green vanhoe (the developer of Kamoa Kakula, which is expected to be the world’s second-largest copper mine upon expansion) recently announced the updated development plan to construct second smelter to copper concentrates. This was a result of the push from the DRC government to facilitate local processing of ore.
The plan includes building a primary copper smelter with capacity to treat 1 million tonnes per year of copper concentrates. This roughly translates to 250,000 tpy of refined copper production.
Construction of the new smelter will be complete by the fifth year of operation, which will start this year in 2021. There is currently only one primary copper smelter in the DRC - Africa’s largest copper producer - which is China Nonferrous Mining Corp’s 120,000-tpy Lualaba smelter.
Who controls the “Engine Room” of the ship?
Since 2013, the DRC has tried to increase domestic refined metal output with restrictions on exports of copper concentrate to capture a greater portion of the mining value chain. Ivanhoe’s plan to add a copper smelter in Kamoa Kakula comes after copper miners were told in 2019 that they could not renew their waivers to export copper concentrate from September onward, if they do not show the government their long-term commitment to process copper ore domestically.
You cannot reach an agreement with the DRC government to build a mine this size without a ‘plan’ for a smelter. But in terms of investment return, you really wanted to avoid building the smelter for as long as possible. Better to smelter out of country and only perform the mining in the DRC. That's history.
IVN and Zijin Mining Group have been strong armed by the DRC into developing the DRC mining and smelting industries. That is one expensive and risky commitment for even the bravest of developers. And I will explain further down why China is a player.
Ivanhoe Mines and China’s Zijin Mining Group each own a 39.6% stake in the project, while the DRC government owns a 20% stake. One can only guess how this dynamic will change once everything fires up and the DRC metals come to market and generate revenue.
Where is this ship sailing?
So, where is IVN going here? A minority stakeholder in a multi-$billion operation in a wobbly resource rich African country like the DRC, and partnered with a Chinese SOE.
Chinese SOEs that develop and own resource assets such as this DO NOT pay market prices for the produced commodity. That’s why they place a stake in these plays in the first place. The Chinese SOE is designed to feed the Chinese industrial machine, not serve Western shareholders.
Sorry, but this stinks worse than a Mongolian cow rotting on the slopes of Turquoise Hill. It’s “green” alright. Green for the Toxic One when he once again exits stage left with the payoff. He and his Asian buddies are in perfect harmony with the gig.
Let’s talk copper. Let’s talk the new ”green” economy. Let’s talk about the bad actors that have claimed to adopt the new ESG religion.
Oh… and let’s talk about sobering up