DRC: Land of wasted opportunity

Posted: February 14, 2012 in General, News

Author – Katrina Manson


No matter how low the Democratic Republic of Congo’s reputation for corruption, contract expropriation and inefficiency sinks, mining companies keep on coming.

Its southern Katanga province is not only the political powerhouse of the vast jungled country, but home to critical reserves of copper and cobalt.

So important is the $2bn investment from Freeport-McMoRan Copper & Gold of the US into the world’s largest cobalt producer at its Tenke Fungurume mine, for example, that Congo makes it on to a US list of top 20 sites to protect from terrorist attack.

Yet the country has all the hallmarks of an ill-governed, corrupt state: despite vast mineral wealth, it has slipped to the rank of the world’s least developed country and is falling in the World Bank’s “doing business” indicators.

“The whole place is one big scam and everybody’s being paid off,” one investor told the FT last year.

Years of conflict and graft have limited any chance the mining sector might have to drive growth in a country whose 70m population is among the world’s poorest. Gecamines, the former state mining company is about $2bn in the red, equivalent to the amount of mining investment expected to come into Katanga.

Yet mining is really all the country has to rely on, comprising up to 80 per cent of export earnings and 12 per cent of gross domestic product in an economy that Matata Ponyo, the finance minister, says is set to grow at 6 per cent this year, down from 7 per cent in 2011.

The World Bank says that, were Congo to steward its “superb mineral resource” better, it could bring in revenues equivalent to about 20 per cent of GDP by 2014. Copper and cobalt production could rise to $4.4bn by 2020, from $1.3bn in 2009 and provide $1.2bn in revenues in 2020, up from a measly $177m in 2009.

Congo sits, after all, on the world’s largest reserve of cobalt, with 5m tonnes, and provides half the world’s cobalt every year. It is also the second biggest copper-rich region, with 70m tonnes in reserves.

“Even if the copper price goes down there is no danger for us,” says Moise Katumbi, governor of Katanga, citing its high average grades of copper, at about 3 per cent, easily outstripping Chile’s 1 per cent. “That’s why people are investing. There is more appetite than we were thinking.”

Mr Katumbi is keen to avoid a repeat of the 2008 commodity crash, which saw thousands lose their jobs and mines close almost overnight after copper prices plunged from $9,000 a tonne to $2,500. Export earnings fell by more than $3bn in a single year.

Prices have since recovered, and Mr Katumbi says investors are further buoyed now that the uncertain and sometimes violent election period is over. Disputed results late last year and heavy-handed state security saw rival candidates each proclaim themselves head of state, while dozens were shot dead.

The re-election of Joseph Kabila as president assures many investors of continued stability. Some told the FT they were relieved they would not have to spend time bribing a new regime with which they were not familiar. Others hope claims of a rigged election will ensure Mr Kabila is aware he has less legitimacy than before and takes a more cautious line.

Price recovery and a long-term view about large reserves has seen China and South Korea strike multibillion-dollar deals of late, in agreements that offer infrastructure in return for minerals, although the projects are slow to get going. India is pursuing a similar strategy.

Glencore, the commodities trading company, is among the groups that have invested directly in mines. South African money is coming in alongside dozens of smaller scale miners – buying and processing operations run by Lebanese, Indian and Chinese concerns.

Many that have already established themselves and are keen to increase production are also behind target, however. Freeport, the largest investor and copper producer in the country, which has paid $516m in taxes since 2006 and has 6,700 workers, says that it will invest $850m in a two-year expansion of its operation this year.

The company is expecting to produce 195,000 tonnes of copper by 2013, up from 127,400 last year and still expects volumes to “expand significantly over time”.

Yet, like many set on expansion, regulatory headaches and a dearth of energy have meant long delays. The company was among those snagged by the mining review intended to reassure the World Bank and others, but which instead targeted companies that failed to get on with the more weighty part of the political elite.

The most obvious victim of the painfully protracted review of 61 companies, which cancelled 16 contracts, put Freeport on hold, and talked of “renegotiating” the rest via a variety of payments, was First Quantum of Canada.

Once it had fallen foul of the political establishment, there was no holding back. First Quantum lost its contested Kolwezi tailings concession in a contract expropriation that sold the licence on to London-listed ENRC via Dan Gertler. Then it lost two more mines, including the biggest copper mine in the county, Frontier.

Analysts say that the $1.25bn settlement that First Quantum elicited for the mines serves everyone up a “win-win” deal, but they rather forget the effect on the country. Five thousand jobs were lost, production put on hold at a time when prices were high and a national reputation further buried in the dust, raising political risk premiums.

“It [the $1.25bn settlement] does serve as a lesson; it should be harder to do these deals that are so obvious and blatant,” says Eric Joyce, a UK MP who is head of the Parliamentary Great Lakes of Africa Group. “There is strong concern about the kind of people you do business with when something is so obviously corrupt.”

He released documents on the eve of presidential elections that suggest Mr Kabila’s government has deliberately undersold state mining assets, many in Katanga, to anonymous offshore shell companies, losing the country more than $5.5bn.

Contract wrangles persist, over China Minmetals Resources’ recent acquisition of Anvil Mining, for example, and even ENRC has yet to determine its right to mine. Two other of its former First Quantum properties – Frontier and Lonshi – belong to a Hong Kong-registered company whose owners and ultimate beneficiaries have not been declared.

“We are pretty confident that this relationship [with Congo] will have no problems in the future,” says Felix Vulis, ENRC chief executive. Mr Katumbi, a millionaire businessman himself, insists Katanga faces no downside risk. “People just have to be patient; if Congo were corrupt, we wouldn’t have gone to the arbitration court,” he says.

More info click —->> http://www.ft.com/cms/s/0/17c40540-4e8a-11e1-ada2-00144feabdc0.html#ixzz1mCx2HweA

Traduction Française —->> http://www.ingeta.com/rdc-terre-opportunite-manquee/

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