Ukraine

• Russia’s Foreign Minister warned that Russia’s “geographical tasks will extend still further from the current line” – i.e., its war and territorial ambitions will expand beyond the Donbas again – if the West continues to arm Ukraine with long-range weapons like HIMARS.
• In particular, Russia has its sights set on annexing Zaporizhzhia and the port city of Kherson – both of which it already occupies. Ukraine is stepping up its counteroffensive in Kherson, and the U.S. said it would not let new annexations “go unchallenged.”

Russia

• The Nord Stream 1 pipeline did resume gas supply today – as Pres. Putin had promised – but at just 30-40% of its prior capacity. However, the possibility of a shutoff already kicked Europe into action.
• Fearing Russia could still cut off gas exports in the future, the EU instructed member countries to reduce their gas consumption by 15% through March. At this stage, it’s a voluntary commitment, but the EU could make it legally binding – though hard to effect – if Russia halts gas supplies to Europe.

China

• It looks like Speaker of the House Pelosi may not be visiting Taiwan this month after all: Pres. Biden said the Pentagon thought her trip was “not a good idea” because it would provoke China.

DRC

• Stratfor published a great analysis (pasted below) of DRC’s revenue dispute with the Chinese operators of Tenke Fungurume copper-cobalt mine. The mine produces 10-15% of global cobalt supply, so a long suspension would cause a major disruption in electric vehicle supply chains.

Libya

• Libya’s National Oil Corp. says it lifted force majeure and resumed oil exports, but it’s not clear who’s running the company: two rival chairmen still represent two rival governments that appointed them.

Kurdistan

• Iraq blamed Turkey for an artillery strike that killed eight tourists at a mountain resort in Dohuk, northern Iraq. Turkey denied responsibility and blamed the “terrorists” (Kurdistan Workers Party) it often targets in Kurdistan.

Other News

• Despite ongoing protests, Sri Lanka’s parliament voted to install unpopular PM Wickremesinghe as president. Protesters see Wickremesinghe as being too close to ousted president Rajapaksa – although they don’t hate him as much as they detested Rajapaksa.

Congo's Revenue Dispute With China Threatens Cobalt, Copper Exports (Stratfor)

In the Democratic Republic of Congo, the ongoing revenue dispute between the shareholders of the massive Tenke Fungurume mine has brought exports to a halt. The mine’s Chinese owner will likely grant some concessions to ensure the suspension is quickly lifted, but even a temporary pause in shipments could disrupt global supplies of copper and cobalt. On July 16, Congolese court-appointed administrator Sage Ngoie Mbayo declared copper and cobalt exports would be suspended from the Tenke Fungurume mine — which China Molybdenum (CMOC) owns and operates — until at least July 24, citing CMOC’s refusal to pay alleged overdue royalties and share its export data. In response, CMOC said Ngoie does not have the authority to halt exports and assured operations would continue unhindered. But the official July 16 notice raises the potential of a prolonged interruption to exports from the Tenke Fungurume mine by indicating private negotiations between Ngoie and the Chinese mining giant have so far failed to make headway.

• CMOC, which has an 80% stake in the mine, is the owner and operator of Tenke Fungurume. Congo’s state-owned mining company Gecamines owns the remaining 20% stake in the mine.
• Located in the southeastern Congolese city of Lubumbashi, Tenke Fungurume is the world’s second-largest cobalt mine. Roughly 14% of global cobalt supplies came from the mine last year.
• According to Ngoie’s office, only export shipments for which the Tenke Fungurume mine has already paid will be allowed to proceed, likely through July 22.

The export ban marks the latest escalation in an ongoing dispute over royalty payments between China and Congo’s state-owned mining companies. For nearly a year, Gecamines and CMOC have been embroiled in a heated revenue dispute regarding the Tenke Fungurume mine, with the former claiming that the latter’s alleged underreporting of mineral reserves at the site has deprived it of $7.6 billion worth of royalties and interest. The dispute began in August 2021, when the Congolese government appointed a commission to investigate whether the number of known reserves at the mine was consistent with the quantity stipulated in the government's contract with China’s CMOC. After the commission found alleged inconsistencies, a commercial Congolese court suspended CMOC from managing the mine in February and appointed a third-party administrator to temporarily run the project. Ngoie took over Tenke Fungurume’s temporary administration in June, but CMOC has since refused to acknowledge his authority and has blocked him from entering the mining site.

