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Chemaf cash crunch worsens as Norinco deal stalls

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US officials say alternative to Norinco must be found,

source

says

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Gecamines says China's Norinco will not buy Chemaf assets

By Felix Njini, Pratima Desai and Julian Luk

JOHANNESBURG /LONDON, Nov 22 - The

Democratic Republic of Congo's state miner Gecamines is offering

$1 million to buy cobalt and copper assets of indebted mining

firm Chemaf to prevent China from increasing its control of

critical metals in the country, two sources familiar with the

details told Reuters.

Chemaf, a partner of commodities trader Trafigura, agreed to

sell its copper and cobalt assets to Chinese defence and

industrial giant, China North Industries Corp , or

Norinco in June.

Gecamines, which owns the lease to Chemaf's mines, whose

copper and cobalt are used in electric vehicles and clean energy

infrastructure, was asked by Chemaf to approve the sale, but

declined.

Gecamines later submitted an unsolicited bid for the Chemaf

assets, deepening a standoff that has been complicated by U.S.

officials lobbying against China's grip on the mineral-rich

central African Copperbelt.

Chinese companies are major investors in Congo's mining

sector. CMOC Group is now the world's biggest cobalt

miner as it boosts output at Tenke Fungurume Mine it bought from

U.S.-based Freeport-McMoRan ( FCX ) just four years ago.

Gecamines offered to pay just under $1 million for the mines

and processing plant, and wants to conduct an audit of Chemaf's

debts before structuring a payment plan to settle the borrowing,

said the sources, who cannot be named because of the sensitivity

of the matter.

Chemaf, whose debts have ballooned to $900 million to $1

billion, needs an additional $300 million to expand output and

operate profitably, the sources said.

Norinco has offered between $900 million and $1 billion,

including settling Chemaf's debts and outstanding taxes, one of

the sources said.

The Chinese miner also pledged to advance Chemaf's plans to

raise copper and cobalt output to about 75,000 metric tons and

25,000 tons, respectively, the source added.

Chemaf, which has been operating for the past 20 years, said

on its website it has invested more than $610 million developing

the second phase of Etoile and Mutoshi mines.

"I can confirm we made a better offer than Norinco did,

subject to us conducting due diligence of the debt," Gecamines

chairman Robert Lukama told Reuters.

"And more importantly the government declined, and already

informed Chemaf by letter that they will not accept the Norinco

transaction and we also confirm that we will not give another

chance to anyone else other than ourselves," Lukama added.

Norinco's move has drawn scrutiny by the U.S., with State

Department officials lobbying Congo to block the deal, three

sources told Reuters. The U.S. wants Congo to find an

alternative to Norinco, one of the three sources said.

CASH CRUNCH DEEPENS

The stalled deal has worsened Chemaf's finances and if it

fails completely, the Congolese miner's key backers, including

Trafigura, may either lend more or risk a prolonged period of

uncertainty recovering their investments, the sources said.

"The lenders and creditors of Chemaf have faced significant

financial hardship for more than 12 months as a result of money

owing to them not being paid in accordance with the terms of

loans, credit provided and invoices submitted for payment," one

of the sources said.

Chemaf is only processing stockpiles from its Etoile mine as

expansion work at Mutoshi mine was halted when financing dried

up, the sources said. The company is struggling to pay the

salaries of its 3,500 workers, its power bills and security

guards manning the sites, the sources said.

Chemaf declined to comment.

Chemaf entered into a 24-month creditors' protection

agreement in August 2023 that lapses next year. While the miner

could also seek interim financing, its lenders want to see the

Norinco deal concluded as soon as possible, one of the sources

added.

Trafigura, one of the main creditors, declined to comment.

U.S. officials are also rallying Western companies to

consider buying the Chemaf assets, the sources said.

Norinco, which was sanctioned by the U.S. since 2021, did

not immediately respond to emailed queries. In Congo, it owns

the Comika and Lamikal copper and cobalt mines in partnership

with Gecamines.