Note: This report was written for a specific entity interested in expansion in Africa. It is a deeper dive than standard C-GIA assessments, that has now been released widely.
Key Takeaways:
Cobalt and tantalum mining operations are located in conflict-prone areas in eastern DRC, where armed groups like M23 control parts of the supply chain. This instability poses a threat to mining operations, potentially leading to disruptions and higher costs.
KSG assesses that Chinese dominance will continue to grow, leaving Western companies in a weaker competitive position unless they diversify their supply chains.
Western companies will likely need to reduce their dependence on DRC-sourced cobalt due to both ethical and supply chain risks. Indonesia and Australia offer promising alternatives for investment, especially as demand for lithium iron phosphate (LFP) batteries grows.
KSG assesses that non-DRC sources like Indonesia will continue to gain market share as Western companies seek to avoid sourcing from conflict zones in the DRC.
The DRC also offers untapped opportunities in oil and gas, with substantial reserves in the eastern regions. Companies with experience in complex environments could capitalize on this underdeveloped sector, though security risks pose challenges.
The Terror Threat
The northeast region of the Democratic Republic of the Congo (DRC) remains destabilised by armed non-state actors and the government’s proxy war with Rwanda. The primary non-state actor threats are:
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Allied Democratic Forces (ADF): Originally Ugandan rebels, the ADF is now an IS regional affiliate in the DRC and Uganda. Primarily active in the Ituri and North Kivu regions, they follow the Islamic State’s strict interpretation of Islamic law and aim to extend the IS caliphate into central Africa. The ADF has remained a significant threat due to its recruitment and financial support from the IS despite engagements with local and UN military forces.
March 23 Movement (M23): With historic and current backing from the Rwandan Defence Force (RDF), this armed Tutsi group operates in the North Kivu region. The group was active from 1994 until its defeat in 2013. Since its resurgence in 2021, M23 is believed to operate alongside the RDF under the command of the Rwanda Defence Intelligence Department. M23 claims to act in defence of Tutsi communities in northeast DRC.
Over and above these primary non-state actors, an estimated 140 local armed groups (comprising up to 140,000 individuals in total) are contributing to the conflict in eastern DRC. Militias continue to be formed under the guise of protecting their own ethnic groups or due to competing business and security interests. The insufficiency of state authority in the DRC's eastern region enables high levels of violence and attacks.
DRC Mining Industry
Militias on the eastern border of the DRC pose a threat to the country’s mining operations and global supply chains. The region is home to the country’s copper, cobalt, tantalum, gold, tungsten and tin mining operations. With the copper and cobalt mines in southeast DRC, there is potential for conflict-free sourcing. However, gold mines in the northeast are at constant risk of being taken over by non-state actors.
Cobalt: The DRC is the world's leading cobalt producer, responsible for 74% of mined global exports. Most DRC cobalt mines are wholly or partially owned by Chinese companies, with CMOC Group being the leading producer of cobalt. Outside of Chinese interests, European-based firms, Eurasian Resources Group and Glencore have the most prominent presence in Congolese cobalt mining but also sell to Chinese companies like GEM. Primarily used in the production of lithium-ion batteries, cobalt is difficult to replace as its substitution can result in reduced product performance or increased costs. These batteries are key to the transition to clean energy through their usage in EVs and renewable energy storage and are being adopted by the US military to power weapons systems and autonomous vehicles.
Tantalum: The DRC is the leading global producer of tantalum, accounting for 40% of global production. Tantalum mines are also spread through the conflict region and experience significant disruptions to supply chains. In April, M23 took over a key tantalum mine in Rubaya. The metal is used in defence, energy, electronics, and telecommunications technologies and is most notably used to create the high-temperature alloy that military aircraft jet turbines are made of. Like cobalt, tantalum cannot be substituted without loss in performance or higher costs.
