Cablegate: Drc/Zambia - Cobalt Mines and Prices Boom

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RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHKI #0663/01 2261002
ZNR UUUUU ZZH
R 131002Z AUG 08
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 8296
RUEHLS/AMEMBASSY LUSAKA 1467
RUEHSA/AMEMBASSY PRETORIA 4106
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUEHBJ/AMEMBASSY BEIJING 0091
RUEHBY/AMEMBASSY CANBERRA 0040
RUEHLO/AMEMBASSY LONDON 0171
RUEHMO/AMEMBASSY MOSCOW 0064
RUEHFR/AMEMBASSY PARIS 1204
RUEHOT/AMEMBASSY OTTAWA 0127
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 02 KINSHASA 000663

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STATE PLEASE PASS USAID
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E.O. 12958: N/A
TAGS: EMIN ENRG EINV EIND ETRD ELAB CG ZA SF
SUBJECT: DRC/ZAMBIA - COBALT MINES AND PRICES BOOM

REF: A) KINSHASA 515
B) LUSAKA 666
C) LUSAKA 744
D) KINSHASA 646

1. (U) This cable represents the fifth in a series of reports
stemming from an innovative resource-reporting and commercial
advocacy collaboration between Embassies Pretoria, Kinshasa, and
Lusaka (reftels). The sixth report will summarize DRC copper/cobalt
mines.

2. (SBU) SUMMARY: International companies are investing in
ambitious mega-projects on both sides of the DRC/Zambia copper belt,
despite significant government interference and infrastructure
challenges (reftels). The region represents the world's second
greatest source of copper and greatest source of cobalt, which is
present in some - but not all - of the copper mines. Cobalt has
growing industrial applications and exhibits thin supply from a
volatile region, which has led to surging, volatile prices. The
DRC's Tenke Fungurume (Freeport McMoRan Copper and Gold Inc.) and
Kolwezi Tailings (First Quantum Minerals Ltd.), Zambia's Chambishi
(Chinese interests) and a few others will produce significant
incremental cobalt to the global market. End Summary.

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Growing Use - Limited Supply
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3. (SBU) Cobalt is a strategic and critical metal used in diverse
commercial, industrial, and military applications. Cobalt is used
in super-alloys for jet engines, chemicals (paint driers,
petrochemical catalysts, magnetic coatings, pigments, and
rechargeable batteries), magnets, cemented carbides for cutting
tools, and radioactive isotopes for medical uses. Batteries for
hybrid vehicles are a new growth area for cobalt. The United States
uses about one-third of total world consumption, but does not
significantly mine or refine cobalt. The U.S. is selling limited
amounts of cobalt from its dwindling National Defense Stockpile.
China has become the world's leading producer of refined cobalt from
processing of cobalt-rich ores and concentrates imported from the
DRC. There are hopes that in the future cobalt can be retrieved
from ocean floor nodules, but the technology and international
agreements do not exist to economically extract this resource.

4. (SBU) Principal cobalt producing countries are the DRC, Zambia,
Canada, Cuba, Australia, and Russia, historically produced in
association with other minerals. The DRC has almost a 40 percent
share. The DRC and Zambia cobalt resource is uniquely contained in
sedimentary copper deposits, as opposed to nickel bearing deposits
in the rest of the world.

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DRC Ramps up Cobalt Production
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5. (SBU) The DRC supplies the world with significant quantities of
cobalt in ores, concentrates, and semi-refined materials. A number
of new projects are expanding the DRC's production beyond the
artisanal mining of heterogenite, often processed and exported
informally or illegally. The Embassies team visited:

DRC: Tenke Fungurume (Freeport McMoran - U.S.)
DRC: Kolwezi Tailings (First Quantum - Canadian)
DRC: Ruashi (Metorex - South African)
Zambia : Chambishi (drive-by only; Chinese interests)

6. (SBU) Tenke Fungurume is under development and will eventually
represent the largest source of both copper and cobalt. It is

KINSHASA 00000663 002 OF 002

building a substantial cobalt processing facility and targets 8,000
tons per year of cobalt in 2009. First Quantum's Kolwezi Tailings
will be premised on processing of tailings from state company
Gecamine's historical copper operations. The company targets 7,000
tons per year cobalt initially, with hopes to increase this to
10,000 tons. Metorex is constructing Ruashi Phase II which will
produce 3,500 tons of cobalt by 2009. Other significant cobalt
mines under development - but not visited by the embassy team are:
Katanga Mining's Kamato which targets 1,600 tons in 2008, increasing
to 5,000 tons by 2011, KOV/Nikanor which targets up to 25,000 tons,
and Central African Mining and Exploration's (CAMEC) Mukondo
Mountain with a target of 12,000 tons per year. There are reputedly
a number of scattered, smaller copper/cobalt mines with domestic and
Chinese interests in the DRC. In Zambia, Chambishi Metals produces
3,227 tons and a few other mines produce lesser, declining amounts.

7. (SBU) In January of 2008, the DRC temporarily put a moratorium
on the export of cobalt concentrate, even though some companies had
prior agreements to refine product in Zambia and elsewhere. This
moratorium compounded existing supply tightness - particularly given
inadequate processing capacity in the DRC - and prices surged to
almost $50 per pound. Smuggling has been and remains rampant. Many
interlocutors describe Chinese involvement with informal mining,
trade, and processing.

8. (SBU) Cobalt prices averaged $49/lb in the first half of this
year, compared with $30 in 2007 and $17 in 2006. Cobalt prices have
declined 20 percent since the peak in March. Market analysts
forecast continued tightness in the market and demand marginally
exceeding supply of 60,000 tons.

9. (SBU) Comment: Cobalt prices are likely to remain volatile and
high with uncertainty in the DRC investment and operating
environment. If all the incremental supply comes on line as
planned, which could approach as much as 50,000 tons, there is a
strong possibility that prices would dip. But realizing this scale
of number assumes the DRC allows mining companies flexibility and
transparency in running their investment, including processing and
marketing, which is still unclear. In any case, it is likely that
many of these projects will only be developed over a longer time
frame. At the same time, long-term new technology and industry are
driving new applications and increasing demand for cobalt, so the
outlook is still bullish for cobalt prices. The companies that the
embassy team visited are contributing significantly to the DRC's tax
revenues, social development, jobs, and skill development.

Garvelink

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