If the Democratic Republic of Congo (DRC) applies its plan to more than double tax on two-thirds of the global cobalt supply, high-grade energy metal deposits explorer and developer Sienna Resources says this could potentially increase the cost of the critical battery metal just as the world begins to embrace electric vehicles.
Cobalt prices traded at new nine-year highs of $34.25/lb in January. If the DRC applies its tax, it could create an even larger demand for non-DRC-sourced cobalt, the Canadian company reported early last month.
In December, Sienna received TSX Venture Exchange approval to proceed to an exploration and option agreement to acquire the Slättberg cobalt/nickel/copper project, in Sweden. The project consists of two adjacent exploration permits, comprising about 9 513 contiguous acres.
In January, Sienna Resources closed a nonbrokered private placement consisting of 12.5- million units at 20c a unit for gross proceeds of $2.5-million to fund the development of the Swedish cobalt project.
Sienna Resources president Jason Gigliotti states that the company had orders for significantly more than it closed, however, thought it was prudent to only take $2.5-million to keep the share structure intact. “We expect to be on the ground in Sweden this month (January), with a full-scale drill programme planned for the first quarter. “We are very optimistic about the prospects in Sweden and look forward to getting boots on the ground immediately. Cobalt prices are at ten-year highs and demand for ethically sourced cobalt has never been higher.”
Gigliotti explains that there are 12 historic mines on the Slättberg property and, with modern mining approaches, Sienna Resources is optimistic about what the project could contain.
Slättberg, a historic mining camp, is 25 km north-west of Falun, in Sweden. It hosts cobalt/nickel/copper-rich massive sulphide mineralisation that occurs within a 2 km belt of historic nickel/copper mines. The project contains drill-defined massive sulphide mineralisation that extends to about 100 m in depth and remains open for expansion at depth and along strike. The project is accessible year round, with nearby rail, power and five smelters in the Nordic region. At least 12 historic mines are located on the property, with operations dating back to the late 1800s.
The historic mines are positioned along an east-west trend of massive sulphide occurrences developed in and around a similarly orientated body of “leptite”; a local term used to describe rhyolitic/felsic tuffaceous rocks commonly associated with sulphide mineralisation in Bergslagen. Mafic and ultramafic rocks also occur in and around the mine workings.
Sweden is at the forefront of an exploration and development boom in the mining industry, states Sienna Resources. The country’s favourable business environment includes a low corporate income tax rate, a proactive geological survey and broad public support for export-led resource extraction. Sweden has a long history of mining and is host to some of Europe’s largest active mines.
Planning to be the largest battery factory in Europe at roughly the same size as Tesla’s Gigafactory, Gigliotti states that Northvolt wants to locally source as much battery material as possible. “There are now more than 20 mega battery factories being planned or constructed globally, creating a massive demand for battery metals such as lithium, cobalt and nickel. Sienna is focused on exploring and developing projects that will meet this insatiable demand.”
DRC Cobalt Tax
The DRC, the world’s biggest cobalt producer, will increase the royalty 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 in January.
The new classification is part of an overhaul of mining legislation that is fiercely opposed by the industry, which says the law may deter future investment, news agency Bloomberg reported in January. Under the revised mining code, backed by government, the tax on base metals, including copper and cobalt, will increase to 3.5% from 2%.
A by-product 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 produced by automotive companies, including Tesla and Volkswagen.
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, causing automobile manufacturers to scramble to secure supply.
The new DRC legislation will guarantee the country “the flexibility to face unforeseen developments in the international market if the global economic situation demands it” by permitting government to declare certain minerals “strategic substances,” Kabwelulu told senators on January 5.
The Minister singled out cobalt’s “not only strategic but also critical character” on the world market. 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 DRC mining law, which was promoted by the World Bank and adopted in 2002, attracted billions of dollars of investment from mining companies, including Glencore and Randgold Resources, says Bloomberg. While the DRC economy has grown, government says the mining industry has not generated sufficient revenue for the State.
“If cobalt is declared strategic one day, naturally the royalty will climb to 5%,” Kabwelulu’s chief of staff, Valery Mukasa, said by phone, according to Bloomberg’s January report. “We haven’t said cobalt will be a strategic substance. We said cobalt can be,” he said, adding there are “considerations that need to be assessed from a technical point of view and in terms of the international market”.
In addition to the new royalty tax on strategic minerals, the draft law also increases royalties on gold from 2.5% to 3.5%; introduces a profit-windfall tax; doubles the State’s free share to 10% and reduces the period during which contract stability is guaranteed to five years from ten years.
While existing stability clauses mean companies with valid mining contracts, like Glencore and Randgold, will not have to comply with most reforms for ten years, the increased royalty rates will be applied to all projects immediately, Kabwelulu told senators in January.
The royalty hike may have the biggest impact on Glencore, the country’s largest producer of both copper and cobalt, said Bloomberg. The company shipped about 213 000 metric tons of copper and 24 500 t of cobalt from its Mutanda mine last year. This production could rise to more than 500 000 t of copper and more than 65 000 t of cobalt by 2019, once production at its suspended Katanga operation reaches full capacity.
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, with forecasts that he would do so before the end of January.