnes this year.

Cuts so far have removed more than 230,000 tons or around 6 per cent of potential supply for this year, according to Macquarie analysts but this was not enough to boost prices.

Earlier this month, Glencore said that production across its key energy transition stable of metals was lower for 2023 and warned that 2024 could bring the same.

Approximately 97,600 tons of nickel came through last year, missing October guidance which chief executive Gary Nagle said was as a result of third party production issues. A drop of between 7-7,000 tons is expected this year

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