With the Democratic Republic of Congo’s new mining code almost certain to be implemented, the country’s mining industry has warned that it will stifle investment and reduce state tax receipts from mining. Companies active in the DRC have urged the government to rethink the legislation and to organise proper consultation with the industry.
The government first introduced the revised mining code to parliament in 2015 but suspended consideration in March 2016 on account of a slump in metal prices and because companies objected that its increased royalties would make their projects unprofitable.
It was reintroduced last May with the government saying it was essential to boosting revenues in a country with an annual budget of only around $5 billion
Despite the delays it appears little has changed, with copper and gold royalties to increase to 3.5%, up from 2% and 2.5% respectively. A new profit-windfall tax will be introduced and the state’s free share will double to 10%.
It also sets out taxes of up to 5% on ‘strategic metals’ and 6% on precious stones. It is increasingly likely that cobalt, of which DRC is the world’s largest producer will be considered as a strategic metal. The key ingredient in lithium-ion batteries is now taxed at a 2% rate.
Mines Minister Martin Kabwelulu told Reuters earlier this month that the government would consider designating cobalt a strategic metal once the law had passed. He has also stated that tantalum, a scarce mineral extracted from so-called coltan ore and used in smartphones, could also be taxed at the higher rate.
Nearly two-thirds of the world’s cobalt comes from the DRC. Demand for the metal has surged due to expected growth in the electric vehicle sector, causing the price on the London Metal Exchange to triple over the last two years, reaching US$75,500 per tonne at the end of 2017.
Experts say that the royalty increase on top of increasing political risk in Congo and the importance of conflict-free metals would give investors one more reason to look for cobalt elsewhere.
The proposed mining code sailed through the Senate without opposition last week after the lower house approved it last month. All that remains now is for the final version of the text to be sent to President Joseph Kabila for his signature.
Through the chamber of mines, an industry lobby group, many companies have opposed the reforms to the 16-year-old code.
In a joint letter to the speakers of both houses of parliament, major miners stated that the new code would “significantly weaken the confidence of investors”. It was signed by the Congolese subsidiaries of giants in the sector, China Molybdenum, Randgold, Glencore, Ivanhoe and MMG.
They urged them to “suspend the process of adopting the text in its current version” and to “organise a true consultation of the mining industry”.
The letter said the code would reduce the state’s tax receipts from mining and also threaten jobs, social programs and infrastructure projects.
The signatories offered to support a consultation to come up with another mining code during 2018.
Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the continent. Contact:email@example.com