Glencore reaches inflection point, ft Bloomberg Intelligence’s Alon Olsha

Key Concepts: De-dollarization strategy, Opaque gold market, Central bank gold accumulation, Rare earths export controls, Yttrium crisis, Validated End-User (VEU) system, Glacier protection laws, Commodity trading house, Diversified miner, ESG (Environmental, Social, and Governance), Brownfield project, Capital allocation, Treatment and Refining Charges (TRCs), Environmental capex, Capital Markets Day (CMD).

China's Secretive Gold Purchases and De-Dollarization Strategy

A significant Financial Times expose by Leslie Hook on November 14th revealed that China's unreported gold purchases could be more than ten times its official figures. This clandestine buying is driven by China's "de-dollarization strategy," aiming to diversify away from the US dollar. Publicly reported central bank buying has been remarkably low (e.g., 1.9 tons in August and July, 2.2 tons in June), leading to widespread market disbelief. Analysts at Société Générale estimate China's total purchases could reach 250 tons this year, representing over a third of total global central bank demand.

This opaque demand source creates significant challenges for traders trying to predict gold prices. Jeff Curry, chief strategy officer of energy pathways at Carlyle, noted, "China is buying gold as part of their de-dollarization strategy," adding, "Unlike oil, where you can track it with satellites, with gold, you can't. There's just no way to know where this stuff goes and who is buying it." Traders are resorting to alternative data, such as orders for freshly cast 400-ounce bars refined in Switzerland or South Africa, shipped via London, and flown to China. Bruce Ekamizu of the Japan Bullion Market Association believes China's actual gold reserves are nearly 5,000 tons, double the publicly reported level.

Central banks globally have been accumulating substantial quantities of bullion, pushing gold prices above $4,300 per troy ounce. Over the past decade, gold's share of global reserves outside the US has climbed from 10% to 26%, making it the second-largest reserve asset after the dollar, according to World Gold Council data. However, reporting to the IMF has declined sharply, with only about one-third of official buying publicly reported in the most recent quarter, down from 90% four years ago. Reasons for non-disclosure include avoiding front-running the market and political considerations, particularly fear of reprisal from the US administration, as gold is seen as a "pure USA hedge" in many emerging markets. Adrien Ash, research director of Bullion Vault, summarized the situation by stating, "It's ultimately unknowable... it is only one part of the enigma wrapped in the riddle, which is China's bullion market."

Further evidence from Bloomberg News via Mining.com on November 17th indicated that Goldman Sachs estimated China added 15 tons of gold to its forex reserves in September, significantly higher than the 1.24 tons officially reported. Goldman Sachs analysts forecast global central bank buying of 64 tons in September, tripling from the previous month, and anticipate an average monthly central bank buying of 80 tons in Q4 2026, driven by diversification to hedge geopolitical and financial risks.

Stalled US-China Rare Earths Deal and the Yttrium Crisis

Despite a recent trade truce, the US and China are still negotiating the critical details of how Beijing will free up sales of rare earths, as reported by Bloomberg News via mining.com on November 14th. The US had hoped for increased exports, characterizing China's commitment to general licenses for US-bound rare earth exports as a "de facto removal of various curbs" and a "major win." However, China has yet to comment on the licensing pledge, leaving rare earth exporters in limbo. Alicia Garcia Herrerero, chief Asia-Pacific economist at Natixus, warned, "The deal is far from done... China can use licenses as leverage and decide to grant or withdraw them and exert pressure any time." Christopher Beddor of Gavcal Dragonomics suggested the Trump administration "put a heavy spin on this," and the general licenses might not be a de facto removal of controls.

The situation is complicated by geopolitical tensions, including a spat between Japan and China over Taiwan, with Japan's new prime minister not ruling out military intervention. Japan's trade minister, Riose Akazawa, stated on November 17th that there were "no particular changes in China's export control measures on rare earth and other materials." While US Treasury Secretary Scott Bazant expressed hope for a deal by Thanksgiving, a US House report on November 12th accused China of manipulating global critical minerals prices for decades as an economic weapon. Congressman John Mullinar stated, "China has a loaded gun pointed at our economy and we must act quickly."

A Wall Street Journal article by John Iman and Raphael Wang revealed China's plan to implement a "Validated End-User (VEU) system" to ease rare earth flow to the US while specifically excluding companies with ties to the US military. This strategy aims to facilitate commercial exports while preventing materials from reaching US military suppliers, a core concern for China, especially in light of the Taiwan issue.

