The Democratic Republic of Congo (DRC), a big, lush, mineral-rich country in the heart of Sub Saharan Africa, currently produces roughly 6% of the world’s copper (approx 1 million tonnes per annum).
Mining engineer and CFA Tom Meyer, an equity research analyst with CIBC World Markets, is concerned DRC supply could be in jeopardy, compounding an already tightening copper market.
In the March 2, 2015 Base Metals Monthly Watch report, Mr. Meyer asks, “In a market that will likely see a deficit develop as early as 2017, we raise the question – has the market factored in the rising tensions in the DRC as we move closer to the November 27, 2016 presidential election?”
Meyer urges investors to consider the risk of political instability in the DRC even sooner than the presidential election, as the provincial, municipal, urban and local elections are scheduled for October 25, 2015.
According to the DRC constitution, President Joseph Kabila is unable to run for a third term at the upcoming election.
In December 2014, Katanga province (richest copper producing region in Africa) governor Moise Katumbi, considered a presidential front-runner, criticized President Kabila in a speech. A few weeks later, Kabila fired Katumbi as regional head of Kabila’s ruling party, highlighting a rift between the Governor and the President, Meyer says.
CIBC’s Tom Meyer: price risk is to the upside should the political situation in the DRC deteriorate
Copper production in the DRC averaged between 6% and 8% of global mine supply from 1994 to 1990, when a mine cave in, political instability then civil war saw production fall to less than 1% of global supply.
The country has not had a peaceful regime change since independence in 1960, and Mr. Meyer is concerned with the level of uncertainty upcoming. He does not feel the copper market would be prepared for the deficit.
In the 1990s, the supply was met by rising production in Chile, but Mr. Meyer does not see any country able to ramp up production to meet demand needs in the event DRC production goes offline.
This potential vulnerability could be a boon for copper bulls and copper developers outside of the DRC, and cast a shadow on those developing projects within the African nation.