China Molybdenum Corp (CMOC) published its half-year results in late August. Key highlights included a 368% increase in revenue to RMB47Bn (US$6.9Bn) and a 25% increase in net profit to RMB1Bn (US$150M) versus H1 2019.
One of CMOC’s main assets is its 80% stake in the Tenke Fungurume mine (Tenke) in the DRC. First half copper and cobalt production at Tenke were 91.0kt and 6.5kt respectively, a marked contrast versus 88.4kt Cu and 8.6kt Co in H1 2019.
In 2019, CMOC had emphasised operational and commercial challenges at Tenke and had presaged that the mine could be placed on care and maintenance if conditions/economics did not improve. These half-year results indicate that a change in focus to higher copper at the expense of cobalt, along with implemented cost-cutting measures, has placed the mine on a firmer footing.
Copper-cobalt operations in the DRC have been impacted by a double hit of low commodity prices and an increase in royalties. In 2018, the DRC state increased copper royalties from 2.5% of net revenue to 3.5% of gross revenue, while cobalt was designated a “strategic metal” and its royalty rate was increased to 10% of gross sales income.
Roskill’s Cobalt Mine Cost Model Service shows that Tenke’s percentage of net revenue attributed to cobalt has decreased from 44% in 2018 to 40% in 2019. As a result, CMOC optimised the mine plan according to a “high copper, low cobalt” focus, as shown by the y-o-y change in the production of the two metals. Under this scenario and assuming a long-term cobalt price of US$14.7/lb, Roskill forecasts that cobalt’s share of net revenue at the mine will decline further to an average of around 35%.
Under previous management and, in line with industry-wide to control costs, minimal investment had been made in sustaining capital. At Tenke, this resulted in productivity and efficiency being negatively impacted, especially at the processing plant. The frequent power outages and reliance on diesel-generated power in 2018 and 2019 also affected costs. To fix these issues, a new Chinese management team was put in place at the mine in 2019 and a series of cost-cutting measures have been implemented. These include metallurgical plant improvements such as a new pebble crusher and a cobalt dryer (to reduce sulphate intermediate weight and the associated transportation costs). The cost-cutting measures resulted in a reported decrease in mine site costs of over US$100m. Mining costs reportedly decreased by 41% y-o-y whilst processing costs fell by US$60M (around a 25% fall). As a result of these measures, the mine’s AISC is expected to decrease by 30% y-o-y with an associated movement down the cost curve.
Roskill’s NEW Cobalt: Outlook to 2030, 16th Edition report is scheduled for publication in September 2020. Click here for more information.
Roskill’s Cobalt Chemicals Cost Model Service provides an in-depth analysis of the cobalt chemicals supply chain, from the discovery of new mineral resources through to the production of battery-grade material. This analysis is critical in the evaluation of new cobalt supply, as well as in accessing the security of supply from existing sources. For more details, click here.