DRC bans export of cobalt and copper concentrate

The Democratic Republic of the 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 ostensibly 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 Copper & Gold (FCX-N), which operates the large 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 5, and gives companies 90 days to clear stocks of concentrate before it goes into full effect.

Earlier in the year Freeport — along Lundin Mining (LUN-T), its partner at Tenke — 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.”

Investors took a dim view of Freeport’s stock after the DRC news, 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. In New York on April 30, its shares closed at $30.43, off 11% year-to-date.

The company’s latest financial results show that it sold 214,000 oz. gold in the first quarter — which was down from 288,000 oz. 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 lb., compared to the 827 million lb. it sold a year earlier. Cash costs, however, were 25% higher to US$1.57 per lb. from US$1.26 per lb. for the same period last year. Those higher costs led to profits falling by 15% to US$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 DRC. Ivanplats shares fell 22% to $2.82 when the news was released on April 17, and traded at $3 on April 30, down 40% in 2013.

The drop comes as the investors wonder 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 in late April, Ivanplats said development of Kamoa wouldn’t be impacted by the decree, but also said it was seeking clarification on the Mine 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 (MWE-T), which tumbled 27% on the news, but had rebounded to 70¢ at press time. The company said that a previous ban on concentrate export 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-silver mine in the DRC into production. The mine produced 5,179 tonnes of copper concentrate and 449,678 oz. silver in the first quarter. 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 500,000 tonnes last year. It is also the world’s largest cobalt producer.