DRC bans export of cobalt and copper concentrate

The Democratic Republic of Congo (DRC) is grabbing headlines again in a way that many investors would prefer that it didn’t.

The country’s Minister of Mines, Martin Kabwelulu, has signed an order that bans the export of cobalt and copper concentrate. The move is being made to encourage more value added production within the country but it throws some western miners’ assets into question.

The biggest of them, Freeport McMoRan (FCX-N), which operates the massive Tenke Fungurume copper mine in the country, won’t be affected on the copper side as it processes the metal inside the country.

It could run into trouble, however, on the cobalt side as it will need to prove that the cobalt hydroxide produced at the mine is a finished product in order to avoid the ban.

The order that includes the export ban was dated April 5th and gives companies 90 days to clear stocks of concentrate before it goes into full effect.

Earlier in the year Freeport along with its partner at Tenke, Lundin Mining (LUN-T), acquired the Kokkola cobalt refinery in Finland. At the time of purchase the companies said the asset would provide “direct end-market access for the cobalt hydroxide production from Tenke Fungurume.”

The market took a dim view the company’s stock, although the negativity could have been tied to the drop in gold prices as well since Freeport is a significant gold producer courtesy of its world-class Grasberg mine in Indonesia. The company’s shares have fallen 12% since the end of trading on Friday. In New York on Apr. 18, it shares were trading for $28.18.

The company’s latest financial results show that it sold 214 000 oz. of gold in the first quarter — which was down from 288,000 oz. it sold in the same quarter last year.

As for its core business Freeport said it sold 15% more copper in the quarter, at 954 million lbs. compared to the 827 lbs it sold a year earlier. Cash costs, however, were 25% higher to $1.57 lb from $1.26 per lb for the same period last year. Those higher costs led to profits falling by 15% to $648-million or 68¢ per share.

The company has a 56% interest in Tenke Fungurume.

Another company hit by the news was Robert Friedland’s creation, Ivanplats (IVP-T), which operates the Kamoa copper project in the country. Ivanplats shares fell 22% to $2.82 when the news was released on Apr. 17.

The drop comes as the market wonders just how the ban could affect a company that plans to build a concentrator and smelter, but won’t have the facilities ready in three months time.

In a statement issued late on Wednesday, Ivanplats said development of Kamoa won’t be impacted by the decree but also said it was seeking clarification on the Mines Minister’s comments that mining companies “will be required to add value to concentrates through further processing within three months.”

Kamoa is three years away from its planned initial production of copper concentrate and has always planned to build the country’s first smelter. The facility would not only produce upgraded copper but also sulphuric acid that is needed by the country’s copper industry to process oxide copper concentrate.

Another company with new question marks around it is Australian-based Mawson West Limited (MWE-T), which tumbled on the news to the tune of a 27% drop since last Friday’s close. Its shares were trading for 63¢ in Toronto on April 18.

The company issued a statement saying that a previous ban on the export of concentrate from the DRC did not apply to Mawson West and it doesn’t expect to be affected by the new decree.

Mawson West recently put its Dikulushi copper and silver mine in the country into production. The mine produced 5,179 tonnes of copper concentrate and 449,678 oz. of silver in the first quarter of the year. It is also building the Kapulo copper mine in the country with commissioning targeted to start later in the year.

The DRC is one of the world’s largest copper producers, having turned out roughly 500,000 tonnes last year. It is also the world’s largest producer of cobalt.