A nascent energy transition and ever-evolving technological advancement have expanded the number of resources considered strategic. Individual business decisions affecting the supply of critical raw materials can have broad impacts in sectors where chokepoints still exist.
British-Swiss mining powerhouse Glencore has announced that it will shut down cobalt and copper production at its Mutanda mining operation in the Katanga province of the Democratic Republic of the Congo by the end of the year. The company expects the shutdown to last at least two years, although, after that amount of time, the benefits of restarting operations could be insufficient to justify a restart. In 2018, besides about 200,000 metric tons of copper, the mine produced just over 27,000 metric tons of cobalt — around 20 percent of total global production of the strategic metal.
Why It Matters
Cobalt, a component of lithium-ion batteries, occupies an important place in the nascent global energy transition, and the Democratic Republic of the Congo accounts for most of the world's production of it. New mines in different countries will likely come online in the future. But for the moment, companies that deal in cobalt have few other options than accommodating the hard-line government in Kinshasa that looks to squeeze as much advantage as it can from its current supply stranglehold. A number of factors likely spurred Glencore's decision, including the climbing costs of implementing the new production methods that will be needed to continue producing ore from the aging mine. A yearlong decline in cobalt prices coupled with climbing royalty taxes imposed by the Democratic Republic of the Congo also contributed to the mine's unfavorable economics. The loss of supply from the mine could very well bring the cobalt market, which has been in a state of short-term oversupply, back into balance, causing prices to rebound.
Sustained higher prices or the departure of other cobalt producers from the Democratic Republic of the Congo would benefit the battery makers that have strategically begun to move away from cobalt. Chinese battery manufacturer CATL, for example, reportedly started producing lithium-ion batteries with limited cobalt content in April 2019 as part of China's aggressive push to expand manufacturing capacity overall. Tesla Inc. has also announced plans to limit cobalt content in its batteries.
Pressure has been building on Glencore's operations in the Democratic Republic of the Congo for over a year. These include international criticism over Glencore's association with Israeli businessman Dan Gertler, who has been sanctioned by the United States; legal battles between Glencore and state-owned Gecamines; the country's new mining codes and its tenfold increase in royalty taxes on cobalt; and recent security issues at its mines. Even though longtime President Joseph Kabila left office after the elections that named his successor, a faction of the Congolese government loyal to him has maintained control over the mining sector, indicating that the country's mining strategy is unlikely to change.