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Cobalt Price Will Exceed 100,000 US Dollars
May 09, 2018

On March 29, Ivanhoe Minerals issued an announcement that the proposed amendments to the new mining law to be formed by international mining companies that mine in the Democratic Republic of the Congo (Congo) will be formally submitted to the Democratic Republic of Congo.


    The main point of the proposed amendment is to link the mining tax rate with the prices of Congolese gold and other major mineral products such as copper and cobalt. Based on the current prices, the increase in government tax revenue will be higher than that in the New Mining Law regarding the implementation of the scheme of windfall profits. Income. The recommendations also include such things as stability agreements, state guarantees, and mining conventions.

    A joint statement issued by an international company stated that the current proposed revision will address the government's expectation of increasing public revenue through the exploitation of mineral resources and address the industry’s internal regulations for some of the new mining laws that were implemented earlier this month.


    International mining companies have stated that they accept the 76% clause in the 2018 Act and propose amendments to the remaining clauses to ensure the validity and legitimacy of the bill.


    Ivanhoe Executive Chairman Robert Friedland said: “Ivanhoe hopes that the government can review the reports and statements submitted by the mining companies before the dialogue with the mining companies and the new mining law comes into force... We have seen both inside and outside the Congo. People make statements about the financial and commercial impact of media reports and statements on the changes in the mining law, some of which just reflect the views of different parties, some of which are unwise, purely speculative, and others are obviously false. Before the official dialogue ended and the new bill came into effect, these views were one-sided.


    Friedland said that Ivanhoe and other international mining companies will continue to demand that the government explicitly guarantees compliance with the stability commitment of Article 276 of the DRC 2002 Mining Act. The Stability Assurance stipulates that following the implementation of any legal amendments, the current DRC exploration and development license holders will continue to benefit from the “10 year term” rights stipulated in the 2002 Mining Law, including the newly promulgated 2018 mining law.


    A week ago, it was reported that the international mining company had submitted a resolution to the Democratic Republic of Congo, which was similar to this statement but was rejected by the Congolese gold mining minister. Congolese gold mining minister Martin Kabweilulu said: "We cannot change anything in the mining law. Before this negotiation began, President Kabila had already signed the new mining law earlier this month. There is no room for discussion in the tax provisions of the mining law."


    Problems with the New Mining Law


    The promulgation of the Congo-Kinshi Mining Law is a product of the Congolese Gold domestic political situation. Incumbent President Kabila faced enormous domestic and international political pressure after the postponement of the election in 2016. It is imperative to hold a general election in 2018 and cut the cakes of international mining companies to the government and people. It is Kabila’s economic establishment. An important election card for the autonomous image.


    There are many unreasonable and unreasonable points in the revision and promulgation and implementation of the New Mining Law. This is why the international mining companies feel very angry:


    The first is about the stability clause. Each company and the government signed a contract to determine that the new law not only cancels the ten-year stability clause in the original mining law, but also directly abolishes the stability rights enjoyed by the companies. This is a serious problem for existing contracts. Breach of contract


    The second is the windfall profits tax. The actual price of commodities exceeds 25% of the metal price set by the bank-level feasibility study of the project, that is, a 50% windfall tax is imposed on profits exceeding the part. This is very unreasonable, and it is unreasonable in the world. Terms. Mining is a cyclical industry. During the downturn, mining companies are under enormous pressure of cost and loss. It is a kind of beneficiary compensation for shareholders to earn excess profits appropriately during the peak period. The new law has led to very bad guidance. The company loses money and no one manages to make money.


    Third, national dry shares rose from 5% to 10%, and mining rights increased by 5% for each renewal period. This will stimulate the mining companies to shorten the development cycle as much as possible, and dry the value of the mine before the end of each round of mining rights. Net, talk about sustainable development.


    Kabila launched a new mining law, almost killing eggs. It is estimated that Kabila did not expect that major mining companies are surprisingly united this time.


    In fact, it is easy to understand that Congolese Metals in the emerging mining countries after the world financial crisis in 2009, the companies entered the Congo gold time later, while the mining industry continued to slump in the past few years, the assets of the companies in the Congo gold generally did not make the expected profits, and even investment Has not recovered. Luomo won the acquisition of Tenke in Congo Gold for 16 years. Glencore's Katanga Mining continued to suspend production for 16-17 years, and Kamoa of Ivanhoe and Zijin (02899) has not even developed and gained profits. These assets are all companies. The core assets of the company will have good earnings expectations in the future, and the outrageous amendments to the new laws will have a direct impact on the return on investment of companies. It's no wonder that everyone is fighting back.


The impact on the price of cobalt

    The Congo Co., Ltd. has a large amount of cobalt associated with the Central African copper metallogenic belt. The cobalt production of the Congo Gold accounts for 60% of the world's total. The output of the main product, copper, will also exceed the United States as the fourth largest copper producer in the world. The market is widely expected that Congo’s gold mining law will have a further stimulatory effect on already high cobalt prices. On the one hand, the increase in the mining tax rate for copper and cobalt products will directly transfer the cost to downstream consumers in the form of price increases; on the other hand, the new mining law will greatly reduce the attractiveness of investment in the Congo gold mining industry, and even cause the mining companies to A new round of departure led to insufficient investment and production capacity, leading eventually to rising commodity prices.


    Of course, the price of cobalt is not without worry. From the perspective of application, cobalt is not irreplaceable in electric vehicle batteries. Excessive cobalt prices will stimulate the development of alternatives. Some new technical ideas have emerged in the industry for iron-based cobalt and lithium-sulfur batteries. A study published this week in the journal Nature Nanotechnology pointed out that researchers at the University of Texas developed the use of molybdenum coatings to solve the problem of the poor conductivity of sulfur in lithium-sulfur batteries and the use of lithium-sulfur batteries. Solid lithium metal anodes and carbon cathodes do not require cobalt or nickel.


    Another issue is the development of new energy vehicles. The industry has put Bao on the promotion of new energy vehicles by the Chinese government, and whether the market itself can accept capacity expansion as planned has its own question mark.


Of course, we cannot ignore that under the enthusiasm of prices, the sound of reason will be submerged, and the price itself has inertia. In this case, it is necessary to have the stock price break through 100,000 US dollars.

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