Reasons why mining companies may become the next target for Mr. Mask

Reasons why mining companies may become the next target for Mr. Mask
Elon Musk is extremely busy. Despite his recent acquisition of Twitter, his automobile company Tesla (TSLA)... $Tesla (TSLA.US)$ News is circulating that there is a possibility of attempting to acquire a large stake in one of the world's leading mining giants.

The Financial Times reported last year that Tesla had initiated preliminary negotiations to acquire 10% to 20% of the shares in Switzerland's commodity company Glencore (GLNCY). The negotiations continued until March of this year. However, the discussions did not result in a deal. The main obstacle seemed to be whether Glencore's large (and highly profitable) coal mining business would align with Tesla's environmental goals.
Here are the reasons why I think Mr. Mask might continue this deal.
Reasons why Tesla wants Glencore's shares
The reasons behind the discussion are clear. Tesla, like all other auto manufacturers, is looking to secure the raw materials necessary for electric vehicle and battery production in the future.
Glencore $GLENCORE PLC (GLCNF.US)$ produces cobalt, nickel, zinc, copper, and other desirable minerals, and is also one of the world's largest battery recyclers.
Tesla already has a relationship with Glencore. Glencore, the world's largest cobalt producer with mines in the Democratic Republic of Congo, Australia, Canada, among others, entered into a cobalt supply agreement with Tesla two years ago for supply to the Shanghai and Berlin factories.
In addition to the contract with Glencore, Tesla has entered into a long-term nickel supply agreement with the Brazilian mining group Vale SA (VALE).
Mr. Musk previously outlined Tesla's intention to more finely manage all stages of battery manufacturing, such as processing raw materials and purchasing lithium deposits underground, if the supply chain does not function properly. Earlier this year, he tweeted, "Unless costs improve, Tesla may actually have to enter large-scale mining and refining directly." The price of lithium has risen by 8 times since the beginning of 2021, and Tesla is already planning to build its own lithium hydroxide refinery on the Texas Gulf Coast.
Insufficient
I am convinced that Mr. Musk will eventually make a large investment in mining giants like Glencore.
The supply of desired metals and minerals is limited.
Let's take copper as an example. In 2021, Glencore became the world's third-largest producer after Codelco in Chile and Freeport-McMoran (FCX). For reference, Richard Adkerson, CEO of Freeport-McMoran, recently warned that there will likely be a significant copper shortage.
The imminent shortage is due to the sharp increase in demand for copper resulting from global initiatives to reduce carbon emissions and the rapid deployment of electrical vehicles, renewable energy generation, and power lines as a result. Copper is essential for the "greening" of the world economy due to its ability to conduct electricity.
Copper is essential for the "greening" of the world economy as it has the ability to conduct electricity. Electric vehicles use three times the amount of copper compared to internal combustion engine vehicles, and renewable energy projects tend to require five times the copper amount of traditional gas, coal, and nuclear power plants.
Wood Mackenzie, a commodity consulting company, stated in a recent report that an additional annual supply of 9.7 million tons will be needed over the next 10 years from projects that are currently not approved. The current market size is approximately 25 million tons per year. According to Wood Mackenzie's report, "New projects require an investment of $23 billion per year, which is 2/3 more than the average of the past 30 years."
In addition, current metal-producing countries are looking for more.
A few days ago, Indonesia stated that it aims to establish a nickel cartel similar to OPEC. Approximately 38% of the world's nickel supply comes from Indonesia, with 23% from the Philippines and Russia.
Indonesia has already taken similar measures. In January, the country halted the export of common coal, one of the world's largest coal exporters. This move has shaken the coal market and caused coal prices to soar. Companies like Glencore have profited significantly from the turmoil in the coal industry.
There is also an expected supply shock for battery materials. This will lead to more profits for mining giants including Glencore, regardless of whether Elon Musk acquires shares in Glencore or not.
Glencore's dividends
Glencore's profits more than doubled in the first half of 2022. This record-breaking profit, amidst the chaos in the commodity markets caused by the war in Ukraine, has made it one of the biggest winners. The strong performance of the aforementioned coal business accounts for almost half of the company's record adjusted profit of $18.9 billion. Profits in the first 6 months of 2022 increased by 119% compared to the same period last year, surpassing the record for the first half of the year.
Glencore's marketing business, which involves the company in not only production but also commodity trading, sets it apart from pure mining peers and has delivered outstanding performance. The company generated profits of $3.7 billion, exceeding expectations of $2.2 billion to $3.2 billion in 2022.
As a result of these fantastic results, Glencore planned to increase returns to investors. They announced a special dividend of 1.45 billion dollars and a new share buyback program of 3 billion dollars, resulting in total annual shareholder profits of 8.5 billion dollars.

For the entire year, Glencore is forecasting adjusted profits of over 32 billion dollars. According to S&P estimates, they are expected to achieve nearly double the 2021 annual pre-tax profit of 26 billion dollars.
I prefer investing in companies of this kind. Amidst advancing inflation, companies like Glencore have sound operational structures. After covering fixed costs, a significant portion of additional revenue turns into profits.
For instance, while the market price of coal surged by over 200% due to Ukraine's turmoil, Glencore's coal division's EBITDA skyrocketed by 900%, reaching 8.9 billion dollars!
Even though commodity prices have declined, they remain at elevated levels. One must not forget the news from China that COVID restrictions are set to be lifted by next March. This could significantly boost demand for all types of commodities, leading to price increases once again.