Photograph — Fortune

Multinational mining company, Glencore disclosed earlier this month that it will be suspending production of cobalt in the Democratic Republic of Congo (DRC). The mine which is located in Mutanda is one of the largest in the world, accounting for almost 20 percent of global output of cobalt. 

The Swiss commodity trader is preparing for a new wave of taxes introduced by the DRC government as the company struggles with poor results in the first half of this year. Glencore’s net income fell 92 percent to $226 million while operating income declined 32 percent to $5.6 billion.

Glencore’s struggle is largely due to the plunge in the price of cobalt in recent years driven by falling demand. As a result, the Mutanda mine has about 10,000 tonnes of unsold cobalt. Prices rose between 2017 and 2018, peaking at $94,500 per tonne in March last year. During this period, Glencore increased production but now cobalt prices are falling, hovering around $26,000 per tonne.

Despite the oversupply of cobalt leading falling prices, Managing Director Ivan Glasenberg remains optimistic about the business. “We are convinced that commodity prices will evolve in our favor and that our diversified portfolio will continue to play a key role in global growth.”

Moreover, in a group management letter to employees at its Mutanda mine, Glencore cited DRC’s new mining code as among the reasons for closing the mine. “Due to the significant decline in the price of cobalt, increased inflation in some of our main inputs (mainly sulphuric acid) and additional taxes imposed by the mining code, the mine is no longer economically viable in the long term,” the company wrote.

Last year, DRC enacted the new mining code that places an additional financial burden on mining companies. The code increases royalties on “strategic” minerals from two percent to 10 percent and requires mining companies to allocate 0.3 percent of their turnover to the development of community projects.  

With the suspension of activities at the mine scheduled for the end of the year, Glencore plans to carry out “temporary care and maintenance activities, linked to its reduced economic viability,” its press release said.

However, there may be more to the closure than the company claims. According to an Africa Analyst at Verisk Maplecroft, Indigo Ellis, the move by Glencore is likely an attempt to force the government’s hand over corporate taxes. This is because Glencore’s size and diversified nature allow it to influence the global cobalt market and the DRC stands to lose more than Glencore if Mutanda is closed for an extended period.

Glencore CEO Ivan Glasenberg is “probably seeking special considerations for Glencore’s operations in DR Congo,” Ellis claimed. “Top of the wish list would be an exemption to the 10 percent strategic substance levy on cobalt, or the onerous super-profits tax.” 

DRC supplies most of the world’s cobalt, a metal used in smartphone batteries and electric cars, but the country’s 81 million citizens derive few benefits from it. Economic growth has also slowed, falling from 9.4 percent in 2014 to 3.9 percent in 2018 as inflation averaged 25% in the last decade.


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