Cobalt Explorers See Congo Mine Law Offset by Price, Grades

(Bloomberg) -- Junior miners exploring for cobalt in the Democratic Republic of Congo reckon increased prices and the country’s high-grade deposits will offset the added costs of new legislation larger companies have opposed.

Congo, the world’s largest source of the metal, this month began implementing an amended mining code that introduces new taxes and increases royalty payments. Miners including Glencore Plc, Randgold Resources Ltd. and China Molybdenum Co. have criticized the new law and threatened to sue to protect their investments.

“We are comfortable with the high-level terms of this mining code,” Jason Brewer, a director of three Australia-based companies exploring for copper, cobalt, gold and lithium, said in an interview in Lubumbashi in southeast Congo. “It’s now just a question of getting the details associated with how you actually implement that.”

The average cost of producing cobalt in Congo is 30 percent lower than the rest of the world, London-based research company CRU Group Ltd. said in May. That provides “some leeway for miners to absorb additional higher royalty payments” introduced in the code, it said.

Prices for cobalt, a key component in batteries that power electric vehicles, have more than tripled over the past two years as manufacturers strive to deliver more of their cars into the mainstream market.

Stability Clause

Among the companies most affected by the new legislation are those in the latter stages of building mines, such as Alphamin Resources Corp. and Ivanhoe Mines Ltd. They raised money assuming that a 10-year stability clause in the previous mining code protected them from paying higher taxes for another decade. Alphamin is developing the world’s highest-grade tin deposit, while Ivanhoe’s zinc and copper projects are due to start production in the coming years.

“In terms of investor trust, this is a concern,” Boris Kamstra, chief executive officer of Alphamin, said in an interview. “It will increase the cost of capital for all projects in the DRC.”

Junior miners don’t need to worry about paying taxes or royalties until they start exporting metals. But uncertainty over whether cobalt will be classified as a strategic metal and how a new super-profit tax provided for in the new legislation will be applied is deterring some financiers from backing projects, Brewer said. Congo introduced a “strategic substance” categorization in the code, which may result in a 10 percent royalty rate on cobalt.

Seeking Clarity

Brewer said the combined market capitalization of junior miners exploring for lithium in Congo has halved from about $1 billion since the code’s promulgation in March.

“I think we can afford 10 percent because grade is king and Congo has the best deposits,” said Yves Kabongo, managing director of Canada-based Cobalt Blockchain Inc.’s operating unit in Congo, which has cobalt exploration licenses, as well as a contract to buy and process ore.

Others expect the untested law to evolve.

“There will be a lot of debate about it and probably changes as well,” said Grant Dempsey, president of Canada-based Bankers Cobalt Corp.’s Congolese unit. Bankers Cobalt owns 26 cobalt exploration licenses. “It’s been very much driven by high metal prices.”

Still, junior miners remain confident their projects can be successful.

“We have to factor in the new code,” said Serge Ngandu, president of the Congolese subsidiary of London-based African Battery Metals Plc, a company with a cobalt exploration permit. “It should be viable because the DRC has got almost 60 percent of the world’s cobalt resources and it is cobalt which is easy to process.”

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