Industry Trend Analysis - DRC To Be Global Growth Outperformer In 2018 - MAR 2018

BMI View: A combination of higher commodity prices, new projects coming online and expansions at existing operations will place the DRC among the fastest growing major mining market in the world this year, despite mounting political and regulatory risks.

We expect DRC's mining industry value to witness an average growth of 17.7% in 2018, outperforming other comparable mining markets. Rising prices in key commodities will be the driving force behind improving domestic mining production growth, prompting the reopening of Glencore's copper-cobalt Katanga mine, while an expansion at Randgold's Kibali mine will support domestic gold output. Despite this positive outlook, we foresee downside risks to our forecasts emerging from rising political instability as President Kabila ignores calls to step down and the passing of a new mining charter which will raise existing royalty rates for miners.

Growth Outperformer
Select Countries - Mining Industry Value Growth (% y-o-y)
Source: BMI

Rising Prices To Support Project Development

DRC's mining sector growth will receive a boost from the reopening of Glencore's copper and cobalt-producing Katanga mine in December 2017, following significant rallies in both metals last year (copper by 39% y-o-y and cobalt by 127% y-o-y). Glencore expects copper production at the mine to amount to 150kt this year and 300kt next year, once at full capacity. Furthermore, the mine is set to become the largest cobalt producer in the world with an expected output of 11kt this year and 34kt in 2019, following productivity enhancements. We expect prices of both cobalt and copper to remain elevated this year, supported by a strong demand outlook, which will incentivise domestic producers to ramp output as margins increase ( See 'Scenario: Setting The Scene For Copper Prices At USD10,000/tonne', January 10).

We also expect solid growth in domestic gold production this year, as the country's largest gold mine, Randgold's Kibali mine, increases output. The company expects that production at the mine will reach 700koz this year, up from a guidance of 610koz in 2017(to be confirmed) following the commissioning of anautomated ore handling and hoisting system in its underground operation. As an added tailwind, we expect rising gold prices to lead to an uptick in artisanal gold mining which accounts for a significant portion of gold mining activity in the country , although this has not been incorporated into our forecast due to a lack of available data ( See 'Uptrend In Prices To Fuel Illegal Gold Mining', January 26 2018).

Gold & Copper Price Forecasts
Source: BMI
Commodity 2016 2017 2018f 2019f 2020f 2021f 2018f 2019f 2020f 2021f
Gold, USD/oz, ave 1,249.0 1,259.0 1,300.0 1,325.0 1,350.0 1,400.0 1,300.0 1,325.0 1,350.0 1,400.0
Gold price, ave, % y-o-y 7.7 0.8 3.3 1.9 1.9 3.7 3.3 1.9 1.9 3.7
Copper, Three-month, USD/tonne, ave 4,870.0 6,200.0 6,300.0 6,400.0 6,600.0 7,000.0 6,300.0 6,400.0 6,600.0 7,000.0
Copper price, three-month, ave, % y-o-y -11.3 27.3 1.6 1.6 3.1 6.1 1.6 1.6 3.1 6.1

Outlook Positive Despite Downside Risks

Downside risks will emerge to our positive outlook due to political instability and the introduction of a new mining regulatory regime. In terms of political instability, BMI's Country Risk team expects that President Kabila's failure to relinquish office at the end of 2017 will limit foreign aid and lead to the growing strength of insurgencies that will cause unrest in the central and eastern regions ( See 'Growth To Remain Sluggish As Political Risk Rises', January 26). Instability in the eastern regions of North and South Kivu in particular would pose risks to the numerous gold operations found there, although the country's largest gold mine, Kibali, should remain relatively sheltered due to its location further north.

