VZCZCXRO9401
RR RUEHBZ RUEHDU RUEHGI RUEHJO RUEHMA RUEHMR RUEHPA RUEHRN RUEHTRO
DE RUEHKI #0663/01 2261002
ZNR UUUUU ZZH
R 131002Z AUG 08
FM AMEMBASSY KINSHASA
TO RUEHC/SECSTATE WASHDC 8296
RUEHLS/AMEMBASSY LUSAKA 1467
RUEHSA/AMEMBASSY PRETORIA 4106
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUEHBJ/AMEMBASSY BEIJING 0091
RUEHBY/AMEMBASSY CANBERRA 0040
RUEHLO/AMEMBASSY LONDON 0171
RUEHMO/AMEMBASSY MOSCOW 0064
RUEHFR/AMEMBASSY PARIS 1204
RUEHOT/AMEMBASSY OTTAWA 0127
RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHZO/AFRICAN UNION COLLECTIVE

UNCLAS SECTION 01 OF 02 KINSHASA 000663 
 
SIPDIS 
SENSITIVE 
 
STATE PLEASE PASS USAID 
STATE PLEASE PASS USGS 
DEPT FOR AF/S, EEB/ESC AND CBA 
DOE FOR SPERL AND PERSON 
DOC FOR ITA/DIEMOND 
 
E.O.   12958: N/A 
TAGS: EMIN ENRG EINV EIND ETRD ELAB CG ZA SF
SUBJECT: DRC/ZAMBIA - COBALT MINES AND PRICES BOOM 
 
REF: A) KINSHASA 515 
B) LUSAKA 666 
C) LUSAKA 744 
D) KINSHASA 646 
 
¶1.  (U) This cable represents the fifth in a series of reports 
stemming from an innovative resource-reporting and commercial 
advocacy collaboration between Embassies Pretoria, Kinshasa, and 
Lusaka (reftels).  The sixth report will summarize DRC copper/cobalt 
mines. 
 
¶2.  (SBU) SUMMARY:  International companies are investing in 
ambitious mega-projects on both sides of the DRC/Zambia copper belt, 
despite significant government interference and infrastructure 
challenges (reftels).  The region represents the world's second 
greatest source of copper and greatest source of cobalt, which is 
present in some - but not all - of the copper mines.  Cobalt has 
growing industrial applications and exhibits thin supply from a 
volatile region, which has led to surging, volatile prices.  The 
DRC's Tenke Fungurume (Freeport McMoRan Copper and Gold Inc.) and 
Kolwezi Tailings (First Quantum Minerals Ltd.), Zambia's Chambishi 
(Chinese interests) and a few others will produce significant 
incremental cobalt to the global market.  End Summary. 
 
---------------------------- 
Growing Use - Limited Supply 
---------------------------- 
 
¶3.  (SBU) Cobalt is a strategic and critical metal used in diverse 
commercial, industrial, and military applications.  Cobalt is used 
in super-alloys for jet engines, chemicals (paint driers, 
petrochemical catalysts, magnetic coatings, pigments, and 
rechargeable batteries), magnets, cemented carbides for cutting 
tools, and radioactive isotopes for medical uses.  Batteries for 
hybrid vehicles are a new growth area for cobalt.  The United States 
uses about one-third of total world consumption, but does not 
significantly mine or refine cobalt.  The U.S. is selling limited 
amounts of cobalt from its dwindling National Defense Stockpile. 
China has become the world's leading producer of refined cobalt from 
processing of cobalt-rich ores and concentrates imported from the 
DRC.  There are hopes that in the future cobalt can be retrieved 
from ocean floor nodules, but the technology and international 
agreements do not exist to economically extract this resource. 
 
¶4.  (SBU) Principal cobalt producing countries are the DRC, Zambia, 
Canada, Cuba, Australia, and Russia, historically produced in 
association with other minerals.  The DRC has almost a 40 percent 
share.  The DRC and Zambia cobalt resource is uniquely contained in 
sedimentary copper deposits, as opposed to nickel bearing deposits 
in the rest of the world. 
 
------------------------------ 
DRC Ramps up Cobalt Production 
------------------------------ 
 
¶5.  (SBU) The DRC supplies the world with significant quantities of 
cobalt in ores, concentrates, and semi-refined materials.  A number 
of new projects are expanding the DRC's production beyond the 
artisanal mining of heterogenite, often processed and exported 
informally or illegally.  The Embassies team visited: 
 
DRC: Tenke Fungurume (Freeport McMoran - U.S.) 
DRC: Kolwezi Tailings (First Quantum - Canadian) 
DRC: Ruashi (Metorex - South African) 
Zambia : Chambishi (drive-by only; Chinese interests) 
 
¶6.  (SBU) Tenke Fungurume is under development and will eventually 
represent the largest source of both copper and cobalt.  It is 
 
KINSHASA 00000663  002 OF 002 
 
 
building a substantial cobalt processing facility and targets 8,000 
tons per year of cobalt in 2009.  First Quantum's Kolwezi Tailings 
will be premised on processing of tailings from state company 
Gecamine's historical copper operations.  The company targets 7,000 
tons per year cobalt initially, with hopes to increase this to 
10,000 tons.  Metorex is constructing Ruashi Phase II which will 
produce 3,500 tons of cobalt by 2009.  Other significant cobalt 
mines under development - but not visited by the embassy team are: 
Katanga Mining's Kamato which targets 1,600 tons in 2008, increasing 
to 5,000 tons by 2011, KOV/Nikanor which targets up to 25,000 tons, 
and Central African Mining and Exploration's (CAMEC) Mukondo 
Mountain with a target of 12,000 tons per year.  There are reputedly 
a number of scattered, smaller copper/cobalt mines with domestic and 
Chinese interests in the DRC.  In Zambia, Chambishi Metals produces 
3,227 tons and a few other mines produce lesser, declining amounts. 
 
¶7.  (SBU) In January of 2008, the DRC temporarily put a moratorium 
on the export of cobalt concentrate, even though some companies had 
prior agreements to refine product in Zambia and elsewhere.  This 
moratorium compounded existing supply tightness - particularly given 
inadequate processing capacity in the DRC - and prices surged to 
almost $50 per pound.  Smuggling has been and remains rampant.  Many 
interlocutors describe Chinese involvement with informal mining, 
trade, and processing. 
 
¶8.  (SBU) Cobalt prices averaged $49/lb in the first half of this 
year, compared with $30 in 2007 and $17 in 2006.  Cobalt prices have 
declined 20 percent since the peak in March.  Market analysts 
forecast continued tightness in the market and demand marginally 
exceeding supply of 60,000 tons. 
 
¶9.  (SBU) Comment: Cobalt prices are likely to remain volatile and 
high with uncertainty in the DRC investment and operating 
environment.  If all the incremental supply comes on line as 
planned, which could approach as much as 50,000 tons, there is a 
strong possibility that prices would dip.  But realizing this scale 
of number assumes the DRC allows mining companies flexibility and 
transparency in running their investment, including processing and 
marketing, which is still unclear.  In any case, it is likely that 
many of these projects will only be developed over a longer time 
frame.   At the same time, long-term new technology and industry are 
driving new applications and increasing demand for cobalt, so the 
outlook is still bullish for cobalt prices.  The companies that the 
embassy team visited are contributing significantly to the DRC's tax 
revenues, social development, jobs, and skill development. 
 
Garvelink