Mining giant Glencore is exiting its 49 percent stake in a major nickel mine, weeks after lowering expectations for its performance in a slumping global market for the commodity.
The firm inherited its stake in the Koniambo nickel operation when it acquired Xstrata a decade ago and has since run it on behalf of the Societe Miniere du Sud Pacifique via the French government, which controls the territory.
The Swiss mining group has shovelled around $4bn (£3.2bn) into the mine to date but said yesterday high operating costs and market conditions meant the project was no longer fit for its portfolio.
Indeed, the writing has been on the wall for some time, with Glencore saying back in September: "We has been working for years to identify a path toward a cost-effective, reliable Koniambo Nickel business that can meet production and financial targets.
"While significant progress has been made in productivity performance and reliability, KNS continues to struggle financially and incur significant losses largely due to factors outside of its control relating to cost structures and market conditions."
The Financial Times reported today the French government offered €200m (£171m) in support of the project and remains "totally engaged" with finding a new investor.
Nickel is a crucial component for electric vehicles and as such, investors have rushed into the nickel mining sector over the past few years.
But demand hasn't lived up to market expectations and now the market is facing a glut of the commodity. China and Indonesia, two major suppliers, have both responded by cutting supply - as much as 100,000 metric tonnes this year.
Other producers have also slashed production with total cuts so far removing 230,000 tons or around 6 percent of potential supply for this year, according to Macquarie analysts.
Still, even these cuts have not been enough to boost prices forcing other miners to cut back.
Earlier this month, Glencore said that production across its key energy transition stable of metals was lower for 2023 and warned that 2024 could bring the same.
Approximately 97,600 tons of nickel came through last year, missing October guidance which chief executive Gary Nagle said was a result of third-party production issues. A drop of between 7-7,000 tons is expected this year
By City AM
More Top Reads From Oilprice.com:
CityAM.com is the online presence of City A.M., London's first free daily business newspaper. Both platforms cover financial and business news as well as sport and… More