Gold: Gold trade is a crucial source of income for the armed groups in the Ituri region. Militants control 29 out of the 36 mining operations in the area. The Congolese Armed Forces (FARDC) have also been found participating in the illegal control of mining operations due to widespread corruption. Weak border controls facilitate gold smuggling to Uganda and Rwanda, whose prices make companies mining in the DRC less competitive in comparison. A notable example is Primera Gold, a joint gold mining venture between the DRC and UAE governments, which has now exited the market.
Chinese Expansion
China is the DRC's largest trading partner, receiving over 40% of the DRC's total exports. Chinese companies own 80% of Congolese cobalt, dominating the battery market. The country is the leading consumer of cobalt, with 87% of its consumption going into the lithium-ion battery industry and responsible for 80% of global battery production. Although rich in lithium, another mineral integral to battery suppliers, there are no active lithium mines in the DRC. The Chinese company Zijin is expanding its operations in the DRC by investing in the Manolo mine, the world's largest undeveloped lithium-rich mine. Although initially granted to AVZ Minerals, an Australian mineral exploration company, the exploration rights were later given to Zijin, which already operated copper and coal mines in the country. Through this, KSG assesses that China will expand regional influence and its control over the global tech industry.
China is taking steps to protect its investments, with the DRC acquiring nine Chinese CH-4 drones this year. KSG assesses that business will increase with China Aerospace Science and Technology Corporation (CASC), the manufacturer of the drones, due to their affordability.
Potential for Oil and Gas Exploration
The DRC has the second-largest crude oil reserves in Central and Southern Africa after Angola, with proven reserves of 180 million barrels, and estimates exceeding five billion barrels in total petroleum reserves. These reserves are mostly in the eastern regions, near the borders of Tanzania, Burundi, Rwanda, and Uganda, where extraction will be challenging due to the armed groups and ongoing conflict. Despite these reserves, only the Anglo-French company, Perenco is on site conducting extractive operations in the DRC.
Despite the DRC's oil reserves and over 10 billion cubic metres of natural gas, current production is limited to 25,000 barrels per day from offshore operations. This underproduction presents opportunities for other firms to enter the market and capitalise on untapped potential. Lake Kivu, which borders Rwanda and Burundi, holds an estimated 60 billion cubic metres of methane, with extraction already underway on the Rwandan side. While the methane market in Lake Kivu is open to investors, the security risks posed by ongoing conflicts and terror threats in the region make it a challenging environment for companies to operate in. This highlights future opportunities for Chinese energy companies like China National Petroleum Corporation (CNPC) or Sinopec, given China’s relative dominance of the region in the mining industry, despite regional conflict. France’s historic ties as a former colony and its efforts to create peace in the DRC may create opportunities for energy giant TotalEnergies as well, should conflict subside in meaningful fashion.
Regional Power Struggles
The resurgence of M23 has worsened strained relations between the DRC and Rwanda. Diplomatic dialogue has failed to improve the animosity between the Presidents Tshisekedi and Kagame. Both presidents are very unlikely to be replaced, ensuring that the animosity between the two states is unlikely to subside in the near future.
With its ties to Western countries, Rwanda benefits from DRC instability, mainly in mining operations. With M23’s influence, Rwanda can expand its mining revenues and influence despite regional instability.
Rwanda’s GDP from Mining (Rwandan Franc Billions) and M23 attacks
EU Involvement
Through the Green Deal, the EU is making a significant transition to clean energy. Part of this strategy involves developing strong ties with the Democratic Republic of the Congo (DRC) due to its wealth of minerals. Not only is the EU contributing to the development of the Lobito Corridor and the Douala-Kampala-Mombasa Corridor, it also supports health services, the agro-economic transition, and digital infrastructure in the DRC. However, there is a disconnect in their actions, as the EU is now engaging with Rwanda. In the 2012/13 M23 Rebellion, Western funding to Rwanda was cut or made conditional on ceasing its support for M23. This was central to the group's defeat. There seems to be silent support for Rwanda this time around. The EU signed a memorandum of understanding (MoU) with Rwanda on sustainable raw material value chains earlier this year. The MoU signalled both parties' intention to strengthen their business partnership based on raw materials primarily found in the conflict zone, and serves as motivation for Rwanda to continue its activities.
