John Meyer of SP Angel notes a Reuters report that Joseph Kabila has held a five to six hour meeting with leading mining executives in relation to the new mining legislation which was adopted by parliament in January. Following an intense five-six hour discussion with executives from Glencore, Ivanhoe and five other mining companies, Kabila confirmed the law will be “promulgated shortly”.
Kabila is now expected to imminently approve changes to the country’s mining code that will raise taxes for major miners, despite unanimous industry objection. The new code which raises royalties and proposes a new windfall profits tax raises also removes a key stability clause which currently protects miners from changes to the fiscal and customs regime for 10 years.
Reforms to the code aim to boost state revenue in one of the world’s poorest countries. As reported by Global Witness, more than 20% of the DRC’s mining revenue is being lost “due to corruption and mismanagement”; with more than $750 million missing since 2014. While elevated state revenue will favour the countries growth, corruption also requires significant improvement.
Glencore and Ivanhoe Mines face 50% taxes within a windfall profit tax and increased royalty payments. Glencore, Randgold and China Molybdenum reckon the changes would damage inward investment and violate existing agreements.
Market concerns focus on the delivery of two fundamental metals for the electric economy. Under the new law, the government could further raise royalty payments on cobalt five-fold to 10% if it categorises the mineral as a “strategic substance”.
With 54% of global production sourced from the DRC, single-source risk for the metal remains high. Elevated royalties are expected to negatively impact the economics of cobalt production, translating into reduced margins for producers and higher costs to consumers.
Battery technologies are already trending toward nickel-dominant battery chemistries due to rapidly rising cobalt prices and the signing of the new mining code is expected to exacerbate this movement.
The Minister of Mines Martin Kabwelulu told Reuters that company concerns would be treated on a case-by-case basis.
Randgold has said it will challenge the new code through international arbitration if it is not referred back to the ministry for further consultation.
Ministers claim that the new code is needed to raise government revenues from an annual budget of only $5 billion. DRC GDP was $69 billion in 2016.