A $600 million copper-cobalt mine project in the Democratic Republic of Congo is facing a funding crunch, Bloomberg reported. The project is a flagship investment for commodities trader Trafigura. Trafigura has been forced to seek new financing for the copper and cobalt mine as its metals business struggles.
The project, being developed by Trafigura's long-time partner Chemaf SA, is now experiencing difficulties due to cost overruns and weak cobalt prices, according to people familiar with the matter.
Trafigura's metals division had already come under fire after it announced in February that it had been the victim of a massive alleged nickel fraud. Trafigura vies with rival Glencore to be the world's largest metals trader, but until the nickel scandal came to light, the business was overshadowed by big profits made by its energy traders.
Trafigura last year announced a $600 million loan to Chemaf to build a copper and cobalt mine in Mutoshi, which it said would be one of Congo's largest, along with a processing plant there and another at its Etoile plant in Lubumbashi.
People familiar with the matter said the project is over budget and can't be completed at its current loan level. As a result, Trafigura has been looking for investors to provide additional funding for the project.
Trafigura is seeking about $200 million to $300 million in additional financing, one of the people said.
It is unclear how much of the $600 million loan has been drawn down. Another person familiar with the matter said the loan was secured against Chemaf's assets.
"Trafigura has been working with Chemaf to evaluate options for the Mutoshi and Etoile development projects in light of challenging market conditions, including continued low cobalt prices and inflationary pressures in the mining industry," Trafigura said in a statement.
"Trafigura remains committed to the Democratic Republic of Congo and to building its position in the rapidly growing market for battery metals."
A spokesman for Chemaf said the company has completed more than 70 percent of the construction of the new plant in Mutoshi, and that the company and Trafigura are "working together to review the best path forward for first production."
The project has become less attractive after cobalt prices plunged to their lowest level in nearly four years in May.
The cobalt hydroxide market has been particularly hard hit amid surging supply and slowing demand from China. Cobalt hydroxide is an intermediate product produced by Chemaf and other Congolese miners.
It is unclear how much Trafigura stands to lose if the project fails.
The loan was syndicated last year by banks led by the Trade and Development Bank of Eastern and Southern Africa, although Trafigura still has a significant exposure, according to several people familiar with the matter.
Chemaf has a long-term relationship with Trafigura for more than 15 years. In the 1980s, Shiraz Virji, the company's founder and chairman, began selling drugs from India to Congo, then known as Zaire.
Chemaf won his first mining rights in Congo in 2001 in a wave of privatisations that followed former President Joseph Kabila's rise to power, according to his website.
The $600 million deal for "fully mechanized" mine construction focuses on a mine site that has been dug by hand for years, known as artisanal mining.
Trafigura and Chemaf launched a pilot project in 2018 to improve safety conditions for artisan miners working in Mutoshi, but the project was abandoned in 2020 after the Congolese government established a state-controlled monopoly on the sale of artisan mined cobalt.
The project's timetable had already begun to slip last year.
When Trafigura first announced the $600 million loan in January last year, it said the Mutoshi mine would begin production in the third quarter of 2023. By November last year, when the loan's syndicate was announced, the expected launch date had been pushed back to the fourth quarter of 2023.
It is not now expected to be completed this year, one of the people said.
