Miners ask Congo to introduce sliding royalty scale

Miners operating in the Democratic Republic of Congo submitted Thursday a new proposal for the government related to the recently passed new mining code, which substantially increases the cost of doing business in the central African nation.

The likes of Glencore, Randgold, Zijin, China Molybdenum and Ivanhoe, among others, are suggesting a sliding scale of royalty rates for key commodities instead of the windfall tax introduced in the new legislation.

Miners argue a sliding scale, whereby royalties move in line with the commodity prices, would give Congo higher share of revenues at current prices than what the new code stipulates.

The proposal, signed by companies responsible for 85% of the DRC's copper, cobalt and gold output, suggest that obtaining royalties based on average production and commodity prices “would immediately give the government a higher share of revenues than what is provided in the new code,” they said in the joint statement.

In return for paying higher royalties, the companies are asking the government to recognize a stability clause, which protects mining-license holders from complying with changes to the DRC’s fiscal and customs regime for 10 years.

It’s the second proposal in less than a week the industry submits, hoping to soften some provisions of the code in exchange for higher royalties.

The miners said their proposal accepted 76% of the articles in the new code, signed into law in early March, adding that proposed revisions aim to "ensure the effectiveness and legality of the code".

Congo supplies more than 60% of the world’s cobalt, metal whose price has quadrupled in two years, and that share will only grow over the medium term. It is also could poised to soon overtake the US as the world’s number four copper producer.

Both commodities are key components in computer chips, mobile phones and lithium-ion batteries that power electric vehicles (EVs).

Experts believe that cobalt consumers will be the most affected by the higher taxes imposed to producers and exporters in Congo.

“Given the tight nature of the cobalt market at present, we would expect miners to attempt to pass through higher royalty costs to consumers,” Colin Hamilton, an analyst at BMO, said earlier this month.

British corporate advisor Numis Securities went even further, saying that higher royalties will deter investment in Congo, leading to skyrocketing cobalt prices.

"The mining industry representatives believe these changes will resolve issues with the code and contractual relationships while giving the DRC and its people increased participation in the proceeds of mining," the companies said.

The other miners behind the proposal are Ivanhoe Mines, Gold Mountain International/Zijin Mining Group, MMG Ltd, Crystal River Global Ltd, China Molybdenum and AngloGold Ashanti.