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2019-09-05 11 ENGLISH REPORTS
We have been cautious on the outlook for cobalt over the last 18 months (note) as we identified a significant number of major growth projects being developed in the DRC and we expected the cobalt market to be materially oversupplied in 2018- 23. As expected, this oversupply resulted in a sharp fall in the cobalt price since mid-2018 and prices are now back to the pre-bubble level of $12-13/lb. Last week, Glencore announced that it is putting Mutanda, the largest cobalt mine in the world, on care and maintenance from the end of 2019 as it has become unprofitable due to lower cobalt/ copper prices & higher raw material costs; the operation is also suffering higher tax due to the new Mining Code in the DRC and is getting close to depleting the oxide reserve (so Glencore will need to invest in a roaster or concentrator to be able to process transitional or sulphide ores). In our opinion, this, combined with a slower ramp up of the key growth projects, materially improves the outlook for cobalt prices over the next 18 months. We estimate there is now only a small oversupply in the cobalt market, and as a result we see potential for prices to increase materially (UBSe ~60%) from the current depressed level over the next 18 months. We recognise there is an inventory overhang but a large part of this is owned by Glencore and we expect it to be placed back in the market in a disciplined way. We also still expect OEMs and battery-makers to look to build cobalt inventories through their supply chain as they ramp up production to meet the growing EV demand over the next few years.
We set out below the latest updates with the key cobalt operations in the DRC (Katanga, Mutanda, RTR), using company data & other industry sources. We also use fresh satellite images provided by UBS Evidence Lab to review progress at Shalina's Mutoshi project and CNMC's Deziwa project. These are the 3rd and 4th largest cobalt growth projects in the DRC (after Glencore's Katanga and ERG's RTR projects); there is limited visibility on these as both are privately owned.v> n Dec-18 at its annual Investor Update presentation, Glencore announced that Mutanda's production profile was under review (including the copper/ cobalt scheduling mix) following drilling results that identified faster than expected transition to sulphide ores. It confirmed it is also undertaking analysis to determine the economics of developing the sulphide resource base taking into account capex/ opex and the "regulatory regime". In Feb-19 with its FY18 results, Glencore confirmed that it has re-optimised the mine plan of Mutanda which reduces the copper production to ~100kt with cobalt unchanged at ~25ktpa. It also said the sulphide resource feasibility study would be completed by the end of 2019. At this time GLEN made a number of contractors & expatriate workers redundant (link). In Aug-19 with its 1H19 results Glencore announced that Mutanda will be placed on "temporary care and maintenance" by the end of 2019, reflecting "its reduced economic viability in the current market environment, primarily in response to lower cobalt prices". We understand the mine is EBITDA break-even at current prices and cash flow negative. It will continue to run the acid plant and sell acid to third parties which will minimise the cost of care & maintenance. It confirmed that the sulphide project studies (either roaster or concentrator), which have the potential to extend operations for many years, continue and they expect to be able to provide an update at its Investor Day in December.
标签： ENGLISH REPORTS