At the CrossroadsWith a 10% royalty on cobalt, KAT (Glencore) stand to lose 30% or more of profits. They can deduct certain costs like transport, insurance, assays, but not operational costs. Then there is a 35% corporate tax. So, you're looking at an effective tax rate of 60% plus. Glencore, and all the other miners for that matter, may not be in charge of sales. Gecamines, the State miner, wants greater control over all exports, and payments.So, their company may have little or no control over cash flow. They may have to depend on the accounting integrity of Gecamines. With the new reduced five year stability pact, there is little incentive to invest in additional infrastructure or upgrade existing facilities.
This is nationalization in everything but name. If the government were to outright nationalize, they would be forced to pay compensation or face seizure of bank account and shipping assets. This way a veneer of legality remains. Why is the government doing this? From their viewpoint, they can't lose. If the miners keep working, the government harvests most, even all, of the earnings. If miners quit, cobalt price soars, and the government still wins, since they can continue some of the production at much higher prices.
The only negative risk for the government is if most of the miners idle their projects, and perhaps go one step further - link up with the political opposition. The weakest link for the government is that they are absolutely despised by most of the people. The political opposition is well organized. Miners can provide international influence, the only ingredient lacking in the political opposition. Miners could open doors that would normally be closed. The objective would be free and fair elections, certified by independent observers. If that were to happen, the Kabila government would probably fall.
Some government officials, all military, are already subject to US Treasury Office of Foreign Assets Control and EU targeted financial sanctions. There is a need to expand this to their paymaster, Kabila, his extensive family, and officials in key financial positions like Gecamines. If the UN withholds support for the government and withdrawals 18,000 peacekeepers, Kabila would lose another key prop for his regime.
So, should the miners go to war? That's what this comes down to. It may turn out they have nothing to lose, and everything to gain. They're miners, not revolutionaries. The biggest obstacle would be psychological. They're not used to working closely together to achieve a non-production objective. They're businessmen, not politicians.Yet they have an ability to change the course of political events. The government is betting the will isn't there. If they do take joint action, there is a need to carry through right to the end. The government may play nice temporarily, until after the election. Once that is behind them, it will be time to settle old scores. They'll remember that international miners tried to take them down. Go all in, or don't go at all.