The Belgian company Umicore, a leader in the production and recycling of materials essential for electric vehicles (EVs) and sustainable energy technologies, sources approximately 75% of its cobalt from the Democratic Republic of the Congo (DRC). The company has received nearly €500 million from the EU to facilitate research in the recharging and recycling of EV battery materials. With long term Finnish, Canadian, and Polish deals recently signed for battery plants, Umicore is a key player in the West’s clean energy transition.
Looking Forward:
Disruptions to the Tantalum Mining Industry:
KSG assesses that the tantalum mines' proximity to conflict zones make them vulnerable. M23’s expansion would likely lead to a decline in global tantalum exports, driving up prices for tech companies reliant on tantalum for semiconductors and capacitors. This disruption poses strategic risks, particularly for defence sectors reliant on tantalum for missile guidance and radar systems while opening up alternative investment opportunities:
Short Term: While Brazil, the second-largest producer of tantalum, would see increased demand, its output is less than half of the DRC's. Australia, with large reserves but few active tantalum mines, is unlikely to meet demand in the short term, leaving the global supply chain vulnerable.
Long Term: Australia holds significant tantalum reserves, though these deposits remain largely untapped (Australia currently produces only about 4% of the DRC's output). The Chinese company, Tianqi Lithium, along with Australian firms like Liontown Resources and Global Advanced Metals, are active in the country. KSG assesses that there is opportunity for Western firms to invest in Australian tantalum mining operations to secure critical mineral supply and reduce reliance on Chinese-controlled resources. Although not widely practised at present, tantalum recycling is expected to gain significant momentum should the supply chain be disrupted. KSG assesses that this would likely increase business for TANiOBIS Group, a leader in tantalum recycling.
Disruptions to the Cobalt Mining Industry:
As M23 expands its operations southward along the eastern border, cobalt mines in southeast DRC could be disrupted. KSG assesses that if cobalt production is targeted, Chinese manufacturers of EVs, batteries, and renewable energy storage components would be the most affected given China’s reliance on the DRC for its cobalt supply. This would likely drive up global cobalt prices, as the DRC accounts for 59.3% of the world's supply.
Short Term: Chinese cobalt dominance and the conflict surrounding cobalt have been increasing the demand for lithium iron phosphate (LFP) batteries. Although cheaper and easier to produce, LFP batteries have lower energy density, limiting their use in high-performance EVs. Although the U.S. is scaling up its battery manufacturing, it won’t be fully operational until at least 2028. KSG assesses that, in the meantime, this will push Western EV producers toward South Korean manufacturers like LG, who recently signed a deal with Renault for their EV batteries.
Long Term: With the second-largest cobalt reserves, Australia holds approximately 15% of global reserves. KSG assesses that there is significant opportunity for investment in Australian cobalt mining operations, as they are currently underproducing. The price increase correlated with DRC cobalt disruptions is likely to drive further demand for alternatives such as LFP batteries, accelerating research into making them more efficient. KSG also anticipates that lithium-ion battery recycling will see a substantial rise, benefiting companies like Ecobat and LG.
Loss of DRC Cobalt Market Share:
KSG assesses that instability in the DRC increases the likelihood of substituting cobalt from non-DRC sources, undermining Kinshasa's ability to capitalise on its cobalt resources. The DRC's cobalt industry faces substitution risks due to environmental, social, and governance (ESG) concerns, especially from Artisanal and Small-Scale Mining (ASM) practices, which pose reputational challenges for electric vehicle (EV) manufacturers. While companies like Volkswagen, Tesla, and CMOC, have partnered to formalise ASM practices, others are opting to avoid ASM-sourced cobalt. BMW, for example, has shifted to Moroccan cobalt, citing ESG concerns. Indonesia, the second-largest cobalt producer, is positioned to erode demand for Congolese cobalt. KSG assesses that this shift will likely increase China's control over cobalt production in the DRC as Western automakers reduce their reliance on Congolese supply. China already dominates Indonesia's cobalt production, which is largely extracted as a byproduct of Chinese-owned nickel projects. Indonesian cobalt output is forecast to grow by 41% annually through 2027. If insecurity worsens in southeastern DRC—where copper and cobalt mining are concentrated—KSG assesses that the loss of market share to Indonesia will likely accelerate.
