Credit: Visual China

BEIJING, July 19 (TMTPost) - Chinese mining giant CMOC Group Limited (603993.SH) has agreed to pay $800 million to Congo state mining firm Gécamines in installments in the following six years to end a dispute over its Tenke Fungurume Mining (TFM) project in the country.

Before this agreement, the negotiation process had lasted for nearly two years, during which CMOC experienced production suspension and restrictions on product exports.

TFM is one of the largest copper and cobalt producers in the world, with an area of over 1,500 square kilometers. CMOC acquired an 80% stake in TFM from the U.S.’s Freeport-McMoRan in May 2016, with Gécamines holding the remaining 20% shares.

The two shareholders reached agreement on the equity payment issue of TFM on April 18. It is not until recently that the specific amount of the royalty fee was determined. That is TFM will pay $800 million to Gécamines in installments between 2023 and 2028.

The dispute over the equity payment arose from CMOC’s expansion plans. In August 2021, the company announced an additional investment of $2.51 billion in the TFM project to construct three production lines. Upon the planned production in the second half of 2023, TFM’s production capacity is expected to more than double. According to agreements signed between 2005 and 2010, the company should deliver an additional equity payment to Gécamines.

Gécamines initially demanded a royalty fee of $12 per ton, but a dispute arose regarding the  reserve of copper for the fee calculation, which resulted in 30 times more in reserve according to the Congolese definition than the figure by the industry standard. Thus the Congolese government demanded a royalty fee as high as $7.5 billion. To achieve its goals, the government exerted extreme pressure on the company, resorting to actions such as threatening to freeze bank accounts and suspending TFM’s mineral exports.

The disagreement over TFM’s planned increase in mineral reserves and the equity payment started in the third quarter of 2021, and since the third quarter of 2022, TFM’s product exports have been restricted.

After reaching a consensus in April 2023, TFM’s product exports finally resumed in May. However, due to logistical reasons in the DRC and the rest of Africa, most of the copper-cobalt products were not sold to external markets in the first half of 2023. As a result, CMOC’s net profit attributable to shareholders for the first half of 2023 is expected to be 633 million to 773 million yuan, a decrease of over 80% compared to the figure of 41.5 billion yuan in the same period last year.  

Furthermore, according to the agreement, during the existing service period from 2023 onwards, TFM promises to distribute at least $1.2 billion in dividends to minority shareholder Gécamines. The latter also enjoys a 20% subcontracting right in the project and has an exclusive right to sell 20% of TFM products based on its equity proportion.

CMOC is currently a private holding joint-stock company. In the cobalt industry, it is the second-largest global producer, only behind international mining giant Glencore. With the commissioning of both the TFM and the KFM projects in the DRC, its cobalt production in 2023 is expected to be close to or even surpass Glencore’s output.

(Note: 1 yuan = $ 0.14)