Excavators and drillers at work in an open pit copper and cobalt mine in the DRC. Picture: REUTERS
Excavators and drillers at work in an open pit copper and cobalt mine in the DRC. Picture: REUTERS

Kinshasa/London — The Democratic Republic of Congo (DRC) is preparing to more than double a tax on two-thirds of global cobalt supply, potentially increasing the cost of the battery metal just as the world begins to embrace electric vehicles.

The DRC, the world’s biggest cobalt producer, will increase royalties miners pay on exports of the metal to 5% from 2% if it opts to categorise cobalt as a "strategic substance", Mines Minister Martin Kabwelulu told the country’s Senate last week.

The new classification is part of an overhaul of mining legislation fiercely opposed by the industry, which says the law may deter investment. Under the revised code the tax on base metals including copper and cobalt will increase to 3.5% from 2%. If approved by the Senate, the law will also allow the state to select "strategic" metals, likely to include cobalt, and tax them at the higher rate of 5%, Kabwelulu told senators.

A byproduct of copper and nickel mining used to harden steel, cobalt stepped into the global spotlight last year as prices surged.

The metal’s efficiency in conducting electricity has made it essential for rechargeable batteries used in electric cars.

Plans to dramatically increase the production of electric vehicles resulted in the price of the metal more than tripling in the past two years as miners and vehicle makers scrambled to secure supply.

The boom has not gone unnoticed in the DRC, whose mines supply about two-thirds of global output.

The new legislation will guarantee Congo "the flexibility to face unforeseen developments in the international market if the international economic situation demands it" by permitting the government to declare certain minerals "strategic substances", Kabwelulu said.

Tantalum, a scarce mineral extracted from so-called coltan ore and used in smartphones, could also be taxed at the higher rate, Kabwelulu said.

The current mining law, which was promoted by the World Bank and adopted in 2002, attracted billions of dollars in investment from mining companies including Glencore and Randgold.

While the economy has grown, the government says the mining industry has not generated sufficient revenue for the state.

While existing stability clauses meant companies with valid mining contracts, such as Glencore and Randgold Resources, would not have to comply with most reforms for 10 years, the increased royalty rates would be applied to all projects immediately, Kabwelulu told senators last week.

The royalty hike may have the biggest impact on Glencore, the country’s largest producer of copper and cobalt.

The draft law was adopted by the National Assembly on December 8 and is being examined by the Senate in an extraordinary session that started on January 2. If approved by the Upper House, it will be sent to President Joseph Kabila to sign into law.

Bloomberg