Africa's biggest copper countries are focusing on trade profits

Africa's largest copper producers, Democratic Republic of Congo (DRC) and Zambia (Zambia), are working to get exposure to metal trading, as the surge in demand linked to artificial intelligent and the move to greener energy promises big profits.

Metals trading is a long-standing domain of international trading companies, like Glencore.

Congo and Zambia which represent together more than 13% global copper supply have increased their focus over the past year on securing an share of the mined material that they can also trade for profit.

Gecamines, the Congo's state-owned mining company, is nearing completion of a deal to purchase 51,000 metric tonnes of metal from Kamoto Copper Company. Two sources familiar with the details said that Gecamines, a state-owned miner in Congo, is close to finalising a deal with Glencore for an allocation of about 51,000 metric tons of metal from Kamoto Copper Company (KCC).

Glencore has declined to comment.

Sources said that Gecamines, which owns 25% of KCC, is in negotiations for an allocation of metal equivalent to the shareholding it has in the mine.

Gecamines already trades almost 100,000 tons copper, which is equal to its 20% stake in Tenke Fungurume Mining. This was after signing a deal in July 2023 with Chinese owner CMOC Group.

Robert Lukama, Chairman of Gecamines, did not respond immediately to questions.

One source said that the Congolese government wants to have greater control over metal sales in projects in which it has a stake.

Congo owns 20 percent of Ivanhoe’s Kamoa Kakula mine. The mine aims to produce between 520,000 and 580,000 tons copper this year.

Ivanhoe has declined to comment.

Gecamines is also looking to increase its metal output from its shares in Zijin Group and other producers, according to the source.

All sources requested not to be identified because they weren't authorised to speak in public.

CAPE TOWN INDABA

Next week, at the Mining Indaba Conference in Cape Town, global investors and executives will be debating the quest for copper.

African governments' efforts at maximising their share of profits that have historically been concentrated in international companies will be a sensitive topic following the events in Mali this month, when gold mining executives arrested for forcing compliance with new mining regulations.

Copper's potential profits could be enormous, as its use in AI, electric cars, and the transition to a greener energy is increasing demand. New supplies are also hard to come by, which increases the bargaining strength of resource holders.

Verisk Maplecroft’s Resource Nationalism Index classifies them as high-risk due to the perception that investors have of Congo and Zambia. These countries are located on either side of the African Copperbelt.

Analysts and traders said that joint ventures could offer mutual benefits as African governments sought expertise, while companies such as Swiss-based Mercuria, which was less established on the continent than other houses, wanted to increase their presence.

Two sources confirmed that Mercuria and Zambia set up in December a joint-owned copper trading unit. The unit has begun negotiations with nearly all producers in the nation.

One source said that Mercuria had set aside an initial budget for copper of around $500 million. This will be backed up by additional credit lines as metal supplies increase, the source added.

Mercuria has not responded to any questions sent via email.

The two sources stated that Zambia will first buy copper under commercial terms before negotiating physical metal equivalent to its shareholding. This is to avoid relying solely on dividend payments for profit as it did until now.

Zambia has a stake of between 10% and 20% through ZCCM-IH in local units of Vedanta, First Quantum Minerals, and Barrick Gold.

No Silver Bullets and Doubts about Divisibles

Dividends are a way to reward governments that hold resources, but they have caused friction because governments question whether the amounts paid them were fair.

Indigo Ellis is the managing director of strategy and risk advisory for J.S. Held LLC said that dividends based upon the amount of metal mined would be helpful.

She said that government involvement in the trade could also give them the power to influence price.

"Government-implemented trading builds up scope for locally controlled value addition and thereby increases the government's influence over the market for copper or cobalt - which is the ultimate aim," she said.

Many analysts doubt that governments will be able to make profits easily from trade despite all the activity.

Hugo Brennan is the head of EMEA Research for Verisk Maplecroft. He said that switching to metals trading would be as unlikely as dividends being a magic bullet.

He said that he could see disputes arising over the division of minerals and trades, just as they had in the past around dividend payments.

Some people said that the risk is that private investors will be discouraged.

Ben Davis, an analyst at RBC Capital Markets said: "Trying to gain greater market share through your own sales - how much will you benefit and how much will you upset investors?" Reporting by Felix Njini from Johannesburg and Clara Denina from London; editing by Veronica Brown, Barbara Lewis and Barbara Lewis

(source: Reuters)