Adding to the rare earths complexity is a brewing "yttrium crisis," as reported by Reuters on November 14th. Global supplies of yttrium (Y), a rare earth element crucial for aerospace, energy, and semiconductor production, are running low due to Chinese export restrictions imposed in April as retaliation for US tariffs. These controls, requiring licenses from Beijing, have caused long delays and small shipments. European prices for yttrium oxide have surged 4,400% since January to $270 per kilogram, while Chinese prices are around $7 per kilogram. The Aerospace Industries Association (AIA) highlighted yttrium's essential role in advanced jet engines, with Dak Hardwick stating, "Our supply chain depends heavily on imports from China, a reliance that has contributed to rising costs amid growing shortages." The semiconductor industry describes the yttrium shortage as "9 out of 10 in severity," with potential impacts on production times, costs, and equipment efficiency. The US imports all its yttrium, with 93% coming directly from China. However, ReElement Technologies in Indiana plans to start producing yttrium oxide at 200 tons per year by December, rising to 400 tons per year by March, offering a potential domestic supply solution.

Mining Industry Updates and Metal Price Movements

The podcast also covered various other significant developments in the mining sector:

• Barrick Mining: Reuters reported on November 16th that Barrick is considering splitting into two entities (North America; Africa and Asia) or selling its African assets and the Reko Diq mine in Pakistan, confirming earlier speculation.
• Swiss Gold Refiners in US: Swiss economic affairs officials indicated interest from Swiss gold refiners in establishing operations in the US, following a tariff agreement. Switzerland exported $66.8 billion worth of gold to the US in 2024, and the US is keen to strengthen its gold market.
• Canada's Critical Minerals Strategy: Bloomberg News reported on November 14th that Canada plans to acquire stakes in critical mineral projects (lithium, graphite, rare earths like terbium and dysprosium) to secure supplies and reduce reliance on China. The government's Major Projects Office (MPO) is fast-tracking infrastructure, including projects like Northcliffe Resources' tungsten proposal and Neuvoed Graphite.
• Chilean Elections: Pro-business candidate Jose Antonio Cast's strong showing in elections on November 17th bodes well for mining investment in the world's largest copper producer. Cast advocates for slashing corporate taxes and regulations.
• Argentina's Mining Outlook: Argentina's Javier Milei plans to modify glacier protection laws, which have historically stalled major mining projects.
• Lithium Price Surge: China's lithium price surged 9% on November 17th after Ganfeng Lithium Group's chairman predicted 30-40% demand growth for battery metals in 2026, potentially driving prices above 150,000-200,000 yuan per ton.
• Rio Tinto's Jadar Project: Rio Tinto plans to pause its nearly $3 billion Jadar lithium project in Serbia due to a lack of government approvals, shifting focus elsewhere.
• BHP Brazil Dam Collapse: A UK court ruled BHP liable for the 2015 Fundão Dam collapse in Brazil, a lawsuit valued at up to $48 billion, which caused 19 deaths and extensive environmental damage.
• EU Aluminum Shortage: European aluminum importers are scrambling for supplies due to an outage at Century Aluminum's Grunartangi smelter in Iceland and the impending carbon tax, pushing premiums to a 9-month high.
• DR Congo Mineral Ban: The Democratic Republic of Congo extended a six-month ban on mineral trading from artisanal mining sites in conflict-hit provinces, citing evidence of illegal supply financing armed groups, impacting global tin, tantalum, and tungsten supply chains.
• Simandou Iron Ore Project: China's Vice Premier attended the commissioning ceremony of the Simandou iron ore mine project in Guinea, set to be the world's largest highest-grade iron ore mine with 120 million metric tons annual capacity.

Metal Prices: Bond yields showed slight increases across most major economies, with the US 10-year bond yielding 4.1%. Precious metals (gold, silver, platinum, palladium) all edged lower, with gold trading at $2,040 per ounce. Industrial metals mostly saw declines, with copper at $4.99 per pound and nickel at $6.65 per pound. Lithium, however, bucked the trend, rising to $12.12, breaking the $12 mark. These movements suggest a potential impact from recent stock market declines.

