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Glencore cobalt supplies in Congo face hold up over mine row

Apr 19 2017 09:48
Bloomberg: Tom Wilson
cobalt


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GLENCORE PLC [JSE:GLN]

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Lubumbashi - A dispute between state-owned Gecamines and its joint-venture partner at a Congolese cobalt mine that supplies Glencore [JSE:GLN] threatens to halt the supply of as much as 4% of the metal within two months.

Jersey-registered GTL, a joint venture between Gecamines and closely held Groupe Forrest International, has processed the hill of mine waste that looms over the southern Congolese mining town of Lubumbashi since 2001, producing as much as 5 000 metric tons of cobalt a year. The state-owned miner has blocked GTL’s access to the site since March 23, according to Groupe Forrest CEO Malta Forrest.

“Gecamines has blocked our access stating that it believes we have exceeded the limits set in our contract,” Forrest said in an interview April 15 in Lubumbashi. “It’s simply not true. Despite our requests Gecamines provided no evidence for their calculations.”

The company petitioned the commercial court in the Belgian capital, Brussels, which has jurisdiction over GTL’s purchasing agreement from Gecamines, to reopen access to the site and appoint an independent expert to adjudicate on the dispute. The case will be heard on Thursday, Forrest said. Gecamines declined to comment on questions sent by email.

Congo is the world’s biggest source of cobalt. Demand for the metal, a key ingredient in the lithium-ion batteries powering everything from Apple’s iPhones to Tesla’s new Model 3 electric car, has resulted in prices more than doubling in the past eight months. Glencore, the world’s largest cobalt miner, has bought GTL’s output since 2015.

Glencore declined to comment, a spokesperson said by email.

Under a 1997 contract provided to Bloomberg by Groupe Forrest, GTL had the right to produce as much as 5 000 tons of cobalt annually from the site for 15 years. That agreement was amended in January 2013, granting GTL the right to continue to process cobalt at the same rate until the resource at the so-called tailings site is fully depleted.

The mine waste is being reprocessed using more modern technology that allows the extraction of previously inaccessible metal.

In October, independent assessments by Gecamines and GTL agreed that about 1.47 million tons of ore remained in the dump. That’s equivalent to a further five years of operations, according to Groupe Forrest.

Despite the 2013 amendment, Gecamines said in December that GTL exceeded the total production permitted by the original contract and that it reserved the right to annul the agreement, according to copies of correspondence provided by Groupe Forrest.

The state-owned miner later clarified that it believed GTL had produced more than 82 000 tons, exceeding the 15-year, 75 000-ton limit in the 1997 agreement.

Groupe Forrest said that GTL has only produced 64 478 tons of the metal.

Job cuts

GTL had about 90 days of tailings stockpiled when Gecamines blocked access to the site. The plant can run for a further 60 days at reduced capacity before GTL will have to shut down the smelter, General Manager Enzo Baccari said in an interview at the site.

“If I don’t get access to the tailings, I’ll have to shut down and retrench people,” he said. The company employs 350 staff.

The shutdown may also cut income for Gecamines, which received $65m last year in payments from GTL for the raw material from the tailings, in addition to its 30% share of total profit, Groupe Forrest said.

Prior to the contractual dispute, Gecamines told GTL that a British Virgin Islands-registered company called Shamrock Global Group Inc. expressed an interest in developing another part of the tailings site not included in the GTL contract, but the three companies couldn’t reach an agreement that complied with GTL’s own pre-emption rights, according to correspondence provided to Bloomberg by Groupe Forrest.

According to an October 2015 term sheet signed by Gecamines chairperson Albert Yuma and Managing Director Jacques Kamenga and seen by Bloomberg, Shamrock agreed to pay Gecamines $45m upfront on a $400m, 25-year contract to process the remaining tailings.

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