Are Glencore shares worth buying despite this latest accident?

What is the potential impact of illegal mining for Glencore plc (LON: GLEN)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Apparently a growing trend, mining concessions in the Democratic Republic of the Congo (DRC) have been hit the past few years by a growth of illegal mining operations by local ‘artisanal miners’.

This led to the tragic death this week of dozens of these miners in the South-eastern city of Kolwezi on Thursday, when terraces that overlooked the main pit of a copper and cobalt mine belonging to Glencore (LSE: GLEN) collapsed. This is yet another blow for the company’s mining operations on the continent.

Radioactive statements

Katanga Mining, Glencore’s subsidiary in the DRC, was fined by Canadian regulators last year for issuing “false and misleading” statements. The company was also forced to halt cobalt sales in 2018 after traces of uranium were found in its supplies. More recently, the new management team at Katanga lowered their production guidance as part of a wide review of operations.

Glencore has already seen its share price weighed down by an on-going investigation by the US Commodity Futures Trading Commission (CFTC) into allegations of “corrupt practices”, with reports of money laundering and compliance issues in the DRC, Nigeria and Venezuela.

Though the company said Thursday’s accident would not affect production or operations at the mine, the broader implications of such illegal mining does perhaps have longer-term implications for those firms operating in the region.

Companies that operate in the region have a social and moral responsibility (as well as a legal and PR prerogative) to try to stop as many incidents as they can. This obligation goes further than sentimentality, though; failure to curb such incidents may genuinely impact the company’s Social License to Operate (SLO) in the country.

SLOs are often vague agreements, though sometimes-more specific legal contracts, between a local community and a business operating in the area, and usually include commitments to things such as building infrastructure and worker housing. Without such SLOs, mines in extreme cases may have to be shut down.

A man with a shovel

Glencore estimates that some 2,000 illegal miners enter its land each day. Open pit mines, such as the site of this latest incident, offer easy access to the ore, and have vast perimeters spanning tens of miles of rugged land. This makes policing such operations almost impossible.

The country’s impoverished citizens, most already living what we in the West would think of as impossibly difficult and dangerous lives, have been known to dig tunnels under security fencing and walls, in order to ‘extract’ the ore with little more than a shovel. Trying to prevent this, if prevention is undertaken properly, will cost large sums of money.

Worth buying

Even considering these costs, it seems unlikely that they will amount to anything that would significantly hurt revenues and profits. Many of the company’s fundamentals look solid, and as the old guard of management begins to leave, a younger generation may have more interest in creating lasting value and avoiding legal battles like the firm is currently seeing. Add to this a nice 5% dividend, and I think Glencore may be a decent addition to a perhaps slightly riskier portfolio.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Karl has no positions in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »