FTSE 100 precious metals miner Glencore (LSE:GLEN) has endured a rocky few years with regulatory issues, price wars and hard working conditions. Despite falling 28% year-to-date, the Glencore share price is up over 57% since the stock market crash in March.
In December 2017, Glencore’s share price was peaking above £4 and shareholders were excitedly cashing in. But around this time, it began a long decline, which finally fell off a cliff in February/March this year. Since the 2020 stock market crash, however, the Glencore share price has rebounded 57%. At around £1.70 a share, it is a far cry from previous price highs, but it shows signs of investor belief and recoverability.
Criminal investigations
Mining stocks are an unpopular sector to own, both for the risk associated with them and for ethical reasons. Mining shares are notoriously volatile because the demand for their resources fluctuates, and the places excavated are often situated in parts of the world where corruption and hostile conditions exist. Glencore mines its cobalt in Africa and has endured many political and reputational hurdles in recent years. In June 2019, 40 people tragically lost their lives in an accident at its Kamoto copper mine in the Democratic Republic of the Congo (DRC).
On Friday Glencore announced it is facing yet another investigation, this time from the Office of the Attorney General of Switzerland. Specifically stating “for failure to have the organizational measures in place to prevent alleged corruption in the DRC”. This is Glencore’s fourth regulatory investigation in under two years and is not good news for its share price.
In addition to this, the US-China trade war has been dragging on for two years and looks set to continue. This weighs heavily on demand for natural resources (and the Glencore share price). Mining companies have faltered with the challenging economic backdrop affecting their operating costs. Glencore is no different as the trade war has caused the demand for cobalt and copper to wane. However, it has clients on both sides, with Tesla in the US and a four-year partnership to supply Cobalt to China’s GEM Co through to 2024.
Is the Glencore share price too cheap to ignore?
The coronavirus pandemic has caused havoc with industries around the world and mining is no different. The market for natural resources has declined and recovery will take time. However, some of Glencore’s offerings, namely cobalt and copper, are likely to be necessary for a long time to come.
Glencore is a world leader in cobalt mining, which is used in the making of electric car batteries, laptops, and smartphones — all products with increasing demand. It also mines for nickel, zinc, lead, aluminium, gold, and silver, along with extracting oil and gas.
Tesla, the electric car company controlled by Elon Musk, already signed a contract with Glencore for its cobalt and last week extended this. It now intends to use cobalt from Glencore’s mines in the DRC to make lithium-ion batteries at Tesla’s Gigafactories in Berlin and Shanghai. This is great news for the Glencore share price.
The regulatory concerns shouldn’t be ignored and if you buy shares in the firm, you should know the risks involved. I think the Glencore share price will rise, but it will be a volatile journey. Although the share price looks cheap, there are less volatile stocks available (I like SSE, for instance).