DRC In Need Of Regulatory Improvement
SSA - Mining Regulation Scores
Scores out of 100, higher score = More attractive market. Source: BMI Mining Risk/Reward Index

Another key risk stems from revisions to the DRC's mining charter passed through parliament in January 2018. The new charter would see royalty rates on base metals such as copper and cobalt increase from 2% to 3.5% or even 5% if deemed "strategic" metals. However we do not expect this change to have a major impact on investment as the proposed increase in royalties would only bring the country in line with rates found in other jurisdictions in the region. Furthermore, containing up to 50% of global cobalt reserves and accounting for 86.7% of global cobalt exports in 2016, we expect cobalt buyers will have to continue to rely on the DRC as their key supplier, due to a distinct lack of supply from alternative markets.

DRC - Key Mining Projects
Source: BMI Mines Database
Commodities Mine Company Capex (USDmn) Notes
Copper Kamoa-Kakula Ivanhoe Mines (39.6%) Crystal River Global (0.8%) , (20%) , Zijin Mining Group Co (39.6%) 2,992 November 2017 - Ivanhoe Mines has announced the results of PEA study for the project; Reserves: 125.1mnt; Phase I plan will be conducted in 2018, while Phase II plan will be implemented in 2022
Copper Kinsenda Jinchuan Group (77%) 345 Probable Reserves: 6.1mnt; Estimated production: 20kt/yr; Mine Life: 20years
Tin Bisie Alphamin Resources Corp (80.25%) Industrial Development Corporation - South Africa (15%) , Government of the Democratic Republic of the Congo (5%) 151 October 2017 - Production is expected to commence at the mine in Q119; Reserves: 4.7mnt; Estimated Production: 9.6kt/yr; Mine Life: 12.5 years
Copper Kalongwe Nzuri Copper Limited (85%) La Generale Industrielle et Commerciale au Congo SPRL (10%) 53.1 October 2017 - A feasibility study has confirmed that Stage 1 operation of the project will deliver 19.4kt/yr of copper; Reserves: 7mnt; Mine Life: 7years
Gold Mpokoto Armadale Capital (75%) Kisenge Mining (25%) 25.1 January 2018 - Armadale Capital has entered into a heads of agreement with Radismore to sell its interest in the project; Expected Production: 25koz/yr; Mine Life: 9years; Resources: 0.7Moz
Copper Katanga Glencore (86.33%) - February 2017 - Glencore has acquired an additional 10.25% stake in the mine for USD38mn; Proved Reserves: 10mnt; The project includes Kamoto, KOV and Mashamba mines
Copper Musonoi Metorex - Mine is expected to produce 31kt/yr of copper cathode; Resources - 31.7mnt
Copper Kalukundi Eurasian Natural Resources Corporation (ENRC) (75%) Gecamines (25%) - Indicated Resources: 30.4mnt
Copper Kolwezi Zijin Mining Group Co (72%) La Generale des Carrieres et des Mines (28%) - Expected Production: 58kt/yr; Expected start year: June 2017
Gold Zani-Kodo Asa Resource Group (80%) Societe Miniere de Kilo Moto (SOKIMO) (20%) - September 2016 - ASA Resource is in the process of selecting a mine plan for the project; Resources: 3Moz; Estimated Production: 35koz/yr
Gold Misisi Ortac Resources (87.4%) - January 2018 - Ortac Resources has reported new gold assay results from the expansion and infill drill programme currently underway at Akyanga deposit of the project; Resources: 1.1Moz; Estimated Production: 80koz/yr
Gold Giro Amani Gold (55.25%) - December 2017 - Amani Gold has secured an agreement with Societe Miniere de Kilo Motosa for an extension to the deadline for completion of a feasibility study at the project; Indicated Resources: 0.8Moz
Gold Kibali South Vector Resources - December 2017 - Vector Resources has signed a binding agreement with Sokimo to finalise JV agreement for the project; Inferred Resources: 1.5Moz
Copper Lupoto Tiger Resources (95%) Government of Congo(DRC) (5%) - January 2018 - Tiger Resources has entered into a binding agreement to divest the project to a consortium of Sinomine Resource Exploration and Shenzhen Oriental Fortune Capital; Indicated Resources: 9.6mnt