KSG assesses that Western battery and EV companies will likely continue to seek to reduce their dependence on DRC-sourced cobalt, with Indonesia emerging as a primary alternative due to lower reputational and security risks. In the face of an increasing Chinese global market share of cobalt production, Indonesia presents Western companies with an opportunity to counter China's dominance. The US Inflation Reduction Act (IRA), which offers Clean Vehicle Credits (CVC) for manufacturers who source battery critical minerals from firms with less than 25% Chinese ownership, further incentivizing investment in Indonesia. KSG predicts that South Korean and Japanese battery manufacturers, including LG Energy Solution, Samsung, and Panasonic, will become key suppliers of Indonesia-mined cobalt to the US. This trend is likely to enhance Western companies' presence in the cobalt market while simultaneously balancing China's gains in the sector.
The Terror Threat:
The ADF is slowly expanding south in North Kivu. KSG assesses the group is likely capitalising on the FARDC's focus on the M23 conflict to expand its reach. With the focus on M23 and the UN's exit, KSG assesses increased ADF activity deeper into South Kivu is highly likely.
KSG assesses that M23 will expand its presence in the DRC for 2 reasons:
Rwanda will continue to support M23 in an attempt to gain access to the DRC’s eastern mineral-rich mines. KSG expects that direct confrontation between the DRC and Rwanda is highly unlikely as a full-scale conflict is not in either government's interest. The DRC lacks the military capability to successfully fight the Rwandan forces. Rwanda benefits more from continuing its proxy relationship with M23 and avoiding possible sanctions. Rwanda is likely to continue to take advantage of the DRC's weak military and governance capacity, gradually expanding its influence while relying on plausible deniability concerning its support for M23.
The conflict has displaced 7 million people, primarily internally. Overcrowded camps in the DRC, Rwanda, and Uganda are being used as recruitment sites by M23. As the conflict escalates, the conditions for the displaced will worsen, leading to a rise in M23's recruitment numbers alongside further internal displacement.
Oil and Gas:
As the conditions remain volatile in eastern DRC, particularly with M23 controlling areas near Lake Kivu, the DRC’s ability to exploit its methane gas reserves will be constrained, giving Rwanda a near monopoly over Lake Kivu’s resources. KSG assesses that Rwanda will continue expanding its infrastructure, potentially doubling its methane extraction capacity. As global demand for natural gas increases, Rwanda could attract more foreign investments, further marginalising the DRC.
International Involvement:
KSG assesses that Chinese-Congolese relations will continue to deepen and expand past trade and infrastructure to defence. The insecurity will likely increase the incentive for China to offer more direct military support and grow its private security presence. Western firms will likely continue to have limited access to critical materials as China continues to strengthen its influence over supply chains and infrastructure despite the development of the Lobito Corridor. As an open-access rail network, the Lobito Corridor will benefit Chinese companies, offering a more efficient alternative to the cumbersome and unreliable road routes. KSG assesses that while the Lobito Corridor may serve Western interests in Zambia and Angola, it is likely to significantly increase China's efficiency in transporting resources out of the DRC.
As the EU implements stricter conflict minerals regulations, European companies like Umicore will need to ensure transparent and ethical sourcing of materials. However, as the conflict in the DRC worsens and China’s dominance in the region increases, KSG assesses that these companies will struggle to source conflict-free cobalt, leading to potential loss of market share.
As KSG recently assessed, despite Russia's increasing influence across Africa through the Afrika Korps, its expansion will likely remain confined to the Sahel and the Central African Republic. Although the UN's exit presents an opportunity for Russian involvement in the DRC, significant engagement is unlikely due to Russia's military strain from the Ukraine conflict and its commitments in the Sahel.