The struggle between Congo and Zambia and mining companies has led to instability in the copper and cobalt supply chain!

SMM2, March 27: last year it was the Congo, and this year it is Zambia's turn.

They are all silencing opposition from some of the big mining companies by changing the mining tax system.

Global demand for their resources, particularly copper and cobalt, will give them a stable source of tax revenue.

At present, however, the huge wealth under the African copper belt is disrupting the supply chain of copper and cobalt.

One Zambian copper smelter has closed and the other has cut production, Glencore confirmed media reports last week that it would cut production at its Mutanda mine in the Congo.

The news shook the copper market and highlighted the importance of the two African countries to the global supply chain.

Cobalt has barely reacted because the "overheated" metal in recent years is still digesting the excess after the price surge in 2017.

However, the current supply turmoil will cause even greater shock to the future of cobalt and copper.

The miner is at a disadvantage

For some time, the Congo and Zambia have been discussing the proposed tax reform policy with mining companies.

The arguments continued earlier this month at a mining Indaba conference in Cape Town.

Yet the miners have lost.

Last June, the Congo signed a new mining law, which provides for an increase in copper royalties from 2.0 per cent to 3.5 per cent and gold from 2.5 per cent to 3.5 per cent. And introduced a new tax law, a 50% tax rate can bring it huge profits.

When Congo declared cobalt a "strategic" mineral in December, the corresponding patent rate almost tripled to 10 per cent, hitting mining companies again.

Similarly, Zambia's tax crackdown on mining companies emerged at the start of the year, with royalties rising by 1.5 percentage points to 5.5-7.5 per cent, depending on specific copper prices.

If the copper price exceeds $7500 and $9000, the concession rate will rise to 8.5 per cent and 10.0 per cent, respectively.

In addition, 15 per cent of gold and gem royalties have been introduced, while mining companies are anxiously awaiting details of a non-refundable sales tax to replace VAT with a non-refundable sales tax, which the Zambian government plans to introduce in early April.

The cost of running mining operations in both the Congo and Zambia has become increasingly high.

Marginal destruction

However, this was only a less dramatic change in Zambia's tax system, which immediately led to supply chain disruptions.

A new import duty of 5.0 per cent on copper concentrate has hindered the flow of raw materials from the Congo to Zambia.

Smelters such as Nchanga and Chambishi have traditionally relied on the supply of raw materials from the Democratic Republic of the Congo, so new import duties quickly affected them, with Nchanga production reduced and Chambishi closed because it relied entirely on concentrate supplies from the company's Boss Mining and Frontier operations in the Congo.

Future threats

Glencore faces a similar dilemma at its Mutanda mine, where its orebodies are changing from oxides to sulfides, which often require smelter processing.

This orebody change is not uncommon in copper deposits because early operations have exhausted near-surface oxide deposits, which usually cover deeper sulphide deposits.

Glencore said the new mine plan would reduce Mutanda production to 100000 tons and decide whether and how to deal with the increased sulphide reserves. "

Congo's harsher tax system makes investment decisions more difficult and is likely to be more volatile in the future.

Another key change in the new mining code last year was the reduction of operating contracts from 10 to five years, which means the government can change its targets more frequently.

And will Congo and Zambia promote the redistribution of resources and wealth by blocking investment in production?

Both Congo and Zambia are under pressure to bet their chips on copper.

At the same time, mining companies worry that the moves in both countries may be far from stopping, as both countries are burdened with heavy national debt and tight budgets.

They are also the main sources of two metals, and the rapid development of electric vehicles requires cobalt to make lithium-ion batteries and copper to build infrastructure.

Dependence on cobalt in the Congo is a well-known problem for lithium-ion battery manufacturers and their car customers.

The confidence of the Congolese government has also affected the stable supply of copper. However, they must re-understand the unpredictability of copper prices in central Africa.

Congo's copper production collapsed in the 1990s and early 2000s, so much so that it lost its former role in the global production chain.

But now production is back. From less than 30, 000 tons in 2005 to 1.2 million tons in 2018, while Zambia produced 800000 tons, accounting for about 1/10 of global production.

Only time will tell if Congo and Zambia are on the right path, believing that mining companies will accept new mining taxes, even if they do not want to, and the cost of doing new business.

But in the short term, there will be more volatility in the supply chain.

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