DR Congo border closure and lockdowns to ravage copper and cobalt output

As the novel coronavirus pandemic expands its reach into DR Congo, both provincial and national-level shutdowns will begin to weigh heavily on Congolese copper and cobalt output. On 24 March, President Tshisekedi closed all Congolese borders to halt the movement of people, and implemented a state of emergency and an isolation zone around the capital Kinshasa, limiting all internal travel. Kinshasa has become the relative epicentre of the COVID-19 pandemic in DR Congo, with 45 cases;

However, two confirmed cases in Haut-Katanga’s provincial capital, Lubumbashi, were already causing supply-side shocks for copper and cobalt mining.

On 23 March, the governor of Haut-Katanga – home to major copper and cobalt concessions owned by several international mining companies – imposed a lockdown on all movement and activity within the province for 48 hours. We expect this to be only the beginning of temporary shutdowns of copper and cobalt mines, and therefore anticipate a serious reduction in copper and cobalt output from the province.

We anticipate the reduction to extend into the longer term – as the initial shutdown is undoubtedly a portend of further disruption. The resultant fall in copper and cobalt output will be disastrous for the Congolese economy, when it is already suffering from depressed cobalt prices, budgetary overspending and falling foreign reserves.

Immediate impacts on production

Currently, the national border closures do not relate to the movement of freight or goods, but resultant hold-ups through export corridors, for example into the Port of Durban in South Africa (also under a state of emergency) will likely hold up copper exports from smelters in Zambia.

The three mining companies facing the disruption from the Haut-Katanga lockdown are cobalt producer Chemaf, Canada’s Ivanhoe Mines and Chinese-owned Minerals and Metals Group (MMG). Lualaba province, home to Glencore’s Kamoto mine, has equally extended some restrictions around public markets and movement of people. MMG is also suffering from a court-mandated asset freeze at its Kinsevere mine after former governor of Katanga, Moïse Katumbi, filed a wrongful contract termination suit against the group.

The expected shutdown or ramping down of Kinsevere as a result of the asset freeze, and COVID-19 related controls in both Haut Katanga and Lualaba provinces together have the potential to significantly reduce Congolese production targets for 2020.

Our sister company Wood Mackenzie rightly highlights that the greatest risk to copper and cobalt output from DR Congo is the potential for processing or logistics holdups. Mines with supply chains into Zambia may well be prevented from shipping output to smelters, as we’re seeing with the Haut-Katangan border closures. Equally, restrictions on personnel movement will present issues for logistics companies who will need to change drivers at national borders.

Operators will likely place mines under care and maintenance for a minimum period of 14 days, as we’ve seen in comparable mines in Peru and Chile. The difference in DR Congo is that mining companies will have to make the first move. Local provincial and national governments will likely not mandate mine shutdowns in an attempt to keep resource rents flowing into the beleaguered economy. China’s CMOC was the first, restricting operations at Tenke Fungurume as announced on 23 March. Ivanhoe's greenfield project Kamoa-Kakula will likely also be next on the chopping block, as social distancing efforts will preclude construction.

Longer term, the wider economic impacts are clearer

To be able to gain more control over the spread of the COVID-19 pandemic, national and provincial governments will be under pressure to introduce widespread shutdowns in the Katangan provinces over the coming days and weeks.

As the severity and frequency of lockdowns in DR Congo increase, we forecast supply shocks to be felt immediately. While we’re at the earliest stages of the COVID-19 outbreak, the potential for the virus to spread around urban areas is exponential. DR Congo’s score on our Healthcare Capacity Index is extreme risk, reflecting the low amounts of funding given to the healthcare sector and its inability to deal with a pandemic.

Meanwhile, the economic malaise caused by a fall in copper output will undoubtedly trigger wider economic turbulence in the country, and may well cause a delay in the immediate introduction of resource nationalist measures proposed by the government in recent weeks. However, over the longer term, from 2020-Q4 and into 2021, the ill-health of the economy will likely push the government to implement these measures. Pushed to the limit by depressed copper output, the government will seek to eke out more from the mining sector.

Indigo Ellis

Head of Africa