Glencore PLC (LSE:GLEN), the mining giant, is strategically building a 'moat' around its business by focusing on recycling, a sector that aligns closely with the company's 'core marketing DNA', according to analysts from Citi.
In business parlance, a 'moat' refers to an advantage that is difficult for competitors to overcome.
The company's emphasis on recycling was evident during a recent visit to its scrap sorting operations in Providence and its collaboration with Li-cycle in Rochester, in the US, the bank said in a short note sharing the findings from the trip.
Recycling currently accounts for less than 1% of Glencore's underlying earnings, but its long-term importance was highlighted as part of the company's 10-20-year view, Citi said.
The recycling business model involves sourcing materials from thousands of suppliers and selling processed materials to a diverse customer base, a feat challenging for other miners to replicate.
Although the financial benefits of this focus on recycling are expected to materialise a decade or two from now, the early investment in building scale makes strategic sense, analysts at the bank noted.
Glencore's unique global network of smelters provides it with a distinct advantage in terms of capital intensity and speed to market, reinforcing its competitive 'moat', it went on.