The Democratic Republic of Congo’s largest copper producer has said it is operating at a loss in the latest worrying sign both for its Chinese owner and the African nation’s struggling mining sector.
Tenke Fungurume Mining, 80 per cent owned by China Molybdenum, revealed it was in the “deficit zone” in a letter to employees. While reassuring them it would seek to preserve jobs, it warned that low prices and higher production costs were “squeezing the business profitability” of all miners in the country.
Miners in the DRC are struggling to cope with the twin effects of low prices and a new mining code that increased taxes last year. TFM’s letter, seen by the Financial Times, follows Swiss commodity giant Glencore’s announcement this month that it will shut production at its mine in the country, Mutanda, following the dramatic fall in cobalt prices.
The price of cobalt, a key constituent of lithium-ion batteries, has slid more than 40 per cent this year because of a surge in supply from the DRC, the world’s largest producer. Copper, which is also produced by TFM, is down 3.7 per cent.
“According to the information we have, some mining companies are reducing or stopping overall production to cope with the current situation,” TFM said in the letter to workers seen by the Financial Times. It said the quality of its ore had deteriorated and that “failures and problems accumulated over the years in production equipment”, along with power outages, meant its “production is currently unstable”.
Production targets were missed in the first half of year, the letter said, with management uncertain whether it could make up the shortfall by year-end. “Change in equipment and processes is therefore urgent.”
The operational issues will be a concern for China Moly, which paid $2.65bn to acquire a controlling stake in the mine in 2016 from US miner Freeport-McMoRan and a further $1.14bn this year to boost its holding to 80 per cent. It runs the mine in a joint venture with the Congolese state-owned miner Gécamines, which holds the remaining 20 per cent.
China Moly did not immediately respond to a request for comment. The company’s Hong Kong-listed shares have fallen 22 per cent this year.
To preserve jobs, TFM said it would continue to cut costs, streamline processing and ultimately boost production next year with the introduction of an additional production line.
The technical problems cap a difficult few months for TFM, which has been struggling to resolve large-scale illegal mining of its concession area. The Congolese army was deployed to the site in June to remove thousands of so-called artisanal miners, digging by hand on the site.