BUSINESS DAY -- Junior miners exploring for cobalt in the Democratic Republic of Congo (DRC) reckon increased prices and the country’s high-grade deposits will offset the added costs of new legislation larger companies have opposed.
DRC, 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, Randgold Resources and China Molybdenum have criticised 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. "It’s now just a question of getting the details associated with how you actually implement that."
The average cost of producing cobalt in DRC is 30% lower than the rest of the world, London-based research company CRU Group said in May. That provides "some leeway for miners to absorb additional higher royalty payments" introduced in the code, it said.
Junior miners do not need to worry about paying taxes or royalties until they start exporting metalsPrices 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.
Among the companies most affected by the new legislation are those in the latter stages of building mines, such as Alphamin Resources and Ivanhoe Mines. 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, of CEO Alphamin, said in an interview. "It will increase the cost of capital for all projects in the DRC."
Junior miners do not 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 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" categorisation in the new code, which may result in a 10% royalty rate on cobalt.
Brewer is seeking clarity saying that "unless we are given that clarity, we are seeing a decline in interest", noting the combined market capitalisation of junior miners exploring for lithium in DRC has halved from about $1bn since the code’s promulgation in March.
Still, they 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, a company with a cobalt exploration permit. "It should be viable because the DRC has got almost 60% of the world’s cobalt resources and it is cobalt which is easy to process." Bloomberg