Duelling rail projects hint at intensifying contest for Africa's critical minerals

The network of ageing railway infrastructure connecting the mineral-rich areas of the Copperbelt straddling Zambia and the Democratic Republic of Congo to Africa's major ports has emerged as an area of intense competition among global powers amid surging demand for critical minerals.

Motivated by a desire to break China's grip on African mineral supply and bypass the logistical bottlenecks in South Africa that have constrained copper and cobalt exports in recent years, a US- and European Union-backed partnership is investing heavily in upgrading and extending the existing rail corridor linking northern Zambia and the southern DRC to the Port of Lobito in Angola.

In partnership with Angola, the DRC and Zambia, as well as the African Finance Corporation and the African Development Bank, the US and the EU have mobilized nearly $1 billion for the project through the Partnership for Global Infrastructure and Investment initiative (PGII).

The African Development Bank has committed around $500 million to the project while the US International Development Finance Corporation (DFC) is currently performing due diligence for a potential finance package of $250 million.

The EU has committed Eur972 million ($1.05 billion) to support African infrastructure projects, which includes the development of the Lobito Corridor.

A public-private arrangement

Established in June 2022, the PGII is a collaborative effort by the G7 to finance infrastructure projects in developing countries and is widely interpreted as a mechanism for countering China's Belt and Road Initiative (BRI).

Under a public-private financing arrangement, a consortium comprising Trafigura (49.5%), Mota-Engil Engenharia e Construcao Africa (49.5%) and independent rail operator Vecturis (1%) -- called the Lobito Atlantic International (LAI) consortium -- has agreed to invest more than $450 million on the railway and associated infrastructure in Zambia while an additional $100 million will go towards upgrading the railway line and rolling stock in the DRC.

The consortium, which will be responsible for the operation, management and maintenance of the 1,067 mm-gauge railway, signed the agreement for a 30-year concession in November 2023

Under the contract, the concessionaire is required to transport 1.67 million mt/year of freight by the fifth year of the concession, increasing to 2.98 million mt/year by year 10 and to 4.98 million mt/year by year 20 of the agreement.

Trafigura and a part-owned subsidiary of Ivanhoe Mines have already agreed to transport minerals via the Lobito Atlantic railway under agreements announced Feb. 7.

Trafigura's export capacity allocation has been set at 450,000 mt/year from 2025 while the Kamoa-Kakula copper complex, a joint venture between Ivanhoe Mines (39.6%), Zijin Mining Group (39.6%), Crystal River Global Limited (0.8%) and the DRC (20%), has been allocated a minimum capacity of 120,000 mt/year and a maximum capacity 240,000 mt/year of copper products from 2025.

Kamoa-Kakula has also committed to utilizing 10,000 mt of allocated capacity over full-year 2024 as railway operations ramp up over the coming months.

"Our project will not only create a western route to market for goods and materials," Trafigura's CEO Jeremy Weir said at the ceremony in Lobito on July 4 2023 marking the official launch of the concession.

"We believe the Lobito railway will be a catalyst for growth and investment in Angola, the DRC, Zambia and the wider region," he added.

Ivanhoe Mines' founder and executive co-chairman Robert Friedland, speaking at the ceremony, praised "the hard work" being done "to build a new supply chain that is fast becoming one of the most important trade routes for vital copper metal in the world."

Friedland added that the transformative economic corridor would unlock more copper projects owing to the lower logistical costs.

"Cheaper logistics increase the amount of economically recoverable copper across the Copperbelt, as cut-off grades can be lowered. This makes a significant impact on discoveries made in the DRC," he said.

Russell Fryer the CEO of UK-listed Critical Metals, echoed this sentiment in a recent conversation with S&P Global Commodity Insights, describing the Lobito Corridor as a "game changer" for Copperbelt miners.

Critical Metals holds an indirect 70% interest in the Molulu copper/cobalt project in the DRC's Katanga province through its 100% owned subsidiary, Madini Occidental.

Russell said that transport costs in the DRC are extremely high and subject to ongoing disruption, citing truck driver strikes and illegal road tolls put in place by local actors.

"It's one of those things that is incredibly frustrating. Before you know it the value of your ore that you're transporting has diminished considerably," he said.

"If done correctly, the Lobito Corridor will allow you to move your material out quicker, which means you get paid quicker, which means you can reinvest quicker, which means you can produce quicker."

China proposes refurbishment of eastern export route

However, competition for influence over the Copperbelt remains intense and as the US and the EU seek to build out a reliable Atlantic route to market, China is moving forward with plans to upgrade the TAZARA railway heading east from the town of Kapiri Mposhi in Zambia's Central Province to the Tanzanian port of Dar es Salaam.

The railway, constructed with Chinese assistance in the 1970s, has deteriorated significantly and is currently operating well below its intended annual capacity of 5 million mt/year of cargo.

China has proposed a $1 billion project to refurbish TAZARA while China Civil Engineering Construction Corporation (CCECC), a subsidiary of China Railway Construction Corporation (CRCC), is poised to assume operational control of the railway at the request of the Tanzania-Zambia Railway Authority.

While the extent of this planned refurbishment remains unclear, the potential revitalization of TAZARA suggests that China policymakers are determined to bolster the transport networks underpinning the country's supply of critical minerals from Africa.

China is decades ahead of the US and EU with respect to its investment and diplomatic engagement on the African continent. Much of this effort has been concentrated on Africa's mineral wealth with Chinese companies well ahead of their western counterparts in terms of establishing and solidifying their supply chains for cobalt, lithium and other critical minerals.

Chinese-owned entities already hold ownership positions in most of the cobalt mining operations in the DRC and China is continuing to invest heavily in the country's mining sector.

"China has been heavily engaged in Africa since the 60's and 70's and their approach to investment within the region is based on long-term thinking," said Dr. Harry Verhoeven, Senior Research Scholar at the Columbia University's Center on Global Energy Policy.

According to Verhoeven, China's investment in TAZARA is aimed at complementing the Lobito Corridor rather than competing directly against it.

"Given that China is now Africa's biggest trading partner and the biggest consumer of African exports, Beijing tends to welcome almost any new or updated infrastructure that can help further consolidate its ties with different economies on the continent," he said.

Chinese mine operators may even consider exporting critical minerals via the Lobito Corridor as Trafigura has already stressed that the LAI consortium will not allow a monopoly to develop along the railway.

Although shipments from Lobito to China would have to circumnavigate the Cape of Good Hope, the railway option represents a viable alternative for Chinese operators due to the current cost and reliability issues associated with trucking material out of the DRC.

"Western governments must ask themselves exactly what they are trying to achieve by investing in mega projects like the Lobito Corridor which usually end up being a sobering experience and do not alter the big picture in Africa," he added.

Platts assessed US 99.8% cobalt cathode at $17.3-$17.8/lb DDP on April 26, up from $18.5-$19.0 at the start of the month.

Platts is part of S&P Global Commodity Insights.