The mutual incentives to keep exports flowing from Tenke Fungurume mean that both sides will suffer high costs if negotiations fail. Cobalt, a component of lithium-ion batteries used in electric vehicles, is crucial to the global energy transition. And Congo accounts for most (70%) of the world's production of it, with the Tenke Fungurume mine alone accounting for nearly 20% of those cobalt exports. For CMOC and Gecamines, Tenke Fungurume is a strategic long-term investment that could generate billions of dollars for years to come as the global push to tackle climate change and cut carbon emissions increases demand for electric vehicles and, in turn, cobalt. From a broader strategic standpoint, the Tenke Fungurume mine is a crucial part of Congo’s larger mining sector — an industry that, according to the IMF, accounts for approximately 30% of Congo’s GDP and more than 90% of its total exports. Disruptions to its cobalt exports would risk damaging Congo’s already fragile position as an investment destination as well, a position that Congolese President Felix Tshisekedi has been trying to improve since he took office in 2019. China, for its part, has strategic imperatives at stake in the Tenke Fungurume dispute as well. In addition to the purely financial motivations, Beijing’s involvement in Congo’s mining sector is driven by a greater desire to lead the world in electric vehicle battery production — a goal that has seen Chinese state-owned firms like CMOC more willing to invest in Congo’s volatile mining operations compared with their private Western counterparts. Accomplishing that objective, however, also means China must remain on good terms with the gatekeepers of the world’s largest cobalt reserves: the Congolese government and, by extension, Gecamines. These strategic and economic factors are incentives for both sides to resolve the revenue dispute regarding Tenke Fungurume.

• In 2020, Congo exported $2.35 billion in cobalt and $11.1 billion in copper. Those exports alone accounted for over 27% of GDP that year. The Tenke Fungurume mine produced about 12% of Congo’s copper exports in 2020, as well as about 18% of the country’s cobalt exports.

The export suspension is thus most likely to result in the renegotiation of the Tenke Fungurume sales contract. Ngoie says exports cannot resume until CMOC releases export data for 2022 and the two parties agree on a new sales contract. CMOC has not made any public statements that it will comply with Ngoie’s demands. Compared with Gecamines, however, the company likely has less capacity to withstand a prolonged export suspension, which would further threaten cash flow amid the recent decline in copper prices. The lost royalties from a sustained pause in exports would also deprive Gecamines of cash. But the Congolese government had a revenue surplus in 2021, leaving it in a likely stronger negotiating position than CMOC from a financial standpoint. Ngoie appears to be using this current leverage to coerce CMOC into making concessions in the short term that will set Gecamines up to have greater access to information and receive higher royalties in the medium-to-long term. This means that a “middle ground” agreement between the CMOC and Ngoie in which CMOC grants some concessions, likely including increased transparency, remains the most likely outcome; however, such an agreement could still take weeks to reach. It is also possible that negotiations come in fits and spurts, leading to the intermittent resumption and suspension of exports.

But without concessions from CMOC, the partnership could dissolve and result in an even longer interruption to cobalt exports. In the less likely event that negotiations remain stalled for over a month, it is possible that a Congolese court will revoke CMOC’s rights to the reserves at the Tenke Fungurume mine by proving non-compliance, or that kickbacks were involved in the initial contract. This would allow Gecamines to assume ownership of the mine, which could then license out the remaining shares to increase the government’s take. In this scenario, another mining operator could feasibly assume control of the mine. But it’s unclear whether any other mining company would have the interest, let alone the capacity and connections, to do so.

A prolonged suspension of exports from Tenke Fungurume would risk disrupting limited global supplies of cobalt and, to a lesser extent, copper. An export suspension that lasts longer than a few weeks to a month — whether the result of a drawn-out negotiation process (or less likely but more impactful, the collapse of CMOC-Gecamines talks altogether) — would likely begin to strain the world’s cobalt and copper supplies, given the already limited global stockpiles of both commodities. Compared with copper, however, the pause in exports of cobalt would probably be felt more acutely, given Congo’s outsized role in global cobalt exports (and the Tenke Fungurume mine’s vital role). The price of cobalt has more than doubled between the start of 2021 and April 2022, in part due to Western sanctions on Russia amid the ongoing war in Ukraine, as well as a general tightening of the cobalt market. But in more recent months, cobalt prices for the commodity have declined sharply due to sudden COVID-19 lockdowns in China’s manufacturing hubs, which stifled global production of eclectic vehicles as demand plummeted. If exports from the Tenke Fungurume mine are suspended for longer than about a month, and if demand for electric vehicle batteries in China recovers (which remains unclear, amid recent reports of new COVID-19 outbreaks in the country), the resulting impact on global cobalt supplies could see prices tick back up.