From the edge of the Kamoto Copper Company’s pit, it is hard even to see the mechanical diggers toiling dozens of tiers below.
The 650-foot hole on the southern edge of the Democratic Republic of Congo is deeper than Africa’s tallest building is tall. Trucks take the best part of an hour to crawl out from its heart.
The greenish ore they lug is given its hue by copper but much of its value by cobalt nestled within. Usually driven to South Africa, then often shipped to China, the cobalt will emerge from a series of factories as the priciest component of a battery powering a smartphone or, increasingly, an electric car.
A sign at the mine indicates it is 820 miles to Kinshasa, the capital, half a week’s drive away. Another arrow points to a less likely destination: Baar, a sleepy suburb of Zurich, 4,000 miles away at the foot of the Swiss Alps. Located in a business park there are the headquarters of Glencore, the company that ultimately controls the Congolese mine.
Once a commodities trader that merely bought and shipped stuff others dug out of the ground, in recent years Glencore has gate-crashed an august club of global mining companies, such as Rio Tinto and Anglo American, whose histories stretch back to colonial times. Within its sprawling portfolio, Glencore is the main backer of PolyMet Mining Co., the St. Paul firm that aims to finish Minnesota’s first copper-nickel mine.
Its transformation has not been problem-free, however. Glencore’s dealings in Congo have landed it in a hole as deep as Kamoto. Authorities in the U.S., Canada and Britain are probing whether its executives, known in the industry for their sharp suits and elbows, deployed even sharper business practices to get ahead.
Investors have started to question the firm’s prospects; its share price has slumped. Mining firms once encouraged to emulate Glencore’s aggressive culture now wonder whether their old-fashioned approach might not have more merit after all.
Glencore is to mining what Goldman Sachs is to Main Street banking: nominally in the same trade but in a turbocharged way. Like the Wall Street stalwart, Glencore thrived first as a private partnership, set up in 1974 as Marc Rich + Co. Its eponymous founder gained fame as a consummate trader, and infamy for evading U.S. authorities irked by his busting of sanctions and dodging of taxes. (He was ousted from the firm in 1993, after which the company was re-christened Glencore.)
When the firm listed its shares in London in 2011, it was the first in a generation to be propelled straight into the blue-chip FTSE 100 index. Its top brass, particularly Ivan Glasenberg, a brusque South African who joined in 1984 and who has been chief executive since 2002, were lauded as visionaries in a staid field. At least five senior executives were revealed to be billionaires — almost unheard of for employees rather than founders of any company, whatever the industry. Around 40 top traders held shares valued at over $200 million each.
Bosses of mining firms are mostly engineering types, as comfortable down a mineshaft as in a boardroom. An accountant by training, Glasenberg’s spiritual home is the trading floor. Glencore handles more than 90 commodities, from soybeans to aluminum.
Trading is a fabulously lucrative business. Returns on equity at Glencore’s operation can top 40 percent a year. But there are limits to how big it can get. So Glencore branched out. Instead of just securing the off-take of mines, it wanted to own them. It has mostly bought facilities set up by others (or so rivals decry). Its transformation was complete when in 2013 it took full control of Xstrata, a big coal and metals venture.
Glencore is now overwhelmingly a mining group — around two-thirds of its $8.6 billion in adjusted operating profits last year came from stuff coming out of the ground. But its DNA is still that of a trader’s. Sometimes it cuts its own production to support prices: a sort of one-firm OPEC. It is nimbler than rivals, and more opportunistic. “Glencore has a different culture to other miners. They are quick, they trust their own judgment,” said Paul Gait of Sanford C. Bernstein, a research firm.
The superlatives are less frequently heard now than they were at the time of listing. Investors who bought Glencore shares at the time have lost 48 percent of their money since 2011 — a worse return than any of its big FTSE mining peers except for Anglo American. Glasenberg failed to spot a commodities-price wobble coming in 2015. A humbling $2.5 billion capital infusion was required to fix the balance sheet. After recovering, its shares have slipped again since the start of 2018 and trade at just 7.3 times this year’s estimated earnings.
Many people in mining think Glencore’s buccaneering business model is now haunting the firm rather than helping it. Glasenberg’s strategy has been not so much contrarian as actively seeking out opportunities others shun. Most worrisome to investors has been its investment in Congo, a country avoided as too risky by big rivals. Tricky conditions have necessitated $7 billion in investment to improve its mines there. At first the payoff seemed worth it, especially given a surge in the price of cobalt, a by-product that was a mere afterthought when Glencore had first invested in 2007.
How and when the Glasenberg era ends is what investors are most curious about now. Age 61, he has already started indicating to investors he won’t be around for more than three to five years — as it happens, roughly the time frame of a Department of Justice investigation of the scale Glencore faces.
None of his lieutenants are in line for promotion; even in the gossipy world of mining, no one has any idea who will succeed him.