JOHANNESBURG (miningweekly.com) – Beyond raising costs for domestic miners, a new mining code signed into law by Congolese President Joseph Kabila last week, poses downside risks to the investment outlook of the country’s mining industry over the coming years, as a result of heightened government intervention and regulatory uncertainty, research firm BMI said on Tuesday.
The new code will raise royalties on minerals across the board – copper from 2% to 3.5%, gold from 2.5% to 3.5% and potentially lead to an increase in royalties on cobalt from 2% to 10%, if deemed a "strategic substance".
Additionally, a new 50% tax on so-called super profits, defined as income realised when commodity prices rise 25% above levels in the project's bankable feasibility study, would be introduced.
Kabila introduced the code in an attempt to shore up the support and funding needed to retain power. “The executive decision was made following the passing of the new mining code by the Democratic Republic of Congo (DRC) parliament and senate and, in the aftermath of a meeting between the President and key mining stakeholders last week, which yielded no agreement on changes to the final text,” BMI noted.
Discussions on updating the country's 2002 mining law had been ongoing for a number of years but stalled owing to the commodity price slump experienced over 2014 to 2017.
Other key changes in the code include a provision that doubles the State's free share in mining projects to 10% and a reduction on the period during which contract stability is guaranteed down to five years, from the ten years stipulated in the current mining law.
However, the code has received significant backlash from the mining industry. Randgold Resources, for instance, has already announced it would consider international arbitration against the government if its ownership and rights to the Kibali mine were jeopardised under the removal of the ten-year contract stability guarantee.
“Despite rising risks, we do not expect changes introduced by the new mining code to impact our positive growth outlook for DRC's mining industry over the coming quarters,” BMI noted, citing previous analysis which highlighted that even with the announced hike in mining levies, the DRC's royalty rates would remain among the most competitive in the world for key sources of income, including copper and gold, meaning the domestic investment environment was unlikely to be impacted.
Key domestic producers, such as Glencore, were in a much improved financial position to deal with higher costs in 2018, buoyed by record earnings over 2017 financial year, stemming from the metal price rally last year.
“We expect prices for copper and cobalt to remain elevated in 2018. The DRC will continue to be the only reliable source of cobalt in the short term, accounting for 50% of global reserves and over 80% of global exports as of 2017, while major deposits in Australia or Canada are yet to be developed and could take several years to reach commercial production,” BMI said.
“As such, we believe domestic producers will have little option but to comply with the new regulations in order to continue catering to growing demand fuelled by a burgeoning electric vehicle market.
“Finally, the government's announcement that it will continue engaging stakeholders and review the new regulations on a case-by-case basis following the passing of the law, leaves room for flexibility and reduces the risk of conflict between both parties in the coming months,” it added.