ERG Africa has suspended cobalt metal production at its Chambishi operations in Zambia. This represents the second move by a major cobalt producer to start suspending cobalt production in less than a week.
On the last day of the African Mining Indaba, Glencore announced cuts to its Mutanda workforce in the DRC as a way to reduce costs. Glencore is however considering halting production at Mutanda altogether as the DRC is now awash with cobalt hydroxide.
Core Consultants’ Battery Trading Group has provided offers of hydroxide material (origin DRC) for 60% of the LME price with a lot more material being quoted over the last month, an indication of the increase in cobalt hydroxide availability from the region.
ERG Africa’s decision to suspend its metal production comes after Zambia approved a new 5% duty on copper and cobalt concentrates. Core Consultants moderated the Zambian session at the Mining Indaba and asked pointed questions to the Minister of Finance and Minister of Mines regarding the tax regime. Taxes in Zambia has always been the stumbling block and has arguably prevented the country from becoming a consistent copper supplier such as the South American copper producers.
Zambia instead tends to be a swing producer, only coming online when copper prices begin rising markedly. Today we estimate that with the royalties, direct taxes and VAT, the effective tax rate to mining companies can often trend well over 86%, which is expected to negatively impact foreign investment. This is ever more concerning following the strong decline in cobalt prices, which has mitigated the tax and other costs in recent years.
With respect to Chambishi, the cobalt metal market constitutes around a third of cobalt supply (40,000 tonnes). The majority of this is produced by nickel-cobalt projects, but Chambishi is the last remaining metal producer in Africa and one of the world’s largest metal producers.
Unlike cobalt hydroxide which is consumed in batteries, only a relatively small amount of cobalt metal is used in batteries. Cobalt metal is largely consumed in permanent magnets and superalloys as well as other industrial uses.
For more information on cobalt produced in the African Copperbelt, see our latest White Paper