May 19, 2010The Democratic Republic Of Congo Continues To Offer...

May 19, 2010

The Democratic Republic Of Congo Continues To Offer Miners A Volatile Mix Of Huge Upside And Heavy Political Risk
By Tawanda Karombo

From Australia to Zambia, and on to the Democratic Republic of Congo (DRC), taxing mining companies has become a hot potato issue recently. Interestingly, Zambia and the DRC, two countries that share a common border, are worlds apart when it comes to tax issues. The government in Zambia is opposed to the re-introduction of windfall tax measures on mining companies, while the DRC is unmoved on a recently introduced tax on exports of copper and cobalt ore.

Add Zimbabwe into the mix, and you have a pretty diverse regional picture. Still, by and large it is relatively calm elsewhere on the continent these days and the major noise you hear in most African cities, towns and pavements is hype in the build-up to the FIFA World Cup that kicks off in South Africa next month. The DRC is an exception though, their national team will not be participating at the world cup.

And in the world of mining, companies focussed in the DRC, especially those in the Katanga Province are not a happy lot. In April this year, authorities in the province slapped a US$60 per metric tonne levy on all unprocessed copper and cobalt ore being exported for processing outside of the DRC. Following on from that, though, after lobbying and immense pressure from industry players, the mines ministry hinted that there might be contradictions in the legislation. Which is why, according to Dona Kampata, who heads the mines ministrys technical committee for planning and coordination, a commission has been convened to harmonize the laws.

Miners are unhappy about this latest move, as Congos 2002 Mining Code has a 10-year stabilization clause that requires an act of parliament to change it, something that the Federation d'Entreprises Congolaises (FEC) has not been slow to point out to ministry officials. Respecting the law is the best thing they could do, an official with FEC said, adding: companies will produce if the state respects the law, and if they dont, theyll do nothing. He expressed concern over the DRC governments tendency to change the law each time it needs to raise revenue. Each time the state needs money, they change the law. Were against that philosophy.

Mining companies represented by Katanga Mining Sector (KMS), a grouping of mining companies in the Katanga province, took their fight against the new tax measures to the countrys capital, Kinshasa recently, where they protested to the countrys ministry of mines on Wednesday.

The DRCs largest copper cobalt mine, Tenke Fungurume majority owned by US-based Freeport McMoRan has decided to pay the tax under protest for the time being, spokeswoman, Margaret Rashidi Kabamba told international media. But she added a rejoinder. "We do not believe the new export fee should apply to Tenke Fungurume under the terms of our mining convention", she said.

The DRC, which looks likely to produce 400,000 metric tonnes of copper this year, has been ravaged by years of political instability and civil war. Mining executives point out that as a result of this, the country has been left with limited mineral processing capacity and facilities, leaving firms like Toronto-listed First Quantum Minerals, and South Africas Metorex, which have operations in the copper-rich Katanga province with no option but to ship concentrates for processing in neighboring Zambia.

Other international miners transport ore to South Africa among other countries, and even as far as China for processing. According to the African Development Bank (AfDB), the DRC will increase its mining revenue threefold this year.

First Quantum had its Kingamyambo Musonoi Tailings project license canceled by the DRC government in August last year following a review of mining deals, and has now initiated an international arbitration to have the cancellation reversed. The cancellation of mining licenses appears to have contributed significantly to the recent rise in the DRCs political risk rating. "The cost of political risk has gone up 40 per cent because of the risk of license revocation," said African Trade Insurance Agency (ATIA) acting chief executive officer Stewart Kinloch.

Despite all the uproar regarding the latest levy on exports of copper and cobalt ore, Anvil Mining, which has operations in the DRC, reported last week that it had posted a US$6.6 million profit from continuing operations, compared to a US$18.8 million loss the previous year. However, the governments latest moves to ban imports of copper and cobalt ore could affect the second stage of construction at Anvils Kinsevere plant, which is had been expected to be 60 per cent complete by July this year.

Meanwhile, the Congolese state-run mining firm, Gecamines has indicated that an agreement by Platmin Congo to sell its majority stake in two copper and cobalt concession to Chinese miner Zijin seems to rest on shaky foundations. Zijin posted details of the US$284 million deal on its website, but Gecamines said Platmin Congo, which is not related to Platmin of South Africa, had not yet informed it of the agreement. Gecamines also holds interests in the concessions, and under Congolese law would need to be consulted first about any sale. The news was enough to knock a couple of percentage points off Zijins share price, when it came out earlier this month. So even the Chinese arent getting it all their own way at the moment.