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Looming cobalt tax increase fails to douse battery industry interest in DRC

DRC artisanal cobalt mining
By Oscar Nkala

US-based global geopolitical intelligence and security analysis group Stratfor says cobalt miners and battery industry leaders will, in the short term, continue the rush to secure cobalt supplies from the Democratic Republic of Congo (DRC) despite the looming increase in mining royalties because there are no viable alternative sources of the mineral.

In its latest analysis of possible investment risks posed by the new Congolese law that seeks to raise state revenue from mining with up to 5% in royalty taxes on strategic metals that include cobalt, Stratfor said battery producers will continue to patronizing the DRC because there is no alternative.

The DRC holds an estimated 50% of global cobalt deposits. The mineral is a key component in the production of the lithium-ion batteries that power the electronics industry.

“(Battery) industry leaders will continue to tread a well-worn path to the African giant (DRC) in the short term, as the country will dominate supply for the next several years. Alternative projects that do not carry the same amount of ethical or political risk as Congolese cobalt are in the works, but they are not yet, and perhaps never will be, able to replace Kinshasa’s capacity. Projects in Australia could benefit from close proximity to China, while smaller projects in Canada are likely to begin operations in three to five years,” Stratfor said.

The group said although President Kabila has not yet signed the new regulations into law, he looks set to do so ‘imminently’. It warned that any changes to the mining code will trigger a ‘backlash’ from the many large mining operations in the country.

However, the reaction will not stop the rush to Kinshasa because battery producers need to secure continued supplies of cobalt to match the surging global demand for lithium-ion batteries.

“With cobalt supplies thus constrained, battery makers and other users are keen to ensure as stable a supply as possible, often in the form of long-term contracts. As demand for electric vehicles increases, battery makers and users of consumer electronics will compete with the producers and users of batteries for new-generation cars to access cobalt supplies. The latest in the fray is Apple, which has revealed continuing talks to secure thousands of metric tons of cobalt directly from mining companies.

“Apple’s moves came after Korean battery maker SK Innovation agreed to a supply contract of at least 7 years with Australian Mines’ Queensland operation. The Chinese, who have a large interest in the DRC, are also searching to secure supplies. Fujian-based battery maker CATL recently signed a long-term contract with Glencore, a mining and processing company with extensive operations in the DRC, to supply batteries for major automobile manufacturers,” Stratfor observed.

Although President Kabila says the mining tax increase is intended to raise State earnings from the exploitation of strategic minerals, mining houses fear the additional royalties may be used to help consolidate President Kabila’s stranglehold on power.  However, Strafor noted that despite its many investment risk concerns, the DRC remains an “unavoidable quagmire” for mining companies interested in exploiting soaring global cobalt demand.

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