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Glencore tries to limit fallout from Congo mine halt

Mutanda mine currently provides 3 000 jobs to local workers and delivered more than $600m in taxes last year.
The open pits of the Mutanda mine. Picture: Simon Dawson/Bloomberg

Glencore hopes mothballing the world’s largest cobalt mine in the Democratic Republic of Congo will revive prices, but it’s likely to carry a significant political cost.

Mutanda, source of about one-fifth of the metal used to make batteries in mobile phone and electric cars, will stop operations by the end of the year and go into a care and maintenance programme. That’s a disaster for the economy in one of Africa’s poorest countries, where the mine provides 3 000 jobs to local workers and delivered more than $600 million in taxes last year, more than 10% of the government’s target budget.

The mining giant will try to limit the political fallout by continuing to retain the local workforce and providing training programs. Management said they will also keep funding local hospitals and other corporate and social responsibility projects near the mine. Glencore will also argue the radical plan to manage supply will ultimately benefit the African nation — supplier of about three-quarters of global cobalt exports — by reviving prices at the country’s other mines.

Although Glencore informed the Congolese government it was closing the mine, the government said it’s still formulating a response.

“There’ll be a fiscal impact, that’s sure,” said Nicolas Kazadi, President Felix Tshisekedi’s roving ambassador responsible for economic matters. “It’s very early to have a position or something detailed to say. We are analysing the situation.”

Mining companies have argued the Congolese government should lower royalties on cobalt production, but to no avail. The levy was hiked to 10% from 3.5% in November when then Prime Minister Bruno Tshibala gave it a new classification as a “strategic mineral.”

For resources companies operating in Africa, relationships with host governments are often fraught, as politicians seek to protect jobs and boost the tax take. Zambia is trying to liquidate the assets of Indian-owned Vendanta Resources as part of a multi-billion tax dispute. Tanzania slapped gold miner Acacia Mining with a $190 billion tax in 2017.

Cobalt quickly transformed from a star performer to a headache for the world’s biggest producer of the key battery ingredient. After quadrupling in two years, prices have now collapsed back to the lowest since 2016 as new supplies pour into the market. With few hedging tools available — the downturn left Glencore’s trading business with a $350 million loss on inventories it had built up — the slump left Glencore exposed and forced the radical plan of shutting Mutanda.

“The suspension of Mutanda should put a floor under cobalt prices,” said Colin Hamilton, an analyst at BMO Capital Markets. “This effectively removes the surplus we have in the cobalt market over the next couple of years.”

Glencore is the only one of the world’s major publicly traded mining companies with a significant presence in Congo — as well as Mutanda, it operates the Kamoto copper and cobalt mine — and the country is slated to be Glencore’s main source of growth in coming years.

But investments in the African country has been marred by operational and political problems for Glencore and billionaire CEO Ivan Glasenberg.

The US Department of Justice is probing the miner’s activities in the country, where its former partner, controversial Israeli tycoon Dan Gertler, has already being sanctioned by Washington.

Glencore bought out Gertler’s shares in Kamoto and Mutanda, but without his support had less political clout in Kinshasa. The company clashed with the government of Joseph Kabila, Tshisekedi’s predecessor, over a new mining code.

Most importantly, the assets haven’t performed terribly well. Kamoto, where 43 illegal miners were killed in an accident this year, lost money in the first half of this year as costs jumped.

© 2019 Bloomberg L.P.


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