Swiss commodities trading and mining giant Glencore plc (GB:GLEN) is halting production at its Koniambo Nickel SAS (KNS) plant in the New Caledonia French territory and plans to sell its stake amid a significant slump in nickel prices. The news comes even as the French government stated that it offered KNS funds worth 200 million euros, expressing its support in the ongoing crisis. The U.K.-listed shares of Glencore were up 1.6% as of writing.
Why is Glencore Exiting KNS Operations?
KNS is a joint venture between Glencore and Société Minière du Sud Pacifique SA (SMSP), with Glencore having a 49% stake. Glencore said that the company would be transitioning KNS into “care and maintenance” and fund the operations during the six-month transition period.
GLEN intends to identify a new industrial partner to sell its KNS stake. The move follows several months of intense talks and negotiations with the French government and other key stakeholders of KNS. The company highlighted that it has invested $4 billion in KNS since 2013, when it acquired the plant as part of the Xstrata merger.
Glencore made it clear that while the French government’s efforts to save the New Caledonia nickel industry are appreciable, the company cannot continue to operate KNS as it remains an unprofitable operation with high operating costs. Moreover, the ongoing weakness in the nickel market due to macro uncertainty in China makes matters worse.
Nickel, which is used in making stainless steel and electric car batteries, has seen its prices drop by nearly 50% since the beginning of 2023. Robust supply from Indonesia has also weighed on prices.
Is Glencore a Good Stock to Buy?
With six Buys and five Holds, Glen stock earns a Moderate Buy consensus rating on TipRanks. The Glencore share price target of 513.18p implies nearly 32% upside potential.
