Wednesday, October 30, 2024

China's critical mineral dominance puts Washington's supply chain hopes at risk

South China Morning Post
Mon, October 28, 2024 

Beijing's dominance in the resource-rich central African nation Democratic Republic of Congo (DRC) may complicate Washington's ambitions to de-risk its critical minerals from China's supply chains, according to new analysis.

London-based minerals research and pricing firm Benchmark Mineral Intelligence said that most of the DRC's cobalt - a crucial component in electric vehicle batteries and other electronics - is already in the hands of mining companies from China.

Chinese companies control two-thirds of cobalt in the DRC, which accounts for an estimated 74 per cent of global output, putting it at a "high risk" of falling foul of the foreign entity clause in the US Inflation Reduction Act (IRA).

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CMOC, previously known as China Molybdenum, is a top cobalt producer from its two main sites in the DRC - Tenke Fungurume mine and Kisanfu project - and a potential target for the IRA's foreign entity of concern clause (FEOC), Benchmark Minerals said.

Benchmark's study noted that 60 per cent of the global supply of mined cobalt in 2024 is expected to come from assets classified as FEOC or at "high risk" of becoming part of that category.

The clause captures entities owned, controlled or subject to the jurisdictions of China, Russia, Iran and North Korea.


The Benchmark study also found that 79 per cent of the world's supply of refined cobalt in 2024 will originate from assets that are either already FEOC or at high risk of becoming so.

"The majority of DRC volumes fall under the 'high risk' category, owing to high levels of Chinese ownership in assets in the country, and therefore are likely to be ineligible for consumer tax credits under the IRA," said Will Talbot, research manager at Benchmark.

"Over time, we do expect the share of material coming from high risk or FEOC countries will decline marginally as more ex-China supply comes online, but we forecast it to remain significant," he said.


The Tenke Fungurume mine in the Democratic Republic of Congo in central Africa is one of the largest copper and cobalt mines in the world. Photo: AFP alt=The Tenke Fungurume mine in the Democratic Republic of Congo in central Africa is one of the largest copper and cobalt mines in the world. Photo: AFP>

DRC President Felix Tshisekedi, who began his second term in January, pushed for a renegotiation of the previous administration's minerals-for-infrastructure deals with China, to ensure that the DRC's citizens benefit from its mineral wealth.

Tshisekedi's visit to China in 2023 was followed by this year's revised agreement on the Sicomines copper and cobalt joint venture that will see Sinohydro Corporation and China Railway Group invest up to US$7 billion in infrastructure.

The Benchmark study found that Chinese firms are deeply embedded in the DRC's mining sector, having secured several of the country's key assets in the past decade as Western countries ceded many of these interests to China.

According to Benchmark Minerals, chief among these acquisitions was the sale by US-based Freeport-McMoran of two of the world's largest cobalt assets - the Tenke Fungurume mine and Kisanfu project - to CMOC in 2016 and 2020, respectively.

The acquisitions more than doubled CMOC's cobalt supply and the company last year surpassed its Swiss rival Glencore to become the world's largest producer of the mineral in terms of output.

Concerns over the Chinese mining giant's outsize role in the DRC have led to Washington's recent initiatives to challenge China's grip on the critical minerals market.

The US is angling for a share of the battery metals and in 2022 signed a memorandum of understanding with Zambia and the DRC to bring funding and expertise into their mining industries.

The US is currently leading its allies in a multibillion-dollar investment to revamp the Lobito railway corridor between Angola and Zambia through the DRC, with the aim of developing transcontinental connectivity from the Atlantic to the Indian Ocean.

The project involves refurbishing an existing section of the 1,344km (835 miles) Benguela railway into southern DRC, and construction of an 800km (497 miles) railway line through northwestern Zambia.

Tanzania has also signed a deal with the US to allow the expansion of the Lobito Corridor to reach the Indian Ocean and Tanzania's nickel deposits. An expanded Lobito could also bring copper-cobalt exports from the DRC or Zambia into Western markets.

Chris Berry, president of ­New York commodities advisory firm House Mountain Partners, said that US investment in the Lobito Corridor is indeed part of a plan to de-risk and diversify cobalt supply chains.

"[However] it's likely that the US and much of the world will be reliant on DRC-sourced cobalt for years to come," he said, adding that the assets in the DRC are extraordinarily large and high grade - "a very tough combination to compete with".

According to Berry, various US government entities, including the Defence Department and the Export-Import Bank, have provided capital in the form of grants and loans to North American cobalt, copper and nickel assets such as Electra or Jervois.

Berry said this "positive momentum" must be sustained through volatile metals price cycles. "There is no quick fix here, as there is a dire need for FEOC-compliant material, but it will take some years to build a sustainable supply chain."

Washington was also reported to be behind moves to block Norin Mining - a subsidiary of China's state-owned defence company Norinco - from acquiring Chemaf Resources, operator of the Etoile copper mine.

According to the Financial Times, US officials encouraged state-owned miner Gecamines to review the sale of Chemaf, which is also developing Mutoshi, one of the DRC's largest pipeline copper-cobalt projects. The deal was rejected.

The Benchmark study said that the US has also reportedly tried to assist Swiss trading firm Mercuria's bid to acquire copper-cobalt mines from Eurasian Resources Group (ERG), contingent upon the removal of sanctions against Israeli billionaire Dan Gertler.

Carlos Lopes, a professor at the Nelson Mandela School of Public Governance at the University of Cape Town in South Africa, said Washington's approach to "de-risking" cobalt supply chains is a sign of intensifying geopolitical competition.

According to Lopes, the US seems increasingly focused on securing critical minerals for its own economic and security interests.

"This rivalry-driven approach narrows the scope for a partnership with Africa based on mutual benefit and long-term development. The continent, and the DRC in particular, should not be seen merely as a resource base to fuel external interests," he said.

Lopes noted that while the significant investment in the Lobito rail corridor aligns with the broader US agenda to diversify and secure mineral supply chains beyond Chinese influence, there are also risks

"Without a genuine commitment to local development, it risks perpetuating Africa's role as a supplier of raw materials rather than fostering economic transformation on the continent," he said.

To be truly beneficial, these efforts must include investment in value-addition industries and infrastructure that support African economies and employment, not just US supply chain security, according to Lopes.


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