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Gecamines already trading copper after deal with CMOC

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Mining Indaba to be held in Cape Town Feb. 3-6

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Copper and resource nationalism likely to be debated

By Felix Njini and Clara Denina

JOHANNESBURG/ LONDON, Jan 31 (Reuters) - Africa's

biggest copper producers, the Democratic Republic of Congo and

Zambia, are working on deals to gain exposure to metal trading

as a demand surge linked to artificial intelligence and the

shift to greener energy promises hefty profits.

Metals trading has long been the preserve of international

trading houses, such as Glencore ( GLCNF ).

Congo and Zambia, which together represent more than 13% of

global copper supply, have over the last year increased their

focus on securing a share of the mined metal that they too can

trade for profit.

Congo state-owned miner Gecamines is close to finalising a

deal with Glencore ( GLCNF ) to secure an allocation of about

51,000 metric tons of metal from Kamoto Copper Company (KCC),

two sources familiar with the details told Reuters. They did not

indicate any date for finalising the agreement.

Glencore ( GLCNF ) declined to comment.

Gecamines owns 25% of KCC and is negotiating for an

allocation of the metal equivalent to its shareholding in the

mine, the sources said.

Gecamines has already been trading almost 100,000 tons of

copper, equal to its 20% shareholding in Tenke Fungurume Mining

after reaching a deal with Chinese owner CMOC Group

in July 2023.

Gecamines Chairman Robert Lukama did not immediately respond

to Reuters' questions.

The Congolese government is meanwhile seeking greater

control over the sale of the metals in projects where it holds a

stake, one of the sources said.

Congo owns 20% in Ivanhoe's Kamoa-Kakula

mine, which aims to produce 520,000-580,000 tons of copper this

year.

Ivanhoe declined to comment.

Gecamines also aims to secure more metal from its

shareholding in producers including Zijin Group, the

source said.

All the sources asked not to be named because they were not

authorised to speak publicly.

CAPE TOWN INDABA

The quest for copper is likely to be keenly debated when

global investors, executives and government officials gather at

next week's Mining Indaba conference in Cape Town.

African governments' efforts to maximise their share of

profits, which historically have been concentrated in the hands

of international companies, will also be a sensitive issue

following events this month in Mali, where gold mining

executives were arrested to force compliance with new mining

rules.

The potential profits of copper could be huge as demand is

stoked by its uses in AI, electric vehicles and the transition

to greener power, while new supplies are hard to find,

increasing the bargaining power of the resource-holders.

Investors' perception of Congo and Zambia, which straddle

the African Copperbelt, is that they are difficult places to

invest, hence Verisk Maplecroft's Resource Nationalism Index

categorises them as high risk.

Traders and some analysts said joint ventures had the

potential to offer mutual benefits and to defuse tensions as the

African governments seek expertise while firms such as Swiss

trader Mercuria, previously less established in Africa than some

houses, seek a greater presence on the continent.

Zambia and Mercuria in December set up a jointly owned

copper trading unit that has started negotiations with almost

all the producers in the country, two separate sources told

Reuters.

Mercuria has set aside an initial budget of about $500

million to buy copper from local producers, backed by additional

lines of credit as more metal supply becomes available, one of

the sources said.

Mercuria did not respond to emailed questions.

Zambia plans to start by buying copper on commercial terms,

before negotiating for physical metal equal to its shareholding,

instead of just relying on dividend payouts for profits as it

has until now, the two sources said.

Zambia owns between 10% and 20% in projects involving local

units of Vedanta Resources, First Quantum Minerals ( FQVLF )

and Barrick Gold ( GOLD ) through state firm ZCCM-IH

.

NO SILVER BULLETS AND DOUBTS OVER DIVIDENDS

As a means to reward resource-holding governments, dividends

have generated friction as governments have questioned whether

the amounts paid to them are fair.

Indigo Ellis, managing director strategy and risk advisory

at J.S. Held LLC, said dividends based on the volume of metal

mined could help.

She also said government involvement in trade could give

them the influence over price they crave.

"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.

But for all the activity, many analysts are doubtful

governments will make easy profits from trade.

Hugo Brennan, head of EMEA Research at risk intelligence

company Verisk Maplecroft, said shifting towards metals trading

was as unlikely as dividends to be a silver bullet.

"One can foresee disputes around the division of mineral

production and who trades with whom as readily as those that

have previously emerged around dividend payments," he said.

Others said the risk was that private investors would be

deterred.

"Trying to capture greater market share from your own sales,

how much do you really benefit from that and how much are you

going to upset the investors," Ben Davis, analyst at RBC Capital

Markets, said.