Abstract
The big news from the Democratic Republic of Congo’s (DRC) mining
industry in the first half of 2009
was the news in March that the country
plans to accept US$9bn in investments from China, to be spent on
mining
and infrastructure – despite the opposition of the IMF. The IMF has
expressed concern that this
deal – which was originally agreed at
the end of 2007 – will only add to DRC’s current debt burden.
According to a report by Bloomberg, the deal will see China build roads,
railways, hospitals and schools
in return for metals worth some US$50bn at
current prices.
Reuters also reported that negotiations on an initial
US$6bn-worth of public works and mining
infrastructure projects have
already been finalised, with both sides still discussing the terms of the
remaining US$3bn in funding. It is reported that this US$3bn will be used to
fund Sicomines Sarl, a
mining joint venture between state-owned metals
producer La Générale des Carrières et des Mines
(Gécamines), and various Chinese miners. This new joint venture– to
become operational in 2011 – is
reportedly set to produce up to
400,000 tons of copper and 19,000 tons of cobalt per annum.
China’s
ambassador to DRC, Wu Zexian, has denied that the country will be burdened
with debt as a
result of the deal, also saying that the work is being
carried out by China Railway Engineering
Corporation and Sinohydro
Corporation, who have in turn received funding from China Exim Bank
and
China Railway.
DRC is home to vast reserves of a wide variety of natural
resources – primary among them metals such as
cobalt, copper, gold,
and precious stones including diamonds. DRC is believed to contain around 4%
of
the world’s copper reserves and one-third of its cobalt reserves.
The mining industry, like the rest of the
economy in the central African
nation, has suffered from the unstable political environment coupled with
widespread strife caused by the six-year civil war that ended in 2003.
However, for some time it appeared
that, given high prices of minerals on
global markets, investors would be willing to discount the political
risk
premium of investing in the DRC. But recent plummeting mineral prices and
escalating costs have,
according to the government, quoted by Reuters,
already seen some 40 of the mining companies working
in Congo suspending
exploration, development and production operations.
All mineral deposits
in the DRC are state-owned and the holder of mining rights also gains
ownership of
the mineral products for sale. Governed by the National
Mining Code, the Ministry of Mines regulates the
Mining Registry,
Directorate of Mines, and the Geological Directorate in the DRC. A peculiar
feature of
the mining industry in the DRC is that artisanal mining (i.e.
non-mechanised small-scale mining)
accounts for 70% of the national
diamond production. Thus, in spite of being the world’s third
largest
diamond producer in terms of output, the country is ranked only
seventh in terms of value. Furthermore,
use of archaic mining techniques
has restricted possible growth in the diamond mining segment.
Outbreaks of
violence and civil unrest, and the looting of minerals and precious stones by
armed militia
continue to drain the country’s rich natural
resources. Though things looked up after the formation of a
new government
following the 2006 elections, analysts do not expect the macroeconomic and
political
environment to stabilise any time soon. Indeed, a fresh wave of
fighting between a rebel group led by
renegade general Laurent Nkunda and
government forces swept through North Kivu province, eastern
Congo from
late August 2008. In addition, although multinational miners have started
investing in the
country’s mineral and metals sector, the physical
infrastructure remains extremely poor or even nonexistent
at times.
Speaking to Reuters, Deputy Mines Minister Victor Kasongo announced in
December 2008 that the
government review of 61 mining contracts had been
completed. State-controlled miner Gécamines –
which is seeking
greater ownership of the mining sector – had asked for more time to
complete contract
review talks, aimed at overhauling deals signed in the
chaos for the 1998-2003 war. Of the current 61
mining contracts under
review, Reuters cites 14 as being ‘green’ (or acceptable), 26 as
‘orange’ (needing
further agreement), and 21 as
‘red’ (facing cancellation).
However, Reuters also reported
that six major companies had walked away from the talks, including USbased
Freeport McMoran, which is developing the Tenke Fungurume project, due to come
on line in
late 2009. Several firms denied this, stating that they were
waiting to be invited back to the talks.
Kasongo announced that the talks
would be extended by 45 days to allow the remaining six contracts to
be
addressed. In December 2008, DRC’s central bank governor cited the
dragging process as a factor
contributing to the acute downturn of the
mining sector.
During the review, Kasongo had announced that the
government would seek to privatise some of the
state-owned mining
companies. He indicated that the first flotation would take place within 12
months. At
the time of going to press, it is unclear whether these plans
have been affected by economic
developments.
BMI launched coverage of
DRC’s tin mining sector in Q408. Congo is Africa’s largest
producer of tin
and the east of the country is host to extensive
cassiterite reserves. Over the long term, tin could play an
increasingly
important role in DRC’s wider mining industry.
Though the long-term
outlook appears sanguine, the outlook for the sector in the near term
remains
clouded. Armed groups continue to dominate illegal tin mining in
the still war-ravaged east of DRC. This
is preventing legitimate mining
concerns from exploiting this resource successfully. In the most recent
example, Kivu Resources announced in early October 2008 that it was declaring
force majeure at its
Mpama Bisiye mine in Kivu province, having failed to
reach an accommodation with the Congolese
soldiers who have occupied the
site since December 2004.
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