Congo tax rise drives alternate cobalt investments

Congo cobalt exports tax rise DRC

A proposed tax rise on cobalt exports from the Democratic Republic of Congo (DRC) has focussed attention on alternate supplies of the metal, which is a significant ingredient in modern rechargeable batteries.

The DRC currently produces around two thirds of the world’s supplies of cobalt, largely as a by-product of current and past copper mining.

The boom in rechargeable lithium-ion batteries to power cars, bikes and smart phones has cast a new and alarming light on the cobalt supply chain, particularly as Glencore’s large suspended Katanga Mine in the DRC works its way back into full production by next year.

Cobalt prices have tripled in the last two years and many big cobalt consumers have been getting nervous about their reliance on the strife torn DRC for supplies and the difficulty of getting long term supply contracts.

New tax slug close to becoming law

The DRC is widely seen as being a low tax regime because of the trouble it had attracting miners while the country was at war but now that cobalt prices have been steadily rising the DRC government is keen to ensure the country gets more economic benefits from being the dominant world source of supply for cobalt.

A new mining code that has already passed through the Congolese National Assembly would increase the royalty miners pay to export cobalt and other metals by reclassifying them as “strategic substances”.

The new mining code would see the tax on base metals like copper and cobalt increase from 2 per cent to 3.5 per cent and if the metal is classified as “strategic,” that rate could increase to as much as 5 per cent.

Once the new code is passed by the Congolese senate, it will be sent to President Joseph Kabila to sign into law and would apply to contracts both old and new, with some concessions for existing Congolese producers such as Glencore and Randgold Resources.

Tantalum could be hit as well

Tantalum, a scarce mineral extracted from so-called coltan ore in the DRC and also used in smartphones, could be taxed at the higher rate.

While the DRC’s previous tax rates are seen as low by many multinationals, the country is seen as a difficult place to do business and last year the Canadian mining company First Cobalt pulled out of the country to focus on its deposits in Canada.

The new code would also change contract stability from ten years to just five years, which would concern large cobalt consumers such as Apple, Tesla, Volkswagen and virtually all of the other large car companies that are planning a big increase in the production of electric cars.

Importance of cobalt as battery ingredient increasing

Cobalt’s efficiency in conducting electricity has been behind the price surge for the once scorned “byproduct’’ metal and it is now seen as essential in producing cathodes in rechargeable batteries for use in cars, making up to 40 per cent of the total material cost of a battery.

Search for alternate supplies ramps up

Due to endemic corruption and ongoing conflict and chaos in the DRC, miners have long been searching for alternate cobalt supplies.

In the short term that will remain difficult, given the very rich cobalt supplies that exist in the Central African Copperbelt running from Zambia into the DRC, despite the political, financial, operational and ethical risks of operating there.

The cobalt supply picture is also complicated by the weak fundamentals in the nickel market which is preventing the opening of any new mines, given that cobalt is often produced alongside nickel in some mines.

Other cobalt veins in Scandinavia and Russia are being explored but the news of higher taxes bodes well for some Australian companies such as Northern Cobalt (ASX: N27), which has its flagship Stanton cobalt deposit, part of its Wollogorang project in the Northern Territory.

Other companies that may be affected can be found in our guide of ASX listed cobalt stocks.

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