Chinese Acquisition of Tenke Copper-Cobalt raises concerns for the Cobalt Market

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An interesting article in the Financial Times recently reviewed the acquisition by China Molybdenum of the Tenke copper-cobalt mine in the Democratic Republic of Congo from Freeport-McMoRan.

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As the FT points out the purchase at a price of $2.65 billion is the largest single private investment in the DRC’s history and will be the largest purchase of copper assets since China’s purchase of Glencore’s Las Bambas mine in Peru for $6 billion in 2014.

Cobalt Control

The article examines the risks not to the copper market but to the co-product produced at Tenke, cobalt. The article focuses on risks to the cobalt supply chain of China gaining a dominant position in the global chain for this increasingly critical metal.

If the Tenke mine purchase goes through the FT asserts, Chinese companies (private and state) will be responsible for around 62% of global refined cobalt production next year, according to CRU estimates. This in a market where demand is expected to soar by more than two-thirds over the next decade on the back of rising electrification in cars and appliances dependent on cobalt for advanced batteries.

While we wouldn’t want to downplay the risks to the supply landscape there is another story here. The cobalt industry has put an enormous amount of time, effort and incurred considerable financial cost in recent years to ensure total compliance with the Dodd–Frank Wall Street Reform and Consumer Protection Act.

For both legal and moral reasons, the industry has worked extensively with the International Council for Mining and Metals (ICMM) to certify the origin of cobalt consumed today and guarantee the standard of practices employed in the extraction and refining for the metal, even in challenging markets like the DRC.

The fear is Chinese companies will fail to uphold these standards and we will see the return of illegal artisanal mining. Failures in upholding these standards will inevitably surface in the years to come and the whole industry, those upholding the standards and those not, will feel the backlash of any such failings regardless of whether they are involved in the Chinese cobalt supply chain or not.

You’ve Come a Long Way, Baby

Having come so far and invested so much, the cobalt industry is desperate to prevent this major source of metal falling into what is seen, true or not, as less responsible hands.

If China was simply securing cobalt supply for its own consumption that would be one thing, but Asia in general and China, in particular, is increasingly becoming the global supply base for lithium-ion batteries, most designs of which require cobalt to operate. CMOC has undertaken to continue to supply cobalt to those markets that have the greatest demand, not just China. While China is certainly a large market for cobalt, the rest of Asia, which includes Japan, South Korea, and Taiwan, is an equally important market that CMOC say they are committed to servicing. The worries about continuity of supply and availability may be overblown, CMOC is not owned by the Chinese state and will likely be driven by commercial and economic considerations rather than the priorities of a centrally planned economy. More of a worry for the cobalt industry itself is transparency and accountability for any company operating in markets like the DRC.

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Apart from Tesla Motors‘ new Nevada gigafactory over 90% of new lithium-ion battery manufacturing projects in the pipeline are said to be in China, yet Chinese firms have repeatedly been caught handling metals from uncontrolled sources, artisanal and illegal mines sometimes employing child labor. Quite correctly, the cobalt industry is keen that this major resource not fall under the control of such companies but, it may be unfair to label CMOC as such a company but the industry’s concerns are real and need addressing.

 

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