Deep Dive on Glencore with Alan Olsha (Bloomberg Intelligence)

Alan Olsha, Senior Industry Analyst at Bloomberg Intelligence, provided an in-depth analysis of Glencore. He described Glencore as a unique "diversified miner" that originated as a "premier commodity trading house." Unlike peers like BHP or Rio Tinto, Glencore's trading arm is significantly larger and more integrated, operating across commodities it doesn't even mine, embodying a "trader mindset" where "volatility is their friend."

Valuation Challenges: Olsha explained that while Glencore's mining business is relatively easy to value due to consistent disclosure, its trading arm is often described as a "black box." Forecasting its earnings (EBITDAF) is difficult due to commercial sensitivity and its opportunistic nature. The substantial debt used to facilitate trading transactions also complicates valuation, leading Glencore to believe it is "significantly undervalued."

Coal Portfolio and US Listing: Glencore had considered a US listing due to dissatisfaction with its London Stock Exchange valuation, particularly given its "coal heavy portfolio" and ESG pressures in Europe. They explored spinning off the coal business, potentially merging it with Teck's coal assets. While they abandoned a standalone coal spin-off, they were "vindicated" by the surge in coal prices after the Russia-Ukraine war, which generated massive cash returns. However, with coal prices normalizing, it has become a drag on earnings. The US listing was not pursued due to uncertainties regarding S&P 500 inclusion and a lack of guarantee for a significant re-rating of the coal business.

Glencore's 2025 Outlook and Copper Strategy: Olsha noted that Glencore is undergoing a "reckoning" year, with its stock down about 30% over three years. Its unique trading mindset influences capital allocation, often diverging from conventional mining approaches. Glencore's copper production has fallen over 40% since 2018. Despite having "a million tons of copper optionality" from brownfield projects, Glencore has been hesitant to greenlight them, waiting for the market to be tight enough to absorb additional supply. This approach, driven by a "market participant" mindset rather than an "engineer's" long-term planning, aims to preserve and exert "modicum of pricing power."

Investors, however, are growing "frustrated," eager for growth, especially as peers announce clear expansion plans. Olsha highlighted the "fine line between patience and missed opportunity," suggesting that Glencore's caution might be a mix of genuine restraint and projects (like Mara in Argentina and Corocco in Peru) needing further de-risking. The upcoming Capital Markets Day in December will be a "key test for management credibility," with investors keen to see follow-through on copper growth.

Argentina Exposure: Glencore has made a significant bet on Argentina, planning to spend around $9.5 billion on two copper projects: Mara (a $4 billion brownfield expansion) and the larger, riskier El Pachón. The political climate in Argentina, with President Milei potentially modifying glacier protection laws and aiming for fiscal stability, is seen as positive, potentially making Argentina the "next big frontier" in copper.

Teck and Anglo American Deal: Olsha discussed the possibility of Glencore disrupting the Anglo American-Teck deal. While Glencore has synergies with Teck (e.g., through their Collahuasi joint venture) and could theoretically make a higher bid, significant obstacles exist. Glencore would need to divest its coal business, which Teck shareholders would not want to re-acquire, and devise an innovative deal structure. Crucially, Glencore would likely need to relocate its corporate headquarters to Canada, a move Olsha deemed "tough to see" given its trading arm's deep roots in Switzerland, making it a "deal breaker." He suggested Teck's CEO, Norm Keville, likely preferred Anglo American's "traditional mining company" culture over Glencore's "maverick" image.

Horne Smelter in Canada: Olsha addressed reports of Glencore considering shutting down its Horne smelter in Canada, which the company denied. He explained that smelting economics globally have deteriorated sharply, with copper treatment and refining charges at multi-decade lows. High energy and labor costs, coupled with rising environmental capital expenditure (particularly in OECD countries), are squeezing smelters. The Horne smelter faces significant capex requirements to meet tighter arsenic limits, making the economics challenging. Olsha concluded that the smelting industry is "getting pinched from both ends," with stricter standards and thinner fees.

Conclusion

The podcast highlights a complex global landscape dominated by geopolitical tensions and resource competition. China's secretive gold accumulation underscores a strategic de-dollarization effort, while its rare earth export controls, particularly the emerging yttrium crisis, reveal its leverage over critical supply chains. The broader mining industry is navigating these challenges, with companies like Glencore facing pressure to grow copper assets amidst unique business models and ethical concerns. The ongoing shifts in critical mineral supply chains, environmental regulations, and political landscapes are reshaping investment and operational strategies across the sector.