Africa’s major copper-producing nations aim to maximize trade revenues

The Democratic Republic of Congo and Zambia, two of Africa’s largest producers of copper, are negotiating agreements to expand their exposure to metal trading as a boom in demand associated with artificial intelligence and the move to greener energy sources offers significant financial gains.

International trading houses like Glencore (GLEN.L), opens new tab, have long been the exclusive domain of metals trade.

Over the past year, Congo and Zambia, who together account for over 13% of the world’s copper supply, have stepped up their efforts to obtain a portion of the extracted metal that they can then sell for a profit.

Two people familiar with the situation told Reuters that Congo state-owned miner Gecamines is nearing completion of a contract with Glencore (GLEN.L) and has opened a new tab to get an allotment of roughly 51,000 metric tons of metal from Kamoto Copper Company (KCC). They did not specify when the deal would be finalized.

Glencore chose not to respond.

According to the sources, Gecamines, which holds a quarter of KCC, is asking for a part of the metal equal to its ownership stake in the mine.

After striking a contract with Chinese owner CMOC Group (603993.SS), Gecamines has already begun trading about 100,000 tons of copper, which is equivalent to its 20% stake in Tenke Fungurume Mining. A new tab will be opened in July 2023.

Robert Lukama, the chairman of Gecamines, did not immediately answer Reuters’ inquiries.

According to one of the individuals, the Congolese government is currently attempting to exert more control over the metals’ sales in ventures in which it has an interest.

In Kenya, an increase in violence against women has inspired many to learn how to defend themselves.

Congo opens a new tab Kamoa-Kakula mine with a target of producing 520,000–580,000 tons of copper this year, and it owns 20% of Ivanhoe’s (IVN.TO).
Ivanhoe chose not to respond.

According to the source, Gecamines also wants to acquire more metal from its ownership of companies, such as Zijin Group (601899.SS), by opening a new tab.

Since none of the sources had the authority to speak in public, they all requested anonymity.

INDABA CAPE TOWN

When international investors, executives, and government representatives convene in Cape Town for the Mining Indaba conference next week, the pursuit of copper is expected to be hotly discussed.

Following events this month in Mali, where gold mining executives were arrested to enforce compliance with new mining regulations, African governments’ attempts to maximize their share of profits—which historically have been concentrated in the hands of multinational corporations—will also be a sensitive topic.

Due to the difficulty in finding fresh sources and the increased negotiating power of resource holders, copper has the potential to yield enormous profits as demand is driven by its applications in artificial intelligence, electric vehicles, and the switch to greener electricity.

Zambia and Congo, which border the African Copperbelt, are categorized as high risk by Verisk Maplecroft’s Resource Nationalism Index because investors believe they are challenging areas to invest.

Joint ventures, according to traders and some analysts, have the potential to reduce tensions and provide mutual benefits as African governments look for expertise and companies like Swiss trader Mercuria, which was less well-known in Africa than some houses, want to expand their footprint.

According to two different sources who spoke to Reuters, Zambia and Mercuria established a jointly owned copper trading company in December that has begun talks with nearly all of the nation’s producers.

According to one of the individuals, Mercuria has set aside an initial budget of roughly $500 million to purchase copper from regional suppliers, supported by further credit lines as more metal supply becomes available.

Email inquiries were not answered by Mercuria.

Instead than only depending on dividend payments for profits as it has up to this point, Zambia intends to begin by purchasing copper on commercial terms before negotiating for physical metal equal to its stake, according to the two sources.

10% to 20% of projects involving local Vedanta Resources (VEDJB.UL), First Quantum Minerals (FM.TO), and Barrick Gold (ABX.TO) units are owned by Zambia through the state company ZCCM-IH (ZCCM.LZ).

NO DOUBTS ABOUT DIVIDENDS OR SILVER BULLETS

Dividends have caused controversy as a way to reward governments that possess resources since some governments have questioned whether the sums paid to them are equitable.

Dividends based on the amount of metal mined could be beneficial, according to Indigo Ellis, managing director of strategy and risk advising at J.S. Held LLC.

She added that government intervention in commerce might allow them to control the prices they choose.

“Government-implemented trading builds up scope for locally controlled value addition and thereby increases the government’s influence over the market for copper or cobalt – which is the ultimate aim,” she stated.

However, despite all of the activity, many analysts doubt that governments will profit easily from trade.

Changing to metals trading is as unlikely to be a panacea as dividends, according to Hugo Brennan, head of EMEA Research at risk intelligence firm Verisk Maplecroft.

“One can foresee disputes around the division of mineral production and who trades with whom as readily as those that have previously emerged around dividend payments,” he stated.

According to some, there was a chance that private investors would be discouraged.

RBC Capital Markets analyst Ben Davis remarked, “How much do you really benefit from that and how much are you going to upset the investors by trying to capture greater market share from your own sales?”