In the 20th century, the mining industry brought fortunes into the sleepy villages of Manono, a town in the southeast of the Democratic Republic of the Congo.
Before independence in 1960, the Belgian settlers exploited cassiterite, the ore of tin, helping develop quarries, dams, roads, railways and foundries.
When the Belgians left, poor management, dilapidated equipment and the collapse of the world tin prices in the 1980s sent the town to its knees.
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Those troubles worsened in the civil war that followed Laurent-Desire Kabila’s ousting of Mobutu Sese Seko as president in 1997.
But the discovery of a gigantic deposit of lithium – the metal used to make rechargeable batteries in phones and electric cars – by Australian company AVZ Minerals has raised hopes for the sleepy town.
Perth-headquartered AVZ said in 2018 it had discovered about 400 million tonnes of lithium ore, making the Manono site potentially the world’s largest untapped lithium deposit.
However, the hopes could be short-lived, with a legal tangle over ownership pitting China’s Zijin Mining against AVZ.
The dispute is a fight over a 15 per cent stake in the Manono project currently owned by Cominiere, the DRC’s state-owned mining company.
In a deal signed in 2017, AVZ held a 60 per cent equity stake in Dathcom Mining, a joint venture that owns 100 per cent of Manono, while Cominiere had 25 per cent.
The Australian firm says it increased its stake from 60 per cent to 75 per cent after buying a 15 per cent stake from Cominiere but Cominiere says in its annual financial reports that the deal did not go through, a position upheld by a DRC court in December.
Instead, Cominiere sold its 15 per cent stake to Chinese firm Zijin Mining via a local subsidiary for US$33.4 million, according to documents seen by London-based short-seller Boatman Capital Research.
But AVZ said that any such transfer to a third party “would be a material breach of the pre-emptive rights”.
“Essentially, AVZ believes it has pre-emptive rights to any sale of a stake and argues it would’ve bought that 15 per cent stake – arguing that the sale of the stake was ‘spurious’ in nature,” said Greg Miller, an analyst at Benchmark Mineral Intelligence.
For its part, Zijin says it is the legitimate owner of the 15 per cent stake and will “protect its legitimate rights and interests”.
To that end, Zijin subsidiary Jin Cheng Mining has requested arbitration at the International Chamber of Commerce in Paris, according to AVZ.
Boatman said in a recent research report that AVZ’s interest in the Manono lithium project could fall to 36 per cent, with AVZ agreeing to sell a 24 per cent stake to Chinese battery maker Suzhou Cath Energy Technologies, jointly owned by Pei Zhenhua and Chinese battery giant CATL, for US$240 million.
But observers say there is also a deeper dispute with AVZ and its stake.
Last year, AVZ said it paid Dathomir Mining Resources Sarl US$20 million for its remaining 15 per cent stake in the project, taking its total shareholding to 75 per cent. The company, owned by long-time Chinese investor in the Congo Cong Maohuai, sued in the Congo to annul the deal and won. AVZ’s subsidiary is appealing against the decision, according to Miller.
AVZ says it increased its stake from 60 per cent to 75 per cent in Manono after buying a 15 per cent stake from Cominiere. Photo: AVZ Minerals alt=AVZ says it increased its stake from 60 per cent to 75 per cent in Manono after buying a 15 per cent stake from Cominiere. Photo: AVZ Minerals>
Congolese mining and policy analyst Christian-Geraud Neema said the issue was “a very complex one, typical of the environment of general corruption that characterises the Congolese mining sector”.
“The motivation behind the battle between Zijin and AVZ is about who’s going to control the Manono lithium project,” Neema said.
He said the supposed fear of AVZ was that the entry of Zijin into the capital of Dathcom could lead to a takeover by the Chinese side, if Zijin were to join forces with CATL.
This alliance would make the Chinese control 39 per cent of the project, denying AVZ an absolute majority, Neema said.
“What is at stake for AVZ is losing control of the project. Especially since the other partner of the join venture, Dathomir, which would hold 15 per cent of the project, could join the Chinese parties, placing AVZ in a de facto minority position,” said Neema, who is also the francophone editor at the China-Africa Project.
“This position is doubly frustrating for AVZ.”
Neema said AVZ had acquired the Manono mine through a close relationship with the family of former president Joseph Kabila, who is said to be the true owner of Dathomir.
When it decided in 2017-2018 to acquire 15 per cent of Dathomir, to increase its share in Dathcom from 60 to 75 per cent, it guaranteed itself the majority of the Manono project.
However, when a court decided to cancel this transaction, which is one of the key points in the conflict with Zijin, AVZ was once again left with 60 per cent. But it does not consider the transaction cancelled.
“So, if the acquisition of the 15 per cent from Dathomir is cancelled and the acquisition of the 15 per cent by Zijin is confirmed, AVZ will have been tricked by Dathomir,” Neema said.
Dathomir, which can determine who becomes the majority on the project, has remained silent on the dispute.
But Neema also said there was also no guarantee that Zijin would be part of the project, since the DRC’s Inspectorate General of Finance found its acquisition of the 15 per cent stake from Cominiere fraudulent and illegal.
“In all this, let’s keep in mind that AVZ has Chinese shareholders, among them, you find the Zhejiang Huayou cobalt (Huayou International Mining) which acquired the Arcadia lithium project in Zimbabwe,” he said.
“So, the question might be, is the battle between AVZ and Zijin really and a China vs Australia battle? Or it might have internal Chinese rivalry [be] in play?”
Neema said controlling the lithium supply chain would be the next battleground in resources.
He said China had already won the battle for cobalt and was several steps ahead of the others at all levels of the lithium supply chain.
“And we can see how Chinese companies are multiplying their acquisitions in Africa, Asia and Latin America, sometimes in partnership with Western companies,” Neema said.
The dispute comes amid shortages in the lithium market, creating a bottleneck for the electric vehicle industry.
“It comes as no surprise therefore that there is heightened interest in lithium resources,” said Miller of Benchmark Mineral Intelligence.
Yun Sun, director of the Stimson Centre’s China programme in Washington, said lithium was in high demand to make batteries to help reduce carbon footprints.
“That is why the Chinese are competing vigorously for it. China has a pretty solid background in its operations in DRC,” Sun said.
Chris Berry, president of commodities advisory firm House Mountain Partners in New York, said he expected the race for lithium assets in Africa and other parts of the world to only intensify.
“Lithium demand looks set to easily outpace supply in the near term and companies like Zijin want to make sure that they have a secure supply of lithium for years to come to fortify the industrial base in China,” Berry said.
He said Manono was a gigantic lithium deposit and “unfortunately for all involved, the litigation here could last for a long time, delaying any actual lithium production”.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.
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Source: https://finance.yahoo.com/news/drc-chinese-australian-battle-control-093000599.html