China Expands Congo-Copper Control as Western Miners Retreat

(Bloomberg) -- As low copper prices and disrupted power supplies reduce output and lead to job cuts by companies including Glencore Plc in the Democratic Republic of Congo, Chinese companies are plowing in more investment.

The shareholders of a Chinese project known as COMMUS in January approved a $578 million plan to develop a copper concession on the outskirts of Kolwezi, the capital of Lualaba province in southeastern Congo. The owners will invest $173 million in the project and raise the rest in debt, Zhejiang Huayou Cobalt Co. said in a Jan. 15 statement to the Shanghai Stock Exchange. More investment is expected to follow, according to Serge Bilambo, head of mining and metals at Standard Bank Group in Congo’s copper-producing Katanga region.

“China wants to be the key actor in Congo’s copper sector and current prices present them with a good opportunity to acquire and invest,” he said in a Feb. 22 interview in Lubumbashi in southeastern Congo.

China, the world’s biggest buyer of industrial metals, is Africa’s largest trading partner, with two-way flows exceeding $220 billion in 2014. The country overtook Belgium to become Congo’s top trade partner in 2008, according to International Monetary Fund data. In 2014, it did $4.33 billion of trade with Congo, 57 percent more than the entire European Union and 12 times greater than the U.S.

Copper, Cobalt

Congo is Africa’s top producer of copper, the world’s largest source of cobalt and a major supplier of coltan, tin and timber. Its resources have been critical inputs to China’s expanding economy, whose companies remain hungry for Congo’s commodities. Despite often selling to China, mining companies from elsewhere in the world are struggling to keep up as low prices reduce profit.

Eurasian Resources Group BV, based in London, on March 2 said it’s cutting at least 1,300 mining jobs in Congo. It currently controls five mining companies in the country. The next day, Amsterdam-based Trafigura Beheer BV’s Mawson West Ltd. announced it’s placing the Kapulo mine on care and maintenance. Glencore in September halted output at Katanga Mining Ltd., which accounts for about 15 percent of Congo’s total copper output.

Job Shortage

Huayou, which has a 21 percent stake in COMMUS alongside Fujian province-based Zijin Mining Group and Congo’s state-owned miner Gecamines, is one of at least a dozen Chinese companies that exported copper or cobalt from Congo last year, according to government statistics. Cobalt is used to make rechargeable batteries.

The company has held the rights to the Kolwezi concession since 2008, but activity on the site was limited until last year, says Raymond Mwema, head of a civil society group that represents residents who will have to be resettled from the COMMUS concession. The project, whose machinery can be seen moving earth on the concession at the town’s edge, is now one of the only miners still hiring, he says.

Delphin Monga, provincial secretary of the UCDT labor union in Kolwezi, agreed.

“COMMUS and Sicomines are the only companies that seem to be increasing operations,” he said Feb. 20. Sicomines, a joint venture between Gecamines, China Railway Construction Corp. and Sinohydro Corp, began copper production in November.

Prices Declining

Copper has rebounded since declining to a six-year low in January and dropping 25 percent last year as slowing growth in China hurt demand. Copper for delivery in three months fell 0.2 percent to $5,018 a metric ton on the London Metal Exchange on Monday.

Huayou, which also has a 5 percent stake in Sicomines, has been undeterred by the lower prices, amassing myriad different holdings in Congo’s copper belt. In June, it acquired the Luiwishi and Lukuni copper and cobalt assets from Gecamines for $52 million. It also controls a series of copper- and cobalt- smelting operations where it processes minerals mainly from artisanal mining sites.

Zijin, which acquired its 51 stake in COMMUS from Huayou in December 2014 for $77.9 million, also has a growing presence in Congo. In December, the company acquired 49.5 percent of Ivanhoe Mines Ltd.’s Kamoa copper project for $412 million.

On Jan. 26, Gecamines said it had signed an agreement with another Chinese mining company, China Nonferrous Metal Mining Group, to build two processing plants on its Kambove and Deziwa mining concessions.

In September, Eurasian Resources also signed an agreement with China Nonferrous to build a $700 million processing plant at its Metakol tailings project in Kolwezi funded by Chinese state banks.

Standard Bank’s Bilambo reckons it will be increasingly difficult for Western mining companies in Congo to compete.

“I don’t see that they have the same desire to expand right now,” he said.

To contact the reporter on this story: Tom Wilson in Kinshasa at twilson128@bloomberg.net To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net Paul Richardson, Michael Gunn