A new mining code in the resource-rich Democratic Republic of Congo is likely to lead to higher costs for consumers of battery metal cobalt just as carmakers are ramping up production of electric cars, analysts said.
President Joseph Kabila said late on Wednesday he would sign the code into law “shortly” after a meeting with the chief executives of the largest mining companies in the country, including Glencore, China Molybdenum and Ivanhoe Mines, who had lobbied against it.
The code will impose higher royalties on cobalt, a key material for electric car batteries, as well as copper and gold. Royalties on cobalt could rise to 10 per cent if it is determined as “strategic” by the Kabila government, up from 2 per cent currently.
“Given the tight nature of the cobalt market at present, we would expect miners to attempt to pass through higher royalty costs to consumers,” Colin Hamilton, an analyst at BMO, said.
Cobalt prices have more than doubled over the past year, due to rising demand for electric cars, which use the metal in their rechargeable batteries. Over 60 per cent of the world’s cobalt comes from the DRC.
Sales of electric cars rose by 57 per cent in 2017 to more than 1.2m, according to Frost & Sullivan. China accounted for over half of global EV sales.
Analysts at Numis said the new code could impact cobalt production in the DRC, which would lead to even higher prices of cobalt.
“The increase in royalties will ultimately see less investment in the country which could help the cobalt price in the long term as less projects are developed,” Matthew Hasson, an analyst at Numis, said.
Shares in Glencore, the largest producer of cobalt in the world, were off by 0.6 per cent in morning trading in London to 365p.
The Switzerland-based company plans to more than triple cobalt production from its Katanga mine to 34,000 tonnes in 2019.
Shares in China Molybdenum, which bought the Tenke copper and cobalt mine in the DRC for $2.65bn in 2015, fell by 4 per cent on the Shanghai Stock Exchange to trade at RMB 8.38.
Source: FT.com
