The options for mining companies battling new legislation in the Democratic Republic of Congo — Africa’s biggest copper producer and the source of two-thirds of the world’s cobalt — have just about run out.After six months of lobbying, companies including Glencore Plc and Randgold Resources Ltd. have got nowhere in their battle to push back against the mining law, which voids existing agreements and increases their costs. Congo approved the final part of the bill on Friday, and despite earlier indications from President Joseph Kabila that the rules might be eased, the law hasn’t been weakened in any way.
While the constitution bars Kabila from running for a third term, Congo’s embattled leader has refused to rule himself out as a candidate in elections later this year, and his campaign to wring more revenue out of mining companies is proving popular with voters. A meeting in March in which chief executives including Glencore’s Ivan Glasenberg pleaded their case to Kabila was used by state media to portray the president as a wise power broker standing up for the national interest.
Congo’s mining companies, which formed a lobby group to challenge the law, haven’t issued a statement since last week’s decision. Glencore, Randgold and Ivanhoe Mines Ltd. all declined to comment.
Few alternatives now remain open to the companies. They could try to cut individual deals to gain exemptions, but any walk back on the terms of the law now looks extremely improbable. More likely, they could challenge the changes at international arbitration — as they have threatened to do — leading to protracted legal battles, according to Investec’s Hillcoat.
“One would have to expect they will have to comply to the new law under duress, in the hope that they can win at arbitration,” he said.
Then there’s the nuclear option — stopping all production. While this would ratchet up pressure on the government, which depends on mineral exports for much of its revenue, it also risks damaging the mining companies. The expected boom in cobalt demand being brought about by the electric car revolution could be snuffed out before it really gets going if supply constraints force automakers to find alternatives.
“Glencore and company are in a pickle,” said Ben Davis, an analyst at Liberum Capital Ltd. “They could shut down production in retaliation, and their copper exposure elsewhere would benefit, but this would ruin cobalt’s viability as battery material from a security of supply perspective.”
A glimmer of hope may come from the decision Monday by Chinese conglomerate, Citic Metal Co., to spend about $555 million for a 20 percent stake in Ivanhoe, which is developing Africa’s biggest copper discovery in Congo. While the deal stems from Ivanhoe Chairman Robert Friedland’s longstanding relationships in China, it also suggests that the Chinese, who have invested heavily in Congo in the last decade, believe the impact of the new mining law can be managed.
“It brings one of China’s largest commercial interests inside the DRC,” said Paul Gait, an analyst at Sanford C. Bernstein & Co. “It shows that, even though Western equity markets are placing far too high a risk premium on Congolese assets at present, this is not the case in China.”