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Could the Glencore share price soar as the EV revolution accelerates?


ArvinIG

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The Glencore share price was one of the top risers on the FTSE 100 last year. And it could accelerate further into 2022 as the EV revolution gathers pace.

mining
Source: Bloomberg
 
 

The Glencore (LON: GLEN) share price was one of the clear winners of 2021, starting out the year at 238p and rising 58% to enter 2022 at 376p.

And during the past year, competitor Rio Tinto is down 14%, while Polymetal is down 31%. And while Anglo American has risen 20%, it’s down 10% from its August high to 3,100p. Similarly, Evraz is up 24% over the past year, but has fallen 12% to 611p from its high in May. These four FTSE 100 miners have been volatile compared to Glencore’s steady climb over the past twelve months. This is especially impressive as the miner was also one of the FTSE 100’s highest volume stocks last year.

Moreover, unlike its competitors, Glencore is currently matching its 2021 high of 390p. And it’s backed as a long-term investment by Qatar’s sovereign wealth fund and asset management titan Blackrock.

Glencore share price: EV revolution

The electric vehicle (EV) revolution truly began to accelerate last year. Tesla delivered almost a million vehicles in 2021. Ford has developed a competitor car and has assigned $29 billion of funding to develop EVs. Toyota has overtaken General Motors as the top car-seller in the US. The Japanese company will invest $17.6 billion in battery technology and plans to sell 3.5 million EVs by 2030. Newcomers Rivian and Lucid hit the markets with multi-billion dollar valuations, and the Bank of America predicts there could be $100 billion of EV IPOs by 2023.

And this could just be the start. Audi plans to stop selling ICE cars by 2033, and General Motors by 2035. Many other automotive companies have made similar pledges. And according to BloombergNEF consultancy, half of global passenger vehicles sales will be electric in 2035. And with nearly 64 million passenger vehicles sold in 2019, EVs still represent a fraction of the market. As their market share increases, so will the demand for the metal used to make them.

And this could be key to a further Glencore share price surge. Four key metals are essential to the EV revolution: lithium, cobalt, nickel and copper. And Glencore is one of the world’s largest miners in three out of four, excluding lithium.

But lithium may one day be replaced with the zinc that Glencore does mine. With battery technology advancing at breakneck speed, experts at Power Magazine believe that the need to process lithium in a highly controlled water-free environment makes it ‘more costly, and more complicated,’ than using Zinc-ion, which is water-based.

coal mining
Source: Bloomberg

Q3 2021 results

In Q3 results, CEO Gary Nagle was upbeat, saying that ‘we now expect full year 2021 Adjusted EBIT to exceed the top end of our $2.2-3.2 billion per annum long-term guidance range.’

And encouragingly, full-year production guidance remained unchanged for all four EV metals. Moreover, under its Climate Change Taskforce, the company is now seeing 75% of capital expenditures spent on transition metals. Glencore’s focus on cobalt in 2021 is particularly interesting, signing long-term cobalt supply agreements to battery companies FREYR and Britishvolt.

Furthermore, Glencore is keeping one foot in the fossil fuels business. It mined a significant 76.3 million tonnes of coal, and produced entitlements to 4.1 million barrels of oil, 23% more than in 2020.

As Glencore transitions from powering vehicles with fossil fuels to providing them with EV materials, its share price could continue to rise. But as per ususal, there is a trade-off. Glencore’s dividend yield is meagre 1.2%, while rivals Evraz and Rio Tinto are some of the highest yielding stocks on the FTSE 100. But by keeping more money in the business, the jam tomorrow could be much sweeter.

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*Based on revenue excluding FX (published financial statements, June 2020)

Charles Archer | Financial Writer, London
06 January 2022

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