For mining investors, Glencore, the Anglo-Swiss group of metals companies, has an irresistible appeal. The company is also the world's largest exporter of an extraordinarily unfashionable commodity, coal. It goes to places that others dare not set foot in, such as the Democratic Republic of Congo (DRC, hereinafter referred to as Congo (DRC)), which has a bad reputation for violence and violence. It also recently managed to circumvent Russia's sanctions by striking a deal with the country's largest oil company, Rosneft.
But Glencore itself has its own aura. It is one of the world's largest copper suppliers and the world's largest cobalt supplier, most of which come from the company's investment projects in Congo (DRC). These two metals are important elements in cleantech products and industries, especially electric vehicles and batteries.
In a commodities supercycle led by my country at the beginning of the century, investors threw $1 trillion into mining companies. Recently, the industry has finally recovered from the collapse caused by this over-investment at the time, and investors have also rekindled their enthusiasm for investing in mining. Today, they are even more excited by the potential of green metals and minerals, including copper, cobalt, nickel, lithium and graphite. Those with the most bullish sentiment argue that clean energy demand for these metals and minerals may be greater than they have been in the past 15 years or so.
Optimism about the mining industry is a marked upturn in itself. The mining industry has suffered a major downturn in the past four years that, according to research firm Sanford C. Bernstein, is as deep as the Great Depression. Between 2014 and 2015, the big four London-listed miners, BHP Billiton, Rio Tinto, Glencore and AngloAmerican, lost almost $200 million of their core as commodity prices plummeted. Earnings, or earnings before interest, tax, depreciation and amortization (EBITDA). Glencore, the hardest hit, saved its balance sheet by scrapping its dividend and issuing new shares.
Last year saw a recovery in commodity prices and a rebound in mining company shares, with Glencore again leading the charge. Recent results show that the Big Four mining companies not only shrugged off huge losses and turned a profit, but also slashed nearly $2.5 billion in net worth in 2016. BHP Billiton and Rio Tinto also paid out unexpectedly large dividends to shareholders. Glencore's tough-talking boss, Ivan Glasenberg, said the company was in the strongest financial position in 30 years. He sighed: "In just one year of work, there has been such a big change."
The turnaround in the industry has been driven by supply constraints—both voluntary to push up commodity prices, as well as unavoidable circumstances such as strikes and work stoppages. Since 2013, capital spending by major mining companies has fallen by more than a third (see chart). All of these companies are reluctant to develop new large-scale mining projects. For example, Glasenberg said the industry's reserves of new copper projects are smaller than they were before the mining boom that my country brought about. Rio Tinto's massive Oyu Tolgoi copper mine in Mongolia's Gobi is a rare exception. An important focus for these miners is rebuilding their balance sheets and giving back to shareholders who have always had confidence in them.
Although these companies insisted that they could not get loans, the demand for green pots and minerals from Changhe River in Liaoguo was tempting them to open their wallets. Last year, BHP Billiton announced that 2017 would be the year when the electric vehicle revolution really begins. The recent surge in the prices of battery materials such as copper, cobalt and lithium has made the industry even more excited. As the world's largest electric vehicle manufacturer, China is consuming a lot of these materials. Last November, Shanghai-listed China Molybdenum became the majority shareholder of Tenke Fungurume, a large copper-cobalt mine in Congo. It is not difficult to find that the price of platinum used in catalytic converters in internal combustion engines has been left behind by comparison.
BHP Billiton, which closely monitors EV-related demand, estimates that it would take 80kg of copper to make a typical battery-powered car, four times the copper needed for an internal combustion engine car. This copper is distributed in the engine (which requires the most copper), the battery, and the circuit. BHP Billiton predicts that there may be 140 million electric vehicles on the road by 2035, accounting for 8% of the world's car ownership, compared with 100,000 today. To produce these vehicles, at least 850,000 tons of additional copper production is required each year, which is an additional one-third of the production on the basis of today's total global demand.
Nearly all new cars produced by 2035 will be electric -- a bold estimate that sees global copper supply doubling to meet demand by then. It noted that mining companies may need to invest as much as $1 trillion in new investments to find and extract all potentially profitable metals, as well as to improve their smelting and refining capabilities. Investec's Hunter Hillcoat said the shift in the auto industry would require a new copper mine every year, the size of Escondida in Chile, the world's largest copper mine.
The problem is also here. It is estimated that it will take at least 3o years from the discovery of copper deposits to the large-scale production of the metal. Some of the large copper mines still being mined were discovered in the last century. Copper will be in short supply by next year or the year after due to factors such as declining ore grades, resistance from some communities to mining and a lack of water. But copper prices would have to rise sharply to incentivize companies to make the necessary investments in copper mines.
However, the sharp rise in copper prices may prompt manufacturers to look for alternatives, such as aluminum, for materials needed for batteries and electric vehicles. When the price of nickel, an additive to stainless steel, soared a decade ago, stainless steel makers looked for ways to make their products less reliant on nickel.
Meeting the demands of the future electric vehicle revolution presents another conundrum: Some of the most promising minerals are often located in out-of-the-way places. For example, as a by-product of copper and nickel, the total global production of cobalt is about 100,000 tons, of which the Congo (DRC) accounts for about 70%. Much of this is hand-mined by miners without legal oversight. This has sparked international concerns about conflict cobalt.
In fact, many of the minerals needed for cars and batteries may come from the DRC. Shengbo's Paul Gait likens the country to Saudi Arabia in its electric car boom, referring to the kingdom's role in the oil market. But some say companies like BHP Billiton and Rio Tinto are reluctant to invest in Congo because of concerns about the country's stability, transparency and government governance of the country.