LUBUMBASHI - Congo's high-risk but potentially lucrative metals sector is once more attracting the interest of major investors looking to pick up bargains ahead of an anticipated global economic recovery and a rebound in demand.
Most major foreign-owned projects in Democratic Republic of Congo suspended development last year when financing dried up amid a drop in world metals prices brought on by falling demand linked to the global economic downturn.
In addition, a much-delayed government review of 61 mining contracts concluded with First Quantum scrapping its $550-million Kingamyambo Musonoi Tailings (KMT) project, and though work continues, Freeport-McMoRan's giant Tenke Fungurume (TFM) copper mine also failed to clear the review.
The major concern for companies is holding on to the properties they have.
"A lot of questions used to be on the (review), but not any more," Poupak Bahamin, a partner with law firm Heenan Blaikie, which represents miner First Quantum, told Reuters.
"They have understood what it is, that it does not affect new projects. The biggest issue now is the security of title."
Faced with a wave of scepticism over the wisdom of setting up shop in a country with one of the world's worst business environments, government officials are attempting to assuage the fears of potential investors.
"There is no question of breaking the pact of trust with investors. We want to reassure them that Congo is a country that respects its commitments," the country's Planning Minister Olivier Kamitatu told an investors' conference last week.
Investors should be on notice that their Congo deals may attract more attention as the country attempts to rehabilitate itself financially, in particular with a $6-billion agreement with China that, after it was modified at the behest of international lenders, could pave for the way for debt relief.
"Investors will find themselves under increased scrutiny. It'll be something they'll take into account, but it will not necessarily discourage themselves," said Gus Selassie, research director Africa at IHS Global Insight.
"There are bigger problems than that when investing in Congo," he said, referring to security concerns and lack of basic infrastructure.
High and rising metal prices make Congo risk worthwhile.
"The metal price has gone significantly higher than it was last year," said Kerry Smith, analyst at Haywood Securities in Canada, referring to copper on the London Metal Exchange which traded above $6,300 per tonne in early October, around double its level at the start of the year.
"Investors generally try to make an assessment of the risk and how much they are willing to pay for that," he said.
M&A ACTIVITY
In equities markets, investors are ready to pay for Congo miners again.
Australia's Anvil Mining recently finalised a financing deal worth $200-million with Trafigura Beheer B.V., and Eurasian Natural Resources Corp is in negotiations to buy AIM-listed junior Central African Mining and Exploration Co. for $950-million.
Chinese investors will soon begin construction on a $3-billion copper and cobalt project as part of a $6 billion infrastructure and loan package -- and this despite Congo ranking 63 out of 71 mining countries and regions in a February survey released by Canada-based economic research group the Fraser Institute.
"I can't say that today Congo is a country that is attractive to investors," one Chinese entrepreneur based in Congo's mining heartland of Katanga province told Reuters.
"New investors face lots of problems with taxes, with the immigration services, and with the law itself. Even signing contracts with workers is a problem for most companies."
Still, the richness of Congo's copper and cobalt deposits, and relative lack of lack of untapped sources elsewhere, means miners cannot ignore Congo.
Juvenal Kiungwa, Katanga's mines minister, says investors are taking advantage of current bargains to gain a foothold in the sector ahead of a recovery.
"This is a favourable period. It's just a question of putting it in perspective," he told Reuters.
"When you make an analysis of the share prices and of the international economy, you see that we are not going to stay where we are today. Things will move forward. There will be a demand for metals. Their behaviour is entirely rational."
AVM Price at posting:
$3.24 Sentiment: Buy Disclosure: Held
