Glencore rescue: Strategic minerals rewrite the politics of bailouts
Without a dramatic shift in smelting economics – made even harder by the ageing Glencore plants – there’s a very real chance we will be in the same place in 2028, although possibly the ask will be a bigger rescue package.
The 100-year-old-plus Mount Isa copper smelter and Townsville copper refinery are facing what has happened in Europe and even the US, with returns collapsing from decades of aggressive Chinese refining expansion across the entire supply chain.
This industrial retreat highlights the disconnect between political rhetoric and economic reality.
Still, the bailout underscores the scattergun approach of industry policy. Prime Minister Anthony Albanese has talked up a renaissance of Australian manufacturing into new areas, but the grim reality is the existing population of industry continues to shrink, crippled by energy and re-regulation of industrial relations.
Sophisticated operators such as Glencore, led by chief executive Gary Nagle – widely regarded as one of the mining sector’s shrewdest negotiators – have capitalised on genuine geopolitical anxieties gripping governments. Much of that fear revolves around the broad field of strategic minerals, something Australia has vast quantities of but has a patchy record of making reasonable returns.
This means governments are increasingly prepared to underwrite corporate losses. The concern for taxpayers is how long and whether they are starting to get bang for their buck in the indiscriminate industry assistance. The timing proves critical as Albanese prepares for Washington meetings with Donald Trump, where US access to critical minerals will serve as Australia’s main bargaining chip. But a more considered intervention policy is needed.
The Albanese government and South Australia have essentially written a blank cheque to keep the ageing and underinvested Whyalla steel mill open – where the real value in the operation is the high-grade iron ore deposits nearby and the port.
In August, $135m was committed to keep the Nyrstar zinc smelter open in Hobart as well as the Port Pirie lead smelter, allowing the facilities to continue producing the critical mineral.
Victoria’s Portland aluminium plant has been subsidised for most of its life.
Elsewhere, Rio Tinto is in talks for a potential and large bailout of its Tomago aluminium smelter outside of Newcastle, which has been hit by crippling energy costs.
Looking ahead, the emerging lithium processing sector may join the bailout queue if prices fail to recover by decade’s end.
These combined commitments signal unprecedented government willingness for interventionist industrial protection, yet each rescue redefines policy without establishing clear national objectives beyond securing “energy transition” commodities.
Critically, the overwhelming majority of Glencore’s output flows to export markets, including China, undermining arguments about defence-critical operations.
BHP chief strategy executive Catherine Raw highlighted this week how critical minerals’ politicisation adds costs and market complications.
“Some of the very nationalistic tendencies can create friction,” Raw told The Financial Times, leading to “non-optimal economic outcomes”.
Still, it’s hard to hold the economic pure line of avoiding government support when tariffs and subsidies elsewhere are adding distortions on top of market distortions.
Glencore’s local metals boss Troy Wilson said competition in the global copper smelting market was fierce. “It’s not a level playing field with various countries seeking to secure substantial market positions,” he said.
The Queensland sites process up to one million tonnes of copper concentrate from outside miners, however they have been running cashflow negative for the past year.
Even so, closure of the smelter and refinery would have major knock-on effects. They are hooked into an economic network that employs thousands of people.
The exit of BHP from its nickel smelting business last year was the last domino to fall for what was a massive refining industry in Western Australia that’s since been decimated by Indonesian expansion.
Glencore still sees value in investing in Australia, although this is in upstream operations. It has flagged $2.5bn in expansion projects, including the George Fisher Mine underground zinc-lead-silver mine located near Mount Isa in Queensland, and the potential reopening of the mothballed Black Star zinc, lead and copper mine in the same area.
The worry is the bailouts won’t just stop here.
Australia’s industrial fleet is getting even older, and the reality is the flood of capital for big-scale manufacturing is flowing to China or other parts of Asia. (Donald Trump is trying to turn the tide with punishing tariffs, but he risks crippling the US economy in the process.)
For Australian industry, the ability to compete is getting harder. Until there’s a real solution to the biggest input – energy costs – the exits will keep coming.
Glittering prize
Forget AI or data mining, the real boom is something that’s been mined for thousands of years. Less than four weeks after UBS metals analyst Levi Spry upgraded gold to a bullish $US3,900 target by mid-next year, that number is already looking mild. “Here we are at $US4,000,” Spry conceded.
Gold smashed through that barrier to hit a new all-time high of $US4035 an ounce. This marks eight consecutive weeks of gains since August.
It’s a cause for celebration for some – the metal has jumped a staggering 50 per cent this year – but it’s a big warning sign of deep-seated fears of global economic uncertainty. Trade wars, Federal Reserve independence and climbing US debt are all markets for a move into gold. There’s also a nagging fear that inflation hasn’t been tamed, and this is adding to the rush back into the precious metals.
Gold is on track for its best growth performance since the 1970s boom, an era gripped with stagflation. That was a period that also saw gold rise in tandem with stocks.
Billionaire hedge fund founder Ray Dalio this week said to his mind, gold represents more certainty of a safe haven than the US dollar. This underscores growing anxiety about the security of the US dollar.
“Gold is a very excellent diversifier of the portfolio,” Dalio, the Bridgewater Associates founder, told the Greenwich Economic Forum. “If you were to look at just from the strategic asset allocation mix perspective, you would probably have as the optimal mix something like 15 per cent of your portfolio in gold.”
One of the biggest winners in surging gold was the Reserve Bank, which delivered an $11bn accounting profit. The value of its gold holdings increased by around $4bn to $13bn.
The RBA holds 80 tonnes of gold (including gold on loan). All of its gold is held in an allocated account at the Bank of England.
Gold is burning bright, but as normality resumes eventually the market will move closer to balance. UBS’s Spry has a long-term target of $US2,800 an ounce. It’s a matter of when.
johnstone@theaustralian.com.au
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Months of grinding talks led to the $600m taxpayer bailout of Glencore’s downstream Queensland operations with minimal strings attached beyond a three-year operational commitment.