The FTSE 100 British-Swiss mining giant Glencore (LSE: GLEN) saw a 5% share price spike last week after it released a production update. It was the sharpest increase in more than a year and has been rising steadily since. It was up by 7.3% at the last close. Investors are clearly impressed with the miner, even though the update is a mixed bag.
Improved African operations
Copper, which is a big revenue generator, saw a decline in production. But production for cobalt and coal rose. Cobalt production rose by 10%, which is good news for multiple reasons. First, its the result of improved African operations. Glencore temporarily closed down one of its mines in the Democratic Republic of Congo (DRC) last year. One reason was a sharp fall in cobalt price. But according to news reports it was also because of regulatory and taxation related issues. It’s also facing an investigation by the UK’s serious frauds office on the grounds of possible bribery in its DRC operations.
The promise of cobalt
63% of global cobalt production is concentrated in the DRC, which suggests the importance of the country for Glencore, which is the biggest producer of cobalt in the world today. Demand for cobalt, which it produces as a by-product of both copper and nickel production operations, is only expected to rise overtime.
It’s a component in electric vehicle (EV) batteries, which are the answer to the polluting fuel-run cars more widely used today. GLEN is rumoured to be in talks with US-based Tesla to supply cobalt for its EVs. Batteries even otherwise can use cobalt, as in the case of Samsung SDI, which recently signed a five-year deal with Glencore.
Cobalt could become particularly important for Glencore as the world economy transitions away from fossil fuels. As per the company’s last update, coal still accounted for over one-fourth or almost 28% of its revenues, even though it’s on its way out.
One for the income investor
Glencore has been growing its revenues every year for the past few years and has been profitable too. But looking at the long-term share price of Glencore, its immediately obvious that it’s not one for the long-term growth investor. An active investor might find multiple opportunities for capital gains, but the share price hasn’t seen sustained increases more suitable for passive growth investment.
Passive income generation, however, is another story. For the last three years GLEN has paid a dividend, and at present its yield is at 6.5%. This is over 2 percentage points higher than the average FTSE 100 yield. In its outlook released along with its half-year results, the management sounded confident. Ivan Glasenberg, the CEO, talked among other things. about “attractive shareholder returns on offer”.
The GLEN share price is attractive even now, but if I want to be really sure of where it’s headed, I don’t have to wait for too long. Its results are due next week.
