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Congo’s state-owned mining company has accused Toronto-listed Katanga Mining Ltd. of draining hundreds of millions of dollars from their joint-venture copper and cobalt mining company.

Katanga, owned by Swiss-based mining giant Glencore PLC, had seen its share price soar over the past year on projections that it will become the world’s biggest producer of cobalt, an essential element in batteries for electric cars.

The boom in electric cars, which has led to a tripling of cobalt prices over the past two years, has boosted Glencore into a powerful position as a dominant supplier to the auto industry, despite investor jitters about instability and corruption in the Democratic Republic of the Congo.

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But the fragility of Katanga’s position became clear this week. The revelation of the dispute between Glencore and state-owned Gécamines, including the state company’s threat to dissolve their joint venture, triggered a 50-per-cent drop in Katanga’s shares on the Toronto Stock Exchange on Monday.

Its share price recovered slightly on Tuesday, but its conflict with Gécamines continued to escalate as the Congolese company intensified its attack.

In a statement on Tuesday, the state mining company said Glencore and Katanga had created a massive debt of about US$9-billion at the joint venture, forcing the local company to pay interest rates of up to 14 per cent to Glencore, which controls 75 per cent of the joint venture, one of the biggest copper and cobalt projects in Africa’s biggest copper-producing country.

Congo, a vast and impoverished country of about 80 million people with huge mineral resources, has become increasingly critical of foreign mining companies in recent years, accusing them of failing to pay their fair share of revenue to the state. Congo’s government has introduced a new mining code that raises taxes and royalties.

At the same time, independent studies have found evidence that hundreds of millions of dollars in mining royalties have vanished before reaching the national treasury, with politically connected insiders blamed.

Gécamines has now launched a court action in Congo, seeking to dissolve the joint venture, Kamoto Copper Co. (KCC). The court action, scheduled to be heard next month, could allow Gécamines to win control of the entire site, although it could also simply create a six-month deadline to resolve the issue.

Gécamines alleges that Glencore has “severely harmed” the interests of the state company and the entire country for more than 10 years. By failing to reduce the joint venture’s debt, Glencore has restricted the dividends that the local company can pay to the state, Gécamines said.

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“It appears that during this period, through a series of intra-group financial and commercial agreements, the majority shareholders group implemented a policy that resulted in draining, to its own benefit, the treasury and wealth of the joint company,” the Gécamines statement said.

Because of inflated interest rates charged by Glencore, far higher than what Glencore pays when it borrows, the joint company is obliged to pay hundreds of millions of dollars in interest payments to Glencore every year, the statement said.

Katanga, which is 86 per cent owned by Glencore, says it has “several options” to remedy the capital deficiency at the joint venture and prevent its dissolution, perhaps by forgiving a portion of its huge debt.

“KCC has made numerous attempts to engage in constructive negotiations with Gécamines regarding the recapitalization plan,” Katanga said in a statement on Sunday.

“However, Gécamines has, instead of meaningfully engaging with the company, unilaterally commenced the (legal) proceeding,” the statement said.

It said Katanga will “continue to attempt to engage in discussions with Gécamines and will take all other necessary steps to ensure the continuation of the operations of KCC and protect its rights.”

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Katanga also faces other challenges, including a regulatory probe. The Ontario Securities Commission has been investigating Katanga over its accounting practices since early last year. An internal review by the company found “material weaknesses” in its financial reporting controls.

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