Chinese Mining in the DRC: From Sicomines to Global Cobalt Monopoly

Halim Nazar, Research Intern, ICS

Image: The Tenke-Fungurume Mine in the DRC
Source: Reuters

The Democratic Republic of Congo (DRC) embodies the paradox of plenty. Despite having an untapped resource wealth worth an estimated $24 trillion, the country remains one of the poorest in the region and needs urgent reform. Sino-Congolese relations can be traced back to the mid-1960s when the Chinese Communist Party (CCP) supported the Congolese struggle against “American imperialism” and capitalism, but it was only after 2008 infrastructure-for-minerals deal that Chinese influence became more perceptible in the DRC. Chinese mining companies have been focusing on the DRC not only because it has high-grade mineral deposits but also because competition from other transnational companies is minimal as they are wary about operating in the DRC given its tinted track record, especially when it comes to the protection of human and labour rights, and its frequent episodes of social unrest.

Almost 70 percent of the Congolese mining portfolio is under Chinese control, and so the industry is affected whenever China is affected. Chinese investors like Minerals and Metals Group (MMG) and China Molybdenum’s Tenke Fugurume are prominent in the cobalt and copper-rich Lualaba and Haut Katanga areas along with global traders like Trafigura and Glencore, and Canada’s Ivanhoe Mines and Barrick Gold Corporation, but artisanal mining still accounts for 20%-40% of the cobalt production. Nevertheless, the success of their recent forays, as well as the predicted increase in demand for precious metals, particularly cobalt, have motivated Chinese companies to bolster mining operations and increase investments and lobby their government to renew negotiations for greater mining rights.

China strengthened its presence in the DRC with the infrastructure-for-minerals deal that provided substantial mining rights in exchange for developing the DRC’s war-torn infrastructure. In late 2007, China announced a $5 billion loan to the DRC for infrastructure development with substantial investments to follow and a joint venture was set up to execute the terms of the agreement. The joint venture was named Sino Congolaise des Mines (Sicomines) and was established with a Chinese majority shareholding of 68%. The initial Chinese investments were to be evenly divided between mining projects and the development of roads, railways, schools, hospitals and dams. China has described the deal as a mutually beneficial relationship, which is absent of any political conditionality wherein China would gain access to critical minerals essential for its energy products, and the DRC would gain from the development of its shattered infrastructure and the growth of its productive capacity. Over 10 years since its inception, the so-called “deal of the century” has improved the DRC’s macroeconomic performance while also bolstering infrastructure developments. Yet, the deal still has a lot to live up to and will depend on the DRC’s ability to consolidate the benefits and ensuring that promises are kept. Moreover, since the Sicomines deal are exempt from taxes until infrastructure and mining loans are fully repaid, the DRC won’t receive any substantial income from the agreement for the foreseeable future.

Despite a rocky start and reduction in scale after two sets of renegotiations as funding from China Eximbank became uncertain, mining operations finally began in 2014. Under the agreement, China would receive 10 million mt of copper and 600,000 mt of cobalt worth approximately $50 billion over 25 years. In 2016, Congolese sources estimated that $1.2 billion had been spent on infrastructure and mining credits combined. Mining activities smoothly progressed, and Congolese cobalt production crossed 100,000 mt/year in 2018 and copper production went above a million mt/year until the global COVID pandemic when cobalt mining rates slightly went below 100,000 mt/year in 2020. Resource-for-Infrastructure (RFI) deals like this all over Africa have helped China foster strong relations with several countries and consolidate its position as a great power. China draws support and exerts its influence on these nations in matters of dire importance at the UN and while staking the claim of “One China”, which is the People’s Republic of China (PRC) and calls for the isolation of Taiwan (Republic of China). The Sicomines agreement has been widely criticized as it is perceived to unfairly benefit the Chinese. The IMF publicly criticized the DRC for taking on too much debt.

Cobalt has become an intensively sought-after mineral as the blue element is crucial for lithium-ion batteries. Given the surge in demand for electric vehicles, Cobalt demand is predicted to grow fourfold by 2030. With reserves in the ballpark of 3.5 million mt, the DRC hosts over 51% of the global cobalt reserves, and it is estimated that in 2020, the DRC produced about 90,000-95,000 mt of cobalt representing nearly 70 percent of the total cobalt feedstock production globally. Several Chinese companies like Chengtun Mining, Wanbao and CNMC have bolstered their mining operations and have expressed their desire to acquire more cobalt mines. But the new Congolese president Felix Tshisekedi has been a vocal critic of the current deal and has called for renegotiations in the spirit of drafting win-win agreements. The Sicomines deal has been mired with secrecy and controversy from the very beginning, with even the Congolese Mines Minister being denied crucial information regarding the agreement. Corruption runs rampant in the DRC as a fifth of the country’s mining revenues – $750 million – was lost to corruption between 2013 and 2015, according to The Global Witness.

China has shown signs that it is ready to strengthen this strategic partnership and recently cancelled the DRC’s interest-free loans worth an estimated $28 million and promised to fund infrastructure projects and also give $17 million in other financial support as the Central African nation joined the Belt and Road Initiative (BRI) and to also help the country overcome the impact of Covid-19. China’s decision to write off debts and welcome the country as a new partner for the BRI would further drive cooperation between the two countries and incentivize more Chinese miners to invest further into the Congolese copper and cobalt industry, increasing their stake in local mines. Essentially improving access to proven cobalt and copper reserves worth billions by waiving off a paltry $28 million loan.

Cobalt is crucial for battery technologies and to facilitate the global transition to a fossil-free future. In the current global scramble to secure forward supplies and escape the eccentricities of the spot market, China holds all the cards. Control over crucial raw materials like cobalt, along with state-of-the-art processing and manufacturing capacity, will determine the balance of industrial power, particularly in automotive and energy storage. Presently, China is the frontrunner, and it seems likely to retain this control for at least the medium-term.