DRC Seeks to Control Cobalt Prices, Perception
The Democratic Republic of the Congo is ostensibly making moves to control both the price and perception of cobalt.
The Central African nation is planning to create a new state-owned corporation to buy cobalt mined from all “artisanal” operations.
What is artisanal mining?
Artisanal mining describes small-scale operations conducted by an individual or group independent of an organized company. But the word is very often used as euphemism to whitewash reality.
Artisanal mining is most often illegal mining — illegal because miners sometimes don't own the land, have the proper permits for mining, pay taxes, follow environmental guidelines, and/or adhere to labor laws. “Artisanal” makes it sound like an art.
So why would the DRC want to buy all artisanally mined cobalt?
Well, we have to speculate. But by just rubbing two brain cells together, we can come up with a few very good reasons why the DRC's government is seeking to buy artisanally mined cobalt.
First, it may simply want to identify the individuals conducting artisanal mining. When an individual goes to sell his artisanally mined cobalt to the government, he is essentially turning himself in for illegal mining. At that point, the government can go after the individual for back taxes and, if desired, any criminal charges associated with said mining.
The DRC's government charges up to 30% in corporate income taxes for mining. So identifying individuals who are avoiding those taxes is a new source of revenue for the government.
Second, buying artisanally mined cobalt will give the DRC's government more control over cobalt prices. The price of cobalt, like every other commodity on Earth, is simply determined by supply and demand. Control the supply of a commodity and you can control the price. (See OPEC.)
More than half of the world's cobalt supply comes from the DRC. And according to Darton Commodities, a London-based research company specializing in cobalt, about 20% of the cobalt mined in the DRC is derived from artisanal operations. So by buying and hoarding supplies of artisanally mined cobalt, the government will be able to better control the over supply, and thus prices.
But the main reason the DRC would want to buy all artisanally mined cobalt is perhaps the worst of all.
As mentioned, artisanal operations don't adhere to labor laws — including child labor laws. And in the DRC, children mining cobalt is not uncommon.
A recent report from the OECD found that 13% of the total labor force in the mining communities is below the age of 18. The report says of the DRC's child laborers, 41% are 10–14 years old, and 8% are younger than 10.
UNICEF and other international organizations estimate the total child labor force in the DRC exceeds 40,000. That's an average MLB baseball stadium completely full... of what basically amounts to child slaves.
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As a result, companies that source cobalt from the DRC — which include many of the biggest tech firms in the world — are now experiencing public backlash. As I mentioned on Friday, human rights advocate Ewelina Ochab just wrote an article for Forbes, asking, “Are These Tech Companies Complicit in Human Rights Abuses of Child Cobalt Miners in Congo?”
By buying artisanally mined supplies and selling it to tech companies, the government of the DRC can essentially launder child-mined cobalt. This is the same kind of activity that happens with blood diamonds; they're mined under the worst possible conditions but change hands so many times that the source of the stones is buried, washing the blood off.
Buying artisanally mined cobalt from the DRC's government will allow tech companies to more easily claim plausible deniability. This will work to appease regulators, but there's little doubt the public won't see the move for what it really is: a way to launder cobalt.
As mentioned, half of the world's cobalt resources are located in the DRC. The other half is distributed around the rest of the world. And it's these cobalt resources — non-DRC cobalt — that are rapidly becoming the focus for savvy investors. Cobalt is also found in Australia, Cuba, the Philippines, Canada, Russia, Madagascar, China, and elsewhere... including the good ole United States.
The U.S. ranks about 10th (depending on the source) on the list of countries with the largest cobalt reserves. Domestic supply of cobalt would be great for domestic consumers, avoiding DRC suppliers and any potential trade war troubles at the same time.
However, there are no active cobalt mines operating in America today; 100% of the cobalt consumed in the United States is imported. There are a few companies trying to change that. And one of them is getting ready to go into production soon. When it does, it will be the only cobalt mine in the country.
My colleague Keith Kohl has put together an entire report on U.S. cobalt mining, which I urge you to read here.
Until next time,
As an editor at Energy and Capital, Luke’s analysis and market research reach hundreds of thousands of investors every day. Luke is also a contributing editor of Angel Publishing’s Bull and Bust Report newsletter. There, he helps investors in leveraging the future supply-demand imbalance that he believes could be key to a cyclical upswing in the hard asset markets. For more on Luke, go to his editor’s page.
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