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Are Glencore shares worth buying despite this latest accident?

Apparently a growing trend, mining concessions in the Democratic Republic of the Congo (DRC) have been hit the past few years by a growth of illegal mining operations by local ‘artisanal miners’.

This led to the tragic death this week of dozens of these miners in the South-eastern city of Kolwezi on Thursday, when terraces that overlooked the main pit of a copper and cobalt mine belonging to Glencore (LSE: GLEN) collapsed. This is yet another blow for the company’s mining operations on the continent.

Radioactive statements

Katanga Mining, Glencore’s subsidiary in the DRC, was fined by Canadian regulators last year for issuing “false and misleading” statements. The company was also forced to halt cobalt sales in 2018 after traces of uranium were found in its supplies. More recently, the new management team at Katanga lowered their production guidance as part of a wide review of operations.

Glencore has already seen its share price weighed down by an on-going investigation by the US Commodity Futures Trading Commission (CFTC) into allegations of “corrupt practices”, with reports of money laundering and compliance issues in the DRC, Nigeria and Venezuela.

Though the company said Thursday’s accident would not affect production or operations at the mine, the broader implications of such illegal mining does perhaps have longer-term implications for those firms operating in the region.

Companies that operate in the region have a social and moral responsibility (as well as a legal and PR prerogative) to try to stop as many incidents as they can. This obligation goes further than sentimentality, though; failure to curb such incidents may genuinely impact the company’s Social License to Operate (SLO) in the country.

SLOs are often vague agreements, though sometimes-more specific legal contracts, between a local community and a business operating in the area, and usually include commitments to things such as building infrastructure and worker housing. Without such SLOs, mines in extreme cases may have to be shut down.

A man with a shovel

Glencore estimates that some 2,000 illegal miners enter its land each day. Open pit mines, such as the site of this latest incident, offer easy access to the ore, and have vast perimeters spanning tens of miles of rugged land. This makes policing such operations almost impossible.

The country’s impoverished citizens, most already living what we in the West would think of as impossibly difficult and dangerous lives, have been known to dig tunnels under security fencing and walls, in order to ‘extract’ the ore with little more than a shovel. Trying to prevent this, if prevention is undertaken properly, will cost large sums of money.

Worth buying

Even considering these costs, it seems unlikely that they will amount to anything that would significantly hurt revenues and profits. Many of the company’s fundamentals look solid, and as the old guard of management begins to leave, a younger generation may have more interest in creating lasting value and avoiding legal battles like the firm is currently seeing. Add to this a nice 5% dividend, and I think Glencore may be a decent addition to a perhaps slightly riskier portfolio.

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Karl has no positions in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.