DRC Makes a Grab for a Larger Slice of the Pie

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I guess you can’t blame countries like the Democratic Republic of Congo (DRC) for looking to acquire a bigger piece of the wealth from their own supplies of natural resources.

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The Telegraph reports that President Joseph Kabila is ripping up the 2002 mining charter, looking to boost royalties from 2% to 3.5% on base metals, with an additional levy of 10% on what it calls strategic minerals.

While at the time of writing it was not clear if copper and cobalt would be hit by the higher tax, both metals certainly come under the broad definition of strategic and are two of the DRC’s biggest earners.

Other reports suggest the premium for strategic metals could be just 5% and 6% on precious stones, of which the DRC is also a major producer.

The grab for a bigger share of royalties probably predates news that Glencore has struck a deal to sell one-third of its DRC cobalt production to Chinese battery recycler GEM Co. in a three-year deal, said in a Times article to cover 52,800 tons of cobalt hydroxide between 2018 and 2020. With cobalt prices at record levels, the deal is already worth between $4 and $5 billion (assuming prices don’t rise even further).

Needless to say, mining companies are lobbying hard for a reduction in any additional royalties, arguing for delays to implementation, and special exemptions. The government’s position is that the previous code, now some 15 years old, was created to make the DRC attractive for investors at a time when it was suffering the second Congo War from 1998-2003. The government argues that in the intervening period, the situation has become much more stable and mining companies can operate in a better domestic security environment (and therefore at lower cost and lower risk).

Under such circumstances, they suggest a fairer distribution of the spoils is overdue.

Perceptions of domestic security are relative. The DRC remains one of the most difficult places in the world to do business and there remains a significant risk premium that Western mining companies will demand to invest in that troubled country.

But the fact remains that the DRC has huge reserves of critical raw materials that will be needed in the years to come for a wide variety of technologies and applications.

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If the state takes a little more of the pie, it will probably be reflected in prices. But with limited alternatives for products like cobalt, it is unlikely to dent mining companies’ enthusiasm for investing in the